If it's not going with me when I say my final farewell to the world, what's the big deal with wealth creation?
Gautam Chikermane
THE NURSE walks in. Pricks my vein with efficient ease. Pain. But I don’t have the energy to protest. Slowly, life starts flowing from the bottle, drop by drop, into my veins. As I stare at the white ceiling above, with no distractions other than the thought of a near-death experience barely an hour ago, I wonder what the whole business of life is about. That’s when I notice him, hovering immensely near the ceiling. Mighty, majestic, mysterious. "Who are you?" I ask. "The God of Death," he answers simply. As clinically detached from his answer as the doctor seemed from his patient when he introduced himself. The blood that has begun to course my veins again is suddenly turning cold. "What do you want?" I mutter, almost knowing–and dreading–the answer. "I’ve come to take you," the voice rumbles. Chilled by the certainty in his voice, I mumble: "But I’m not ready yet... is there any way I can get some more time...?" "Yes..." followed by a pregnant silence. What’s the ‘but’? I wonder. What is he not telling me? I am frantic, and in that fleeting moment, I wonder if I’d sell my soul to the devil if that was the price for staying on. And, then, "Answer these two questions."
* What do you leave behind when you die?
* What do you carry with you after death?
This couldn’t be happening, but it is. He couldn’t be there, but he certainly is. With no way out, and apparently nothing to lose, I decide to give it a go.
Opinion in Outlook Money
Thursday, May 30, 2002
Wednesday, May 15, 2002
A case for regulating real estate
The real estate market has to change from one that runs on 'trust' to one that runs via trustworthy institutions.
Gautam Chikermane
FOR MOST of us middle-class citizens of this country, the biggest asset we have is a house–four-and-some walls which become a place where we not only invest our hearts and minds and emotions and aspirations, but most of our money as well. I’d imagine that 70-85 per cent of our total wealth is invested in a house. The rest is largely confined to safe government-backed schemes and insurance, and a tiny fraction is either wasting away in savings bank accounts, earning a pathetic 4 per cent, or circulating among shares, mutual funds and other financial instruments. Unfortunately, the real estate sector, which houses most of the middle-class wealth, is the least regulated of all these markets. Witness the contradiction: our most valuable asset is the least governed and the least valuable asset the most regulated.
If our stock broker cheats us of Rs 1,000, we can report him to Sebi (Securities and Exchange Board of India) or to the stock exchange–and expect to get justice. But if a property dealer charges us a Rs 50,000 commission (2 per cent) on the sale of a Rs 25 lakh apartment, and the property turns out to be disputed, there is nothing we can really do by way of seeking redress. Of course, we continue paying our monthly instalments to the housing finance company. If the property dealer charges us one month’s commission (at an exorbitant 8.3 per cent, unheard of in any rational market) on an apartment we want to rent out for a year, and the tenant turns out to be a rogue, the dealer is simply not accountable. We can do nothing, get nothing, hope for nothing. Why? Simply because there is nobody to go to, no regulator to file a complaint with, no self-regulated organisation to report this mishap. Yes, we can appeal to the courts–and pray that at least our grandchildren get justice.
Column in Outlook Money
Gautam Chikermane
FOR MOST of us middle-class citizens of this country, the biggest asset we have is a house–four-and-some walls which become a place where we not only invest our hearts and minds and emotions and aspirations, but most of our money as well. I’d imagine that 70-85 per cent of our total wealth is invested in a house. The rest is largely confined to safe government-backed schemes and insurance, and a tiny fraction is either wasting away in savings bank accounts, earning a pathetic 4 per cent, or circulating among shares, mutual funds and other financial instruments. Unfortunately, the real estate sector, which houses most of the middle-class wealth, is the least regulated of all these markets. Witness the contradiction: our most valuable asset is the least governed and the least valuable asset the most regulated.
If our stock broker cheats us of Rs 1,000, we can report him to Sebi (Securities and Exchange Board of India) or to the stock exchange–and expect to get justice. But if a property dealer charges us a Rs 50,000 commission (2 per cent) on the sale of a Rs 25 lakh apartment, and the property turns out to be disputed, there is nothing we can really do by way of seeking redress. Of course, we continue paying our monthly instalments to the housing finance company. If the property dealer charges us one month’s commission (at an exorbitant 8.3 per cent, unheard of in any rational market) on an apartment we want to rent out for a year, and the tenant turns out to be a rogue, the dealer is simply not accountable. We can do nothing, get nothing, hope for nothing. Why? Simply because there is nobody to go to, no regulator to file a complaint with, no self-regulated organisation to report this mishap. Yes, we can appeal to the courts–and pray that at least our grandchildren get justice.
Column in Outlook Money
Tuesday, April 30, 2002
Don't kill your child's instinct to succeet
By giving our children everything they desire without any effort, we could be killing their instinct to succeed tomorrow.
Gautam Chikermane
THE FIVE children–two girls and three boys, age three to six–frolicked in the small, plastic pool. It was a delight to see them fight the early-summer heat by splashing water on one another, turning into mermaids, crocodiles and fish, as the colours of Holi turned the pool from yellow to red to green. It was also an experience that offered insights into the process of wealth creation. Four of the children were from well-off, even wealthy, homes. The fifth one–let’s call him Hari–was the son of a government clerk. What his family spent in a year would be about one to two months’ expenses of the others’. Hari did not have expensive toys like the other children did; he had never seen a home pool. The other children were completely unaware of the economic divide between him and them, and although Hari was conscious of the divide, the child in him rejected these artificial layers of separation that build walls between adults.
The quintet moved on, from the pool to the cycles to the lunch table to the mom-and-pop games. In all the activities, there was only one leader: Hari. He only had to see a toy being used once and he’d master it. He was the organiser of all kinds of games: making a ‘house’ with dining chairs for walls and bedsheets for a roof, teaching them to pedal more efficiently, hold their breaths underwater and blow bubbles, and generally creating magic out of the ordinary. Hari, I felt, characterised the spirit of enterprise: he had nothing, not even a knowledge of how the remote-controlled jeeps and the other gadgets worked. But he created conditions under which the other children became his followers, chanting "Hari bhaiya, Hari bhaiya", doing what he told them to and having a great time. If he keeps at it, he could end up very wealthy.
Column in Outlook Money
Gautam Chikermane
THE FIVE children–two girls and three boys, age three to six–frolicked in the small, plastic pool. It was a delight to see them fight the early-summer heat by splashing water on one another, turning into mermaids, crocodiles and fish, as the colours of Holi turned the pool from yellow to red to green. It was also an experience that offered insights into the process of wealth creation. Four of the children were from well-off, even wealthy, homes. The fifth one–let’s call him Hari–was the son of a government clerk. What his family spent in a year would be about one to two months’ expenses of the others’. Hari did not have expensive toys like the other children did; he had never seen a home pool. The other children were completely unaware of the economic divide between him and them, and although Hari was conscious of the divide, the child in him rejected these artificial layers of separation that build walls between adults.
The quintet moved on, from the pool to the cycles to the lunch table to the mom-and-pop games. In all the activities, there was only one leader: Hari. He only had to see a toy being used once and he’d master it. He was the organiser of all kinds of games: making a ‘house’ with dining chairs for walls and bedsheets for a roof, teaching them to pedal more efficiently, hold their breaths underwater and blow bubbles, and generally creating magic out of the ordinary. Hari, I felt, characterised the spirit of enterprise: he had nothing, not even a knowledge of how the remote-controlled jeeps and the other gadgets worked. But he created conditions under which the other children became his followers, chanting "Hari bhaiya, Hari bhaiya", doing what he told them to and having a great time. If he keeps at it, he could end up very wealthy.
Column in Outlook Money
Monday, April 15, 2002
'We are watchdogs, not bloodhounds': ICAI president
Pointing out fraud is for the regulators. Our job is to give them the information. What they do with it is their business.
Gautam Chikermane
When Ashok Chandak took charge as president of the Institute of Chartered Accountants of India (ICAI) on 5 February 2002, his role, it seemed, was cut out. A month into being in office (on March 8), against the backdrop of the dubious role of Andersen, the Enron auditors, in the US energy giant’s debacle, he passed his first resolution, which stated that an accounting firm cannot charge a company higher fees for consulting than for auditing its accounts. As head of the first accountants body to do so in the world, Chandak has caught the post-Enron-and-the-resultant-clean-up bus running. In an interview with Gautam Chikermane, Chandak touches upon the various aspects of regulating accountants. Scalded by criticism of the ICAI’s regulatory role (See 'Make accountants accountable'), Chandak began the interview on the front foot. Excerpts:
Do you think the accounting profession is accountable?
In the past 50 years, we have had the best self-regulatory mechanism–1,650 cases have been sent to the high court, an equal number would have been punished by the institute. The total number of cases considered: more than 10,000. Now, you tell me how many have been found guilty in other self-regulated organisations. I would say that we have the best record of regulation in the country. Besides, you should not look at statistics alone. You should consider the quality of regulation.
Why then are aspersions being cast on the profession today? Why is it felt that accountants are not accountable?
You say that auditors don’t do their jobs. Fine. Can you give me just 10 audit reports where the various regulators who get these reports (Registrar of Companies, Income Tax authorities, banks, RBI, Sebi or the stock exchanges) have taken action on the basis of the auditor’s qualifications? You won’t be able to do that because nobody takes these reports seriously. We are not regulators–and we don’t want to be regulators.
Interview in Outlook Money
Gautam Chikermane
When Ashok Chandak took charge as president of the Institute of Chartered Accountants of India (ICAI) on 5 February 2002, his role, it seemed, was cut out. A month into being in office (on March 8), against the backdrop of the dubious role of Andersen, the Enron auditors, in the US energy giant’s debacle, he passed his first resolution, which stated that an accounting firm cannot charge a company higher fees for consulting than for auditing its accounts. As head of the first accountants body to do so in the world, Chandak has caught the post-Enron-and-the-resultant-clean-up bus running. In an interview with Gautam Chikermane, Chandak touches upon the various aspects of regulating accountants. Scalded by criticism of the ICAI’s regulatory role (See 'Make accountants accountable'), Chandak began the interview on the front foot. Excerpts:
Do you think the accounting profession is accountable?
In the past 50 years, we have had the best self-regulatory mechanism–1,650 cases have been sent to the high court, an equal number would have been punished by the institute. The total number of cases considered: more than 10,000. Now, you tell me how many have been found guilty in other self-regulated organisations. I would say that we have the best record of regulation in the country. Besides, you should not look at statistics alone. You should consider the quality of regulation.
Why then are aspersions being cast on the profession today? Why is it felt that accountants are not accountable?
You say that auditors don’t do their jobs. Fine. Can you give me just 10 audit reports where the various regulators who get these reports (Registrar of Companies, Income Tax authorities, banks, RBI, Sebi or the stock exchanges) have taken action on the basis of the auditor’s qualifications? You won’t be able to do that because nobody takes these reports seriously. We are not regulators–and we don’t want to be regulators.
Interview in Outlook Money
Friday, March 15, 2002
Make accountants accountable
The checks and balances that govern the accountants' working are not enforced with any rigour.
Gautam Chikermane
AT RS 50,000 crore, the most valuable company on the Indian stock exchanges is Hindustan Lever. About 2.5 million of its shares are traded every day. There are 131 mutual funds–investing on behalf of hundreds of thousands of investors–that hold this company, of which 111 have it among their top 10 holdings. Together, they have invested almost Rs 2,000 crore in the company. This is aside from over Rs 10,000 crore other investors have invested. Why? Because this MNC has been among the best companies in India. Why do I say that? Consistently good performance– over the past 10 years, its sales have grown at 22 per cent and net profits at 34 per cent per annum. Who says so? The company’s accountants, A.F. Ferguson and Lovelock & Lewes. As a financial journalist, it’s my job to study the balance sheets and profit and loss statements of companies. When I pore over an annual report, I assume that the accountants who have passed the accounts written by the company have checked the numbers, tallied them and presented them so that an investor can make an informed decision to buy or sell the stock; lenders can decide whether the company has the capacity to pay back; and tax authorities can see whether it has paid the taxes due.
But what if Lever’s accountants were wrong? Worse, what if they had been conniving with the management to deliberately misinform, say, by overstating profits so that the share price did not plunge, or understating them and diverting the excess money into the pockets of the directors (and themselves)? Will the Lever stock that has appreciated over 15-fold in the past decade inspire the same loyalty in future? Will it continue to be sought after? Will it continue to be valued higher than peers Procter & Gamble or Nirma, whose PE (price-to-earnings) ratios are 20 to 25 points lower? Will it continue to attract the top talent from business schools and from across corporate India? The recent high-profile debacle of Enron has all the answers.
Column in Outlook Money
Gautam Chikermane
AT RS 50,000 crore, the most valuable company on the Indian stock exchanges is Hindustan Lever. About 2.5 million of its shares are traded every day. There are 131 mutual funds–investing on behalf of hundreds of thousands of investors–that hold this company, of which 111 have it among their top 10 holdings. Together, they have invested almost Rs 2,000 crore in the company. This is aside from over Rs 10,000 crore other investors have invested. Why? Because this MNC has been among the best companies in India. Why do I say that? Consistently good performance– over the past 10 years, its sales have grown at 22 per cent and net profits at 34 per cent per annum. Who says so? The company’s accountants, A.F. Ferguson and Lovelock & Lewes. As a financial journalist, it’s my job to study the balance sheets and profit and loss statements of companies. When I pore over an annual report, I assume that the accountants who have passed the accounts written by the company have checked the numbers, tallied them and presented them so that an investor can make an informed decision to buy or sell the stock; lenders can decide whether the company has the capacity to pay back; and tax authorities can see whether it has paid the taxes due.
But what if Lever’s accountants were wrong? Worse, what if they had been conniving with the management to deliberately misinform, say, by overstating profits so that the share price did not plunge, or understating them and diverting the excess money into the pockets of the directors (and themselves)? Will the Lever stock that has appreciated over 15-fold in the past decade inspire the same loyalty in future? Will it continue to be sought after? Will it continue to be valued higher than peers Procter & Gamble or Nirma, whose PE (price-to-earnings) ratios are 20 to 25 points lower? Will it continue to attract the top talent from business schools and from across corporate India? The recent high-profile debacle of Enron has all the answers.
Column in Outlook Money
Wednesday, January 30, 2002
We need our luxuries, if we can call them that
Our notion of 'basics' and luxuries' is not cast in stone. The big car that is a luxury today will seem to be necessary tomorrow.
Gautam Chikermane
IF BEYOND the basics, everything is a luxury, the question is: what are the basics? Quite like the definition of ‘terrorist’ (one man’s terrorist is another man’s freedom fighter), the definition of ‘basic needs’ varies–one man’s necessities are another man’s indulgence. The Random House dictionary defines ‘necessity’ as "something necessary or indispensable" and ‘luxury’ as "a material object, service, etc., conducive to sumptuous living, usually a delicacy, elegance, or refinement of living rather than a necessity". Unfortunately, in their application, these definitions take us nowhere–the possibilities of stretching them to suit our beliefs are so high that they might as well not exist.
What is necessary? At one level, just food, clothes, shelter, education and healthcare. But my definition is just as subjective as any other, even though for millions around us even two meals a day is a daily battle and shelter certainly a luxury. The point of this exercise is not to arrive at absolute definitions, but to underline the relativity of the various shades of meaning a word acquires in its context–the context, in this case, being our station in life, which must condition our perception of ‘basic needs’ and ‘luxuries’. When I was in college, I would, like all my friends, travel in a DTC bus. As we stood waiting at the bus stand, I would hope first, to be able to get on the crowded bus; then, get a corner to lean my backside on; then, to find someone who would be considerate enough to share his seat with me; then, get a seat to myself; then, have a pretty girl sitting next to me; and so on. How quickly luxuries become necessities! Everything we already have is a necessity (but of course), and the next thing we aspire to will become a necessity soon as we have it.
What is a luxury? Christopher J. Berry, professor of political theory at University of Glasgow, explores the meaning of luxury in his 1994 book, The Idea of Luxury: A Conceptual and Historical Analysis. He defines luxuries as objects of desire that provide positive pleasure (as against necessities, which are utilitarian objects that relieve an unpleasant state of discomfort). So, while we may get along fine without our car, our computer, our cellphone and so on, before we knew it, each of these things became a necessity in our lives. We can continue to survive on food, clothes and shelter, but that car is no longer a luxury. At what point did that happen?
Column in Outlook Money
Gautam Chikermane
IF BEYOND the basics, everything is a luxury, the question is: what are the basics? Quite like the definition of ‘terrorist’ (one man’s terrorist is another man’s freedom fighter), the definition of ‘basic needs’ varies–one man’s necessities are another man’s indulgence. The Random House dictionary defines ‘necessity’ as "something necessary or indispensable" and ‘luxury’ as "a material object, service, etc., conducive to sumptuous living, usually a delicacy, elegance, or refinement of living rather than a necessity". Unfortunately, in their application, these definitions take us nowhere–the possibilities of stretching them to suit our beliefs are so high that they might as well not exist.
What is necessary? At one level, just food, clothes, shelter, education and healthcare. But my definition is just as subjective as any other, even though for millions around us even two meals a day is a daily battle and shelter certainly a luxury. The point of this exercise is not to arrive at absolute definitions, but to underline the relativity of the various shades of meaning a word acquires in its context–the context, in this case, being our station in life, which must condition our perception of ‘basic needs’ and ‘luxuries’. When I was in college, I would, like all my friends, travel in a DTC bus. As we stood waiting at the bus stand, I would hope first, to be able to get on the crowded bus; then, get a corner to lean my backside on; then, to find someone who would be considerate enough to share his seat with me; then, get a seat to myself; then, have a pretty girl sitting next to me; and so on. How quickly luxuries become necessities! Everything we already have is a necessity (but of course), and the next thing we aspire to will become a necessity soon as we have it.
What is a luxury? Christopher J. Berry, professor of political theory at University of Glasgow, explores the meaning of luxury in his 1994 book, The Idea of Luxury: A Conceptual and Historical Analysis. He defines luxuries as objects of desire that provide positive pleasure (as against necessities, which are utilitarian objects that relieve an unpleasant state of discomfort). So, while we may get along fine without our car, our computer, our cellphone and so on, before we knew it, each of these things became a necessity in our lives. We can continue to survive on food, clothes and shelter, but that car is no longer a luxury. At what point did that happen?
Column in Outlook Money
Saturday, December 29, 2001
Budget 2002: The citizen's charter
Open reinvestment avenues for newly created wealth; amend laws to breathe life into dead sectors like housing.
Gautam Chikermane
JANUARY IS when finance ministers hold court with the bigwigs of business and the fat cats of finance, so their demands can be heard ahead of the year’s budget. That exercise this year will be conducted between January 7 and 9. The average citizen is unrepresented, and goes unheard, in these confabulations. So, here’s an attempt to lend voice to some of his demands and recommendations to create a framework that is conducive to wealth creation by and for that average citizen:
Column in Outlook Money
Gautam Chikermane
JANUARY IS when finance ministers hold court with the bigwigs of business and the fat cats of finance, so their demands can be heard ahead of the year’s budget. That exercise this year will be conducted between January 7 and 9. The average citizen is unrepresented, and goes unheard, in these confabulations. So, here’s an attempt to lend voice to some of his demands and recommendations to create a framework that is conducive to wealth creation by and for that average citizen:
Column in Outlook Money
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