Race to succeed D Subbarao: Meet the contenders for RBI governor’s post

ET : Shantanu Nandan Sharma, ET Bureau | 14 Jul, 2013, 06.26AM IST

In choosing its man for Mint Street, from Chintaman Dwarkanath Deshmukh — during the British raj era — to incumbent Duvvuri Subbarao, the powers that be have always followed a pattern. 

The Reserve Bank of India (RBI) governor has either been a career bureaucrat, like Subbarao, his predecessors YV Reddy and Deshmukh, the first Indian governor in the Bank; or a seasoned economist with a fair degree of exposure in Delhi's corridors of finance, like Manmohan Singh (RBI governor between 1982 and 1985).

And quite a few, like Bimal Jalan, RN Malhotra and Reddy, had stints representing India at the Bretton Woods institutions — the World Bank and the International Monetary Fund — before picking up the reins at India's central bank. Come September 5, a new governor will take charge of the RBI — unless Subbarao gets an extension. That won't be unusual. In Independent India, Malhotra, Jalan, Benegal Rama Rao and PC Bhattacharya were the only governors whose term was extended beyond five years.

As D-day approaches, the corridors of the finance ministry on Raisina Hill in the capital are buzzing with names of who could be the best candidate to extricate the economy from its precarious perch. The names doing the rounds include chief economic adviser (CEA)Raghuram Rajan, Planning Commission member Saumitra Chaudhuri, department of economic affairs (DEA) secretary Arvind Mayaram and revenue secretary Sumit Bose.

Rules and Files

"I wouldn't know who will become the next RBI governor. My understanding is that the prime minister will take inputs from [finance minister] P Chidambaram before taking the final call," says JD Seelam, the newly appointed minister of state for finance. The government has the flexibility of appointing the governor from a vast pool of economists, academics, bureaucrats and bankers. But that in a way adds to the confusion. Technically, the government does not even need to take the route of the Appointments Committee of the Cabinet (ACC) to select the RBI governor.

"It's a post-retirement assignment. The finance minister will consult the PM first and send one or more names to him in writing. And the PM will finally decide," says a former secretary of the department of personnel and training (DoPT). A former finance ministry official who was aware of the developments leading to Subbarao's selection five years ago says the PM often takes inputs from the outgoing governor, too.

On the other hand, if the appointment is routed through the ACC, which is done in case of selection of deputy governors of the RBI, the establishment officer of the DoPT recommends three names to the panel. The panel headed by the prime minister finally picks up one name for appointment.

Raghuram Rajan, 50 Chief Economic Adviser, GoI In Favour: Being a former IMF chief economist, has a global economic perspective; excellent working relations with FM Against: New to the government; not quite succeeded in tackling growth slide, rupeetumble Our Take: FM will push his case only if he is absolutely sure Rajan won't use the new-found freedom on Mint Street to stand up against the government

Saumitra Chaudhuri, 59 Member, Planning Commission In Favour: An economist by training, Chaudhuri is an expert on industry, financial sector & fiscal policy; is backed by Montek Singh Ahluwalia Against: Unlike Rajan, won't be a heavyweight on Mint Road; may not echo North Block's voice Our Take: If picked, the FM's core economy team comprising Rajan & Mayaram need not be changed

Arvind Mayaram, 58 Secretary, Department of Economic Affairs In Favour: Has had a long tenure at the finance ministry and is Chidambaram's confidant; IAS lobby may like to see yet another officer of their cadre in the governor's post Against: Has become the government's pointsperson to woo foreign money; FM may prefer to have him around in North Block itself Our Take: Has a chance to move to Mumbai if PM and FM are absolutely sure that a friendly Central bank is a must to boost economic policies in an election year

D Subbarao, 63 Governor, RBI In Favour: Continuity by giving the incumbent an extension for six months or a year is an option. Former governors RN Malhotra and Bimal Jalan were at the helm for almost six years each Against: An ideal central bank governor who keeps his cards close to his chest. Forget influencing him, North Block often fails to read his mind Our Take: If the government has someone in mind who can't be spared now, it may go for Subbarao's continuity and engineer the changes only early next year

Right Choice

It's natural that the government of the day will try its best to send a more flexible person to Mint Street. After all, a little indirect cooperation from the RBI governor will allow the UPA-II, already struggling to manage slowing growth and the rising rupee, to breathe a little easy. Former cabinet secretary TSR Subramanian concedes that the government won't obviously appoint someone who could disregard North Block's priorities once he tastes Mint Street's freedom. "But the very nature of the RBI governor's job demands that the person has to be somewhat antagonistic. If needed, he or she must have the guts to stand up against the government," adds Subramanian.

The veteran bureaucrat, however, says that it does not matter whether the RBI governor is an IAS officer or a seasoned economist. "It's the same old generalist versus specialist debate. The qualifications and inherent qualities of the candidates need to be weighed. But let me add that many reputed economists do understand macro Delhi issues but fail to comprehend Deoria [a backward place in Uttar Pradesh]," he adds, hinting that IAS officers do know the ground realities better.

Options at Hand

Chidambaram has an option of recommending one of his most trusted lieutenants, DEA secretary Mayaram, for the RBI governor's post. On his part, it will be a calculated risk. The FM in this crucial pre-poll year will spare Mayaram only if he has someone in mind as his replacement. After all, Mayaram is the FM's trusted man when it comes to tweaking norms to make foreign direct investment ( FDI) more liberal and kick-starting investments in infrastructure.

Till sometime ago, another finance ministry official, revenue secretary Bose, was tipped to be headed towards a bigger assignment. The name of this 1976 batch IAS cropped up for the post of Comptroller and Auditor General but he lost out to his batchmate Shashi Kant Sharma, former defence secretary and nominee of minister AK Antony. Finance ministry officials in the know say Bose, two batches senior to Mayaram, could be a dark horse despite not enjoying the finance ministry's strong backing.

Rajan, a former IMF chief economist, is believed to be the choice of the prime minister's office (PMO). Although Rajan had worked with Chidambaram from Day 1 of joining the finance ministry in August last year, the decision to bring him as a replacement for Kaushik Basu was taken earlier, when Chidambaram was still in the home ministry. And for all practical purposes, sparing the CEA is a much easier job for the FM than letting a trusted lieutenant (like Mayaram) go. And that brightens the chance of the 50-year-old economist to make it to Mint Street.

Planning Commission member Chaudhuri is backed by both his bosses, deputy chairman Montek Singh Ahluwalia and chairman of PM's Economic Advisory Council (PMEAC) C Rangarajan.

Chaudhuri is the only Plan panel member who has doubled up as a member of Rangarajan's PMEAC as well. A master's in economics from Jawaharlal Nehru University, Chaudhuri worked with credit rating agency ICRA before joining government ministries like industry and steel. He had a fiveyear association with the State Bank of India as well.

Those who understand the political equations are betting on Chaudhuri, as the PM takes Ahluwalia and Rangarajan's advice seriously in all economic matters. Rangarajan was RBI governor between 1992 and 1997, almost coinciding with Manmohan Singh's tenure as finance minister. After becoming PM, Singh had retained both Ahluwalia and Rangarajan in key positions even though none had any political backing in the Congress.

"When Subbarao was nominated as RBI governor, he was not just Chidambaram's candidate as most people assumed. Subbarao had worked closely with Rangarajan as he was member secretary of the PMEAC before shifting to North Block as a secretary," says a former Union secretary who has closely tracked the developments in the run-up to Subbarao's elevation as RBI governor. His short point: Subbarao had Rangarajan's blessings.

Missing Out Although the last two RBI governors — Reddy and Subbarao — were chosen from the powerful IAS cadre, many experienced and well-connected bureaucrats as well as technocrats in the past failed to make it to the RBI. NK Singh, now a politician belonging to the Janata Dal (United), was a highly influential PMO official when his name cropped up for the central bank governor's post. But the then United Front government chose to ignore him and brought back economist-turned-formerfinance secretary Bimal Jalan from Washington DC, interrupting his tenure as IMF executive director. Ahluwalia's name too cropped up on more than one occasion for the RBI governor's post in the last two decades, but this economist-turned-former-finance secretary wasn't shown the way to Mint Street either. In 2008, another economist-turnedbureaucrat Rakesh Mohan, a deputy RBI governor, was also in the fray, only to lose out to Subbarao. He's no longer in the race as he has just turned 65. "An ideal RBI governor should be an economist with some exposure in working with the government. But to my surprise Subbarao did a fairly good job despite being a career bureaucrat, and often refused to toe the government's line," says Satish Chandra Jha, former ADB chief economist and a former member of the PMEAC. The government clearly is looking for somebody who will prove both trusty and efficient. After all, they wouldn't quite want a Vinod Rai on Mint Street.

Coffee...What your Coffee says about you ?

infographic :18 July 2013

American economic recovery is still a big myth

By: Soumya Kanti Ghosh : ET :18 July 2013

The market can remain irrational longer than you can remain solvent — John Maynard Keynes 

The trends in rupee value and general trends in financial market over the past one and a half months remind me of this famous quote by Keynes. It is believed that, after a series of highly leveraged trades, when Keynes was humbled by the market, he made this observation. Though I am not a trader, I am constrained to make the same observation, even as a spate of irrational exuberance has kept the markets dodgy since Fed ChairmanBen Bernanke apparently made a point regarding QE scaledown. I will make a couple of points regarding the market meltdown, with reference to the US economic recovery that, I believe, is still a myth. 

Myth 1 

Are you aware of the correlation between Fed monthly asset purchases and the USunemployment rate? Look at the chart below. Ever since the beginning of financial crisis, the Fed has expanded its balance sheet significantly. However, the bad thing about such an asset purchase is that whenever it has tried to scale it down (for example, beginning of 2009 and end of 2011), US unemployment rate has jumped significantly. Interestingly, perhaps looking at this trend, the Fed has scaled up the size of the balance sheet since the beginning of 2013, and this may have had a sobering impact on the US unemployment rate that was somehow sticky at 8% during mid-2012. Thus, can we unwind QE so quickly, as markets perceive, if we go purely by trends? Think again! 

Myth 2 

Payroll additions at 1,95,000 in June 2013 indicate a buoyant job market! As per trends, the US economy lost 90 lakh jobs since 2008 and has till now (June 2013) added close to 69 lakh jobs, so there is still a gap of 21 lakh jobs lost. Additionally, payroll job additions in November 2012 was 2,47,000, in December 2012 it was 2,19,000 and in February 2013 it was at an all-time high of 3,32,000. Thus, it may be a little premature to say that the US unemployment will decline rapidly to 6.5%, when the US interest rates may see an upturn, as per Fed. 

Myth 3 

The US unemployment rate at 7.6% is a sign of an improving job market. Yes, it is true, but if we look at the difference between the US unemployment rate at 7.6% and the overall US unemployment rate (that includes marginally attached, discouraged and part-time workers), that gap is still at about 7%, much higher than the 4.5% in the years prior to the crisis. Also, the youth unemployment rate in the US (between 16 and 24 years) was 16% in June 2013 (that was on an average 12% before the crisis). Thus, clearly new jobs that are being created are not able to absorb the growing labour force. There are several other reasons to believe that the US economic recovery will take longer than we currently envisage. The recent downward revisions in US GDP data and US retail sales foretell a delayed recovery. My estimate is that if we go at the current rate, all other conditions remaining unchanged, the US unemployment rate may hit 6.5% only towards the end of 2014. 

Alternatively, the US economy may touch inflation rate of 2.5% by November 2015, the other condition for Fed for keeping interest rates at low levels. But I am not a trader, and my guess may be as good as yours. The bottom line is that market reaction is not supported by hard data, and this needs to be clearly understood. This piece is not to argue for continued Fed accommodation, since there has to be a life after QE, but to make the record straight about the false market inhibitions. Finally, a word on rupee movements, for the curiosity of the readers. Even as the rupee continues to trade around 59.2/$, a simple back of the envelope calculation suggests that based on the REER (real effective exchange rate) trends, the rupee may be currently undervalued! But pardon the brevity for any rupee prognosis at this point!


(The author is chief economic advisor, State Bank of India. Views are personal)

Management Tip of the Day :3 People to Talk to When You’re New on the Job

HBR :JULY 18, 2013

When you start at a new company, there is so much new information that it’s difficult to know where to focus. Here are three important sources you don’t want to overlook:

• Frontline employees. People who develop and manufacture products or deliver services can familiarize you with the organization’s basic processes and relationships with key customers.
• Integrators. Colleagues who coordinate interaction across functions (think project or plant managers) can tell you how different areas mesh—or don’t. They can shed light on the true political hierarchies.
• Natural historians. Keep an eye out for “old-timers” who have been with the firm for a long time. They’ll be able to teach you about the company’s mythology and the roots of its culture.

Adapted from The First 90 Days, Updated and Expanded.

The Hindu readies for a Tamil avatar

T E Narasimhan & Gireesh Babu  |  Chennai  July 17, 2013 Last Updated at 23:38 IST

The battle for readership is going vernacular. 

One of the oldest media houses in the country, Kasturi & Sons, the publishers of The Hindu has become the latest company to endorse this reality with its plans to launch a Tamil newspaper before September.
For a group that has ignored the regional market for long -this will be the company's first non-English publication since its inception in 1878 - the decision to start a Tamil newspaper is a recognition of the changing landscape in the print media in the country.

 Like all other players in the industry, Kasturi & Sons, too, is moving to frontiers where the advertisers are. The language papers offer a huge opportunity, say industry experts, as advertisers are now turning their attention to this segment which has readers in Tier II and III cities with a growing disposable income.

According to a Deloitte report on the media and entrainment market in South India, for Tamil dailies, 75 per cent of the revenue comes from advertisements and only 25 per cent from circulation.

 "Vernaculars have done remarkably well and there is only one English newspaper among the top ten dailies in India; the rest are regional. There is a huge demand for local news and people are looking forward for that in local languages," says the study.

Tamil Nadu accounted for 26 per cent of the overall regional print industry, estimated at Rs 2,970 crore in 2011-12. Sandip Biswas, director, Deloitte Touche Tohmatsu India, says the circulation ratio in Tamil Nadu is 75:100 (for every 75 English newspapers, 100 Tamil newspaper are sold). As of now, the big players in this segment areDaily Thanthi, Dinakaran (owned by the Sun group) Dinamalar andDinamani.

Industry observers say Kasturi & Sons' decision to start a Tamil paper also stems from the recent aggressive stance taken by Bennett, Coleman & Co, the publisher of The Times of India, in the regional market. Kasturi & Sons would not have liked to lose the first-mover advantage on its home turf.

N Ram, director of Kasturi & Sons and former editor-in-chief of The Hindu, has said that there is a huge opportunity in language newspapers, which to a large extent is untapped, especially in Tamil.

But will the company be able to make an impact with its content? The group has roped in industry veteran K Asokan as the editor for the yet- to-be-named newspaper. The company had initially decided to call itKamadhenu, but it is now debating using its trademak "The Hindu" brand itself for its regional publication as well.

Apart from Asokan, a team of journalists, who have been groomed in the Tamil style of reporting, has also been hired. The group is targeting a subscription of 300,000 for the daily to start with. Kasturi & Sons, known for its reliable and authentic publications, will apply the same standards of journalism as its English dailies for its Tamil daily as well. However, at the same time, Ram says, he will take into account the peculiarities of a regional paper. For instance, local language papers offer a greater play to education and entertainment-related news.

N Murali, one of the directors and former managing director of The Hindu, says,"It is a gamble worth taking at this point."

Print media is at the crossroads in the country. While English newspapers are reporting stagnation or nominal growth, language newspapers are growing at a faster clip riding on the increasing purchasing power in smaller towns, which in turn is attracting advertisers. "Initially we were also sceptical. But looking at the trend in the last two years both in readership and revenue, launching a Tamil newspaper was inevitable," he says.

Murali believes the new newspaper can use the same readership base as the The Hindu. 

However, analysts have a different view. An industry expert, who has been tracking the sector for over three decades, says addressing the existing readership base with a new product may not work, especially because The Hindu is taken as serious-reading, whereas vernacular papers are mostly picked up for leisure- reading. But many others believe the two can co-exist in the same household.

Among the challenges for the new venture, the foremost could come in the way of logistics support. The top three Tamil dailies have 12 printing centres each, compared to just four of Kasturi & Sons. Finding the right manpower would be a problem too. As regional papers require more local content, the company may have to create a huge network of reporters.

An industry representative says one of the top three Tamil newspapers has around 1,500 people who are not on its rolls but they supply news on a freelance basis.

The company may find it hard to create a niche for its paper in a market that is already quite mature. Experts say the market does not have room for any new player and Kasturi & Sons will have to dislodge existing players to create space for itself. Industry observers says the company may try to get into the space occupied byDinamalar and Dinamani (owned by the New Indian Express group).

Kasturi & Sons will also have to reorient itself to provide entertainment news which is not its forte, says Murali.

The Hindu was started as a weekly publication in 1878 by six young nationalists led by a radical social reformer and school teacher, G Subramania Aiyer. The youngsters, who were in their 20s, belonged to a society called The Triplicane Literary Society, which was an important forum for Indians in the pre-Independence era to discuss current affairs.

The weekly publication grew to become a tri-weekly in 1883, an evening daily in 1889 and a morning paper in 1940. In 1905, Kasturi Ranga Iyengar, bought The Hindu and turned it into a public limited company in 1959. What started as a modest operation with 80 printed copies in 1878 grew to become an industry leader with a reputation for editorial and technical excellence. According to the latest audit bureau of circulation figures, 1.55 million copies of The Hindu were sold daily across the country between July and December 2012.

With the general elections round the corner, the time may be just right for the new Tamil newspaper to make an impression. 

The Kasturi & Sons management has indicated that its newspaper would be among the Tamil dailies when the euphoria surrounding the elections intensifies. Surely, the content it could provide during this period of guess-works, calculations and judgement call could make all the difference between its success and failure.

Sun TV eyeing TV9 channels in Rs 150-cr buy

BL :Ravikumar :CHENNAI, JULY 15: 2013 

The Kalanithi Maran-controlled Sun TV Network Ltd is close to acquiring Hyderabad-based Associated Broadcasting Company Pvt Ltd (ABCL), which manages a chain of regional news channels under the brand TV9.

ABCL has six news channels — one in Telugu, two in Kannada, and one each in Gujarati, Marathi and English. According to sources, the Mauritius-based private equity firm Saif Partners has substantial stake in the company, and is looking to exit.

“The deal may be struck for approximately Rs 150 crore,” a person close to the development toldBusiness Line.

TV9 is the market leader in the news genre in Andhra Pradesh and Karnataka, with a considerable lead over other news channels.

TO SUN’S ADVANTAGE

Sun Network, with a Rs 16,000-crore market capitalisation, has a strong presence in the South with 32 channels across all genres in the four regional languages. 

While its Tamil bouquet is the market leader by a wide margin, its lead in Andhra Pradesh and Karnataka is more modest. In Kerala, it trails Asianet.

According to an industry analyst, if the TV9 deal goes through, Sun TV’s market share in the news genre will get an immediate boost.

It could also lead to a consolidationin the South as smaller players with low TRP shares are in danger of losing out when the TRAI-mandated cap on advertising comes into effect, in October.

ADVERTISING CAP

Post the October cut-off date, no broadcaster can air commercials in excess of 12 minutes in an hour. 

Analysts believe that stronger players such as Zee and Sun will be able to transition to the new dispensation with little disruption by raising rates to compensate for the volume lost whereas smaller channels may take a hit as their ability to raise prices may be limited.

On an earlier occasion, the Sun Group CFO, SL. Narayanan, had said in an interview to Business Linethat the Sun group “was not averse to an M&A-led growth strategy, if the numbers make sense.” However, when contacted, he declined to comment on a possible deal with TV9. In an emailed response, he said: “It is pure speculation at this time.”

Sun TV Network Ltd is a debt-free company and has Rs 416 crore in cash and cash equivalent as of March 31, 2013.

ravikumar.r@thehindu.co.in

(This article was published on July 15, 2013)

Rajat Gupta ordered to pay $13.9 mn in SEC insider trading case

FP : 18 July 2013

Former Goldman Sachs Group Inc. director Rajat Gupta was ordered to pay a $13.9 million civil penalty and banned from serving as an officer or director of a public company for having illegally passed corporate secrets to former hedge fund manager Raj Rajaratnam, a top U.S. regulator said on Wednesday.

The U.S. Securities and Exchange Commission said the order was issued earlier in the day by U.S. District Judge Jed Rakoff in Manhattan, who also oversaw Gupta’s related criminal trial.

Gupta, 64, is appealing his June 2012 conviction and two-year prison term for having fed confidential tips he learned at Goldman board meetings in the second half of 2008 to Rajaratnam, a former billionaire who ran Galleon Group.

The tips included news about Goldman’s financial results and a crucial $5 billion investment during the financial crisis by Warren Buffett’s Berkshire Hathaway Inc.

Reuters

Gupta is a former global managing director of the consulting from McKinsey & Co. He remains free during his appeal.

“The sanctions imposed today send a clear message to board members who are entrusted with protecting the confidences of the companies they serve,” George Canellos, co-director of the SEC’s enforcement division, said in a statement.

Gary Naftalis, a lawyer for Gupta, declined to comment. A copy of Rakoff’s order was not immediately available.

Rajaratnam, serving an 11-year prison term, was the highest-ranking financial executive convicted in a multi-year federal crackdown on insider trading. Gupta is the highest-ranking corporate executive convicted in that probe.

Last month, the federal appeals court in New York upheld Rajaratnam’s conviction, rejecting his argument that wiretap evidence was used improperly to convict him.

Gupta in May argued before the same court that wiretap evidence should have been excluded from his trial as well.

In one such call, just before Berkshire’s investment was announced, Rajaratnam was heard telling a trader that a caller had told him that “something good might happen to Goldman.”

Gupta’s criminal sanctions also included a $5 million fine.

The SEC in 2011 won a $92.8 million civil penalty against Rajaratnam, then a record for an SEC insider trading case.

The Gupta case is SEC v. Gupta, U.S. District Court, Southern District of New York, No. 11-07566.

Reuters