Tuesday, January 24, 2017

Top PGDM College in Delhi NCR Speaks on Effect of Demonetization on the MSME Sector and the Union Budget 2017

The top PGDM College in Delhi NCR has been vocal on the Union Budget 2017. As India approaches the D-Day of 1st February 2017, the FM Shri Arun Jaitley shall once again arise to deliver the Annual Financial Statement, the Macroeconomic Framework, the Indian Economic Survey and the Budget Speech on the floor of the Parliament amidst a clamour to get over the colonial hangover. The Union Budget 2017 shall be special and in focus for a wide variety of reasons. First, this shall Union Budget shall witness the formal integration of the Railway Budget with the Union Budget. Second, this year’s Union Budget comes ahead of the formal induction of the GST, the biggest tax reform in India as a policy initiative to initiate economic federalism. Third, the Union Budget 2017 comes post the demonetization exercise that has been touted as an economic reform in pursuit of a cashless economy along with stated objectives of elimination of black money, counterfeit currency and income inequality in the country. While the house is still divided on the pains and gains of demonetization, without an iota of doubt it shall leave its imprint on the FM and the Union Budget 2017.

Separating the Grain from the Chaff in Policy Mix for India

There is wide spread acceptance of the ingraining of seeds of political ideology in the formulation, execution and analysis of macroeconomic policy mix. Despite brave attempts to confer economics the status of a social science, the fact remains that the laboratory of economists is the economy itself and men and women are but mere tools in this laboratory. Hence subjective reflections like constitutional economics and political economy find their way into policy mix. This is no exception for demonetization and the Union Budget 2017. As such it makes enormous good sense to prune and streamline opinions of warring economist on both side and filter out the substantive technical points from the political ideology questions.

Yet there is a consensus on the effect of demonetization on the Union Budget 2017 and the economy of India in the short run. The effect on the economy in the short run operates through two ways: digitization and the informal economy. What could have earlier taken years to complete a transition towards digital payments shall now happen in months. This is an opportunity for Indian IT companies to find big ticket projects on web and mobile apps for digital payments and also for cloud computing based projects like the much hyped GSTN that has been bagged by the prestigious IT bell weather Infosys. Yet the larger issue for the FM to resolve is the Union Budget 2017 is the effect of demonetization felt by the informal economy.

The Informal Economy in India and the Chase for Black Income

The informal economy in India, to quote Paul Samuelson has the “importance of being unimportant.” The informal economy contributes 45% of the GDP and 80% of the employment of the workforce in India. The old exposition of Okun’s Law associates GDP growth rate to employment growth rate. Based on this hypothesis one is tempted into presuming that 1% of GDP produced by the informal economy of India leads to 1.77% of jobs created for the workforce in India. The importance of the informal sector of the economy can hardly be overstated. This is also the sector that relies heavily on cash transactions and thus has been the hardest hit due to demonetization and hence requires some serious repair and maintenance work by the FM in the Union Budget 2017.  The opportunity cost of cash in the informal economy is very high amounting to informal lending of credit at rates of 14-17% as estimated by the National Institute of Public Finance and Policy. Yet again agriculture the backbone of the Indian economy since ages is also an extension of the informal economy with gross reliance on cash and being largely free from the noose of the tax man for decades now. Perhaps the time has come to change this.

It is also true that the informal economy in India has always shied away from enrolling into the formal economy for motives of tax evasion, tax avoidance, failure to comply with the Factories Act, the Industrial Disputes Act and other labour legislation that has allowed the MSMEs in the informal economy to gain access to cheap labour-both skilled and unskilled. Tax evasion is rampant in the informal economy and has cost the ex chequer 19% of the tax revenue and 3% of the GDP. The “White Paper on Black Money” presented by the Ministry of Finance, Government of India in the year 2012 under the then FM Shri Pranab Mukherjee had pointed out to such data while conceding that the financial statement approach is the best one to assess black income. It had further stated the need to ensure better tax compliance in the informal economy to streamline tax incidence and tax payment to the ex chequer. Given that the informal economy and its induction into the mainstream of the economy can squeeze out precious increment of 3% to the real GDP, the FM is right in emphasising on cashless economy and demonetization.

What does this mean for Union Budget 2017? It means that the FM has to increase capital expenditure on infrastructure development, fixed asset creation and schemes like MGNREGA as a loss offset for demonetization. The total outlay on PMGSY in the last budget was INR97,000 crore. While this should have ideally been reduced, there are chances of the FM going benevolent on it and in the process finding it difficult to sneak into the fiscal deficit to GDP ratio of 3% by the year 2019. This shall also lead to a crowding out effect as a result of heightened government outlay and fiscal deficit along with the monetary tightening that is likely to be announced very soon by POTUS Donald Trump.

Thursday, January 19, 2017

Top PGDM College in Delhi NCR Speaks on Fiscal Prudence, Tax Reforms and Union Budget 2017

The top PGDM college in Delhi NCR, Ishan Institute of Management & Technology believes that the Union Budget 2017 shall be an acid test of the FM and his government’s resolve to stay put on the path of fiscal prudence amidst global and national challenges. The Trump administration is expected to stay put on the agenda of an expansionary fiscal policy in the United States that could lead to eventual crowding out effect in the financial markets by revising interest rates upwards. Secondly the signs of a recovery in the European Union post BREXIT seem farfetched. As such then it becomes increasingly evident that the torch of free market economic reforms and capitalism has been shifted into the hands of South Asia-particularly China and India. What remains to be seen is how the FM tries to do the tight rope walk of staying committed to the target of 3.5% of fiscal deficit to GDP ratio in the financial year 2017-18 and revises it further to 3% in the pre-election year. The last three budgets of the FM have been big on ideas and have therefore focused on strengthening social sector expenditure and increasing capital expenditure on big ticket infrastructure development programs like the Digital India campaign, the Make In India campaign, a trade and investments based foreign policy that seeks to actively engage with Eastern neighbours like China and Japan and finally the highly ambitious bullet train project. Yet one would like to believe that it is for the FM to set a precedent of fiscal prudence and discipline by rationalizing public expenditure with tax reforms, outcome based budgeting instead of the populist outlay based budgeting and transparency in efficient public expenditure programs.

Economic Federalism and GST

There are multiple areas of conflict between the centre and the states that has over the years affected economic federalism. The FM has in effect pulled off a coup d’├ętat by being able to formalise the passing of the GST before the Union Budget 2017 and while the disruption of the Parliament in the winter session may have marred the politics of GST, it does remain a masterstroke from the FM after years of centre-state tug of war in financial relations.

1.     In some cases the entire revenue is allocated among the states. Yet the rates and bases of taxes were decided by the centre regardless of the desires and priorities of the states.
2.     Central governments have in the past failed to take initiative to impose all the taxes as per Article 269 of the Constitution, the net proceeds of which were all appropriated by the states.

3.     Central governments have in the past raised the excise duties as also special and auxiliary duties but not yielded any proportion of such incremental tax revenues to the states.

4.     While income tax rates have been unchanged or even occasionally reduced, the 85% allocation of income tax revenue seems to have reached a ceiling.

5.     The central governments in the past have raised the exemption limits on income tax without much revenue loss because it raised the surcharge on income tax. The states had to lose because the proceeds of the surcharge were not shared with the states. Hopefully GST shall bring a refreshing change in the equations of economic federalism and bring a much needed status quo.

The Roadmap for Tax Reforms and the Union Budget

The Union Budget 2017 needs to and shall hopefully streamline the tax system unlike ever before. To this extent it may be remarked that India’s tax system has historically suffered from the following weaknesses.

1.     Distortive Nature: About 30% of tax collections come from customs duties. This is a distortive tax that needs to be lowered as part of economic reforms.

2.     Inconsistency: There was undue reliance on indirect taxes during earlier governments. A lack of balance between direct and indirect taxes implies fiscal imbalance.

3.     High Corporate Tax Rates: There is mounting pressure to reduce the rate of corporate taxes from 35% to a level of 20% to induce investments.

4.     Tax Compliance: Tax compliance in India is unduly complex, a point that has been reiterated by corporate leaders and former bureaucrats. A centralized tax administration with uniform rate of taxation without any exemptions shall create a more level playing field. GST is the correct step in this context.

5.     Phased Removal of MAT: The government in 1997 was concerned with the exploitation of depreciation provisions by firms in order to avoid paying income tax. This had led to the introduction of the Minimum Alternate Tax. Under this system originally, a company with taxable profits of less than 30% of its adjusted profits was required to pay a minimum tax of 30% of the book profits at the then existing rates. In light of the current scenario, the FM may consider a phased removal of the MAT to bring some joy to the beleaguered corporate sector. The FM may also consider the removal of MAT from the affordable housing segment to enable the real estate sector pick up momentum going into the new financial year. On a concluding note, the FM shall do well to strike a note of caution on the side of fiscal prudence in this Union Budget, feels the top PGDM college in Delhi NCR.

After the stupendous increase in public expenditure on infrastructure development under the PMGSY last year that amounted to an outlay of INR97,000 crore it may revised downwards.

Two years before the Lok Sabha elections in 2019 is an apt time to reduce the burden of interest payments on bonds. Last year the FM had an outlay of INR15,000 crore through issue of infrastructure bonds. The additional INR31,000 crore that was raised last year through issue of bonds for NHAI, NABARD, REC and PFC may be reviewed this year.

The allocation of the outlay of INR25,000 crore for public sector banks that was announced last year may be reviewed. The outlay is well short of the required capital injection as per BASSEL norms and yet costs the ex chequer. Banking sector reforms and issue of licenses for establishment of new private sector banks may be considered. Also Life Insurance Corporation of India with its tremendous capital stock may be considered for equity stake holding in banks. If there is a need for a big idea in this year’s Union Budget at all, top priority should be accorded to considering privatization of underperforming public sector banks.

No government can live beyond its means. These were the words of the last PM and legendary economist Dr. Manmohan Singh. We hope the FM stays put on the path of fiscal prudence in this Union Budget 2017. 

Wednesday, January 18, 2017

Top PGDM College in Delhi NCR Speaks on the Union Budget2017- Part 2

In the second article on the Union Budget, the top PGDM college in Delhi NCR, Ishan Institute of Management & Technology focuses on taking the bull of demonetization by its horns. Coming in the aftermath of demonetization, there are short term challenges that the FM needs to address and resolve. In the short run and in the run up to the elections in Uttar Pradesh in 2017 and the Lok Sabha elections in 2019, the mandate shall largely be influenced by the way in which the government tackles demonetization. While Dr. Manmohan Singh, the former Prime Minister and economist has rightly said that sometimes the cure can be worse than the disease itself, demonetization that is considered to be an exercise in reform towards economic, political and social citizenship now needs to focus on the economy convalescing from the post-operative complications post the liposuction.

Scenario Analysis of Demonetization and Its Effect on Economic Growth in the Short Run

Good economics is good politics and this time it makes even more sense to for the FM to think micro, small and medium enterprise in the Union Budget 2017. The demonetization exercise has been panned by economists of various quarters as having a perilous effect on the prospects of economic growth in the short run while other have said that the worst is yet to come. The devil lies in the data.
  • ·   Automobile sales have dipped by 18% in the month of December 2016. It is the steepest fall since 2000.
  • ·        Fuel demand has been estimated to slow down by 40% in the year 2017.
  • ·        Home sales in 8 cities have crashed by 44% in the October-December quarter.
  • ·        Investment proposals dipped to INR1.25 lac crore in the October-December quarter as opposed to INR 2.36 lac crore in the last nine quarters.
  • ·        The World Bank has revised GDP growth rates downwards from 7.6% to 7%.

While there is enough clamours against demonetization and its short run effects on economic growth, it is the MSME sector where most of the damage has been done. A statement from the secretary-general of FISME (Federation of Indian Micro And Small & Medium Enterprises) says that FISME represents 743 country wide associations and over 10 million employees. Small and unorganized FISME members are often unheard and invisible on the economic radar. Yet data available from the CSO states that over 50% of the economic output in terms of the GDP comes from the micro, small and medium enterprises sector. The MSME sector also employs 90% of India’s workforce of 740 million and is critical to the economy. Traditionally many of these MSMEs have not been covered in the national income accounting process, do not have access to any other mode of payment apart from cash and deal in cash based transactions with customers, clients and employees.

Proposed Solutions for the Union Budget 2017
·        In the Union Budget 2016, the government decided to offer 8.33% of the employer’s 12% contribution in the first year for all new employees earning less than INR15,000 per month. The government later decided to transfer the money directly into the EPF account thereby freeing up the liability of getting the money reimbursed. It shall be a great proposition to link the EPF accounts of such employees working in the MSME sector with UIDAI Aadhar card numbers and ensure the further streamlining of the process. This shall result in outcome based public expenditure on account social welfare.

·        The Rashtriya Swasthya Bima Yojana which offers a modest health insurance cover to BPL workers and their families may be extended to all workers.

·        The interest rate subsidy on low cost home loan may be revised upward to offer adequate and appropriate financing options to the low cost real estate segment that may spur demand in the upcoming financial year and hence compensate for the recent dip in sales.

·        With the formal induction of the GST into the economy, the FM may consider giving a two year tax holiday to point of sale equipment (POS) equipment manufacturers and if required a further tax holiday from the corporate income tax so that cashless transactions may be facilitated using POS hardware in rural areas and in the MSME sector that till lately has been largely dependent on cash.

·        The FM shall do well increase outlay on Digital India campaign and initiate internet and telecom infrastructure development through a PPP (public-private partnership) model with a downward revision in corporate income taxes from 35% to 20% for large information technology corporations like Microsoft and Google.

·        GST rates for consumer durables like smart phones may be kept at the lowest tier on the rationale of being merit goods to streamline an easy transition from cash to cashless value chains in agriculture and enable farmers, landless workers and agro-produce traders to make and receive online payments.

·        The MSME sector may be given a one year pay roll subsidy as an incentive to adopt cashless transactions in dealing with wage payments. 

While this shall cost the ex- chequer, there are valuable lessons for the FM to learn from Dr. Singh’s words and the loss to the last NDA government under the leadership of former PM Shri Atal Behari Vajpayee despite a relatively corruption free and highly fiscal reform oriented budgetary stance . The All India Manufacturers’ Association asserts that over 3 lac MSMEs have lost 35% jobs and 50% revenue in the 34 days succeeding demonetization.

The FM needs to act and act fast with policy measures to restore confidence in the MSME sector and rural India so that the benefits of a digital economy begin to show in the next two years. The last three budgets focused on the long term and the truth is that even for the last NDA government the multiplier effects of the infrastructure projects like the Golden Quadrilateral began to play out after the UPA had come to power. Infrastructure spending assumes the form of capital expenditure in pump priming and shows the multiplier effects in the long run. Long run market clearing can wait but elections can’t. The Modi government had brought with it a feel good factor in 2014 and the FM in his last three budgets has shown that he has the vision for an LTFP and the consequent multiplier effects on employment generation. This time though the top PGDM college in Delhi NCR believes that the FM should trade scale for time and hence offer a Union Budget 2017 that pays off in the next two years.

Tuesday, January 17, 2017

The Top PGDM College in Delhi NCR Speaks on Union Budget 2017

The top PGDM college in Delhi NCR, Ishan Institute of Management & Technology brings to you insights into the Union Budget 2017 starting today. This year’s Union Budget assumes significance for a large number of reasons both internal and external.
Among the external forces at play ahead of the Union Budget 2017 are the election of Donald Trump as POTUS (President of the United States), the election of Theresa May in the United Kingdom post BREXIT, the rise and further rise of Vladimir Putin in Russia amidst the economic sanctions issued against it on account of Russian involvement in Crimea and the perceived slowdown in China.

The internal factors that are most likely to affect the Union Budget 2017 include the formal induction of the GST into the economy, the short run decline in economic growth due to demonetization, the impending elections in the Indian state of Uttar Pradesh, the merger of the Union Budget with the Railway Budget and the forward revision of the presentation date of the Union Budget. Amidst the interplay of these internal and external factors in the economic environment, the Union Budget 2017 assumes significance because it happens to be the last large scale Union Budget of this government to implement structural changes to the economy prior to the setting in of the election season for the Parliamentary election in 2019. In this piece the top PGDM college in Delhi NCR, tries to get into the shoes of the FM Shri Arun Jaitley and then consider the Union Budget in three distinct but inter-related parts namely: rationalization of revenue expenditure, consolidation of public expenditure and deficit financing. We presume that the FM shall consider the Union Budget 2017 to focus on the execution of the LTFP (Long Term Fiscal Policy), fiscal reforms in pursuit of fiscal prudence and the clearing of log jammed market situations by means of public expenditure on health care, education and infrastructure development.

Rationalization of Revenue Expenditure

During the last government and also during the last two years of this government revenue expenditure rationalization has continued with a laser focus. The last government though left much to be desired in its second term. There are three principle challenges in the area of rationalization of revenue expenditure, i.e. major subsidies, interest payments on public debt and compensation to government employees. While major subsidies are being phased out, there is a social goodwill factor that shall prevent the FM from completely doing away with the subsidies. Consequently Union Budget 2107 is expected to give away generous subsidies to farmers and export oriented units amidst the fears of global slowdown and the alarming farmer suicide rates. Public debts that are raised for infrastructure development come under the ambit of capital expenditure. It shall be interesting to observe the FM’s means for interest payments on public debt. The area of infrastructure development is a cause the NDA government shall like to promote in its development agenda and hence the FM may consider giving tax relief to infrastructure bonds- both public and corporate. The single largest area of concern though ought to be the compensation of government employees and the spotlight ought to be on reducing the unnecessary drag on the ex-chequer in the form of hefty compensation hikes given away by the Pay Commission regardless of the concerns of productivity, efficiency and fiscal prudence.

Consolidation of Public Expenditure

The FM may consider the area of public expenditure in the light of the political battles facing his government at the union and state levels. While these measures are widely regarded as populist, perhaps it is this area that needs consolidation if not reduction. The FM may consider a mix of caution and optimism if he may wish so by increasing the quantum of conditional grants and project aid to states thereby demanding fiscal prudence and financial discipline from the states in the completion of development projects. MGNREGA may witness a greater role for the state governments, with a more just and fair sharing of the expenses and indexing wage payments to project completion targets. Phasing out MGNREGA by linking it to rural fixed asset creation shall lay a roadmap for outcome based budgeting. Expenditure on health and education at the primary levels may be considered. A novel form of innovation may be included in the Union Budget by allowing corporate sponsorship of the Mid-Day meal scheme under CSR and making such corporate donations for mid-day meal schemes free from corporate income tax. Yet another area of fostering innovation shall be to implement PPP projects for the development of telecom and internet connectivity in rural areas under the Digital India campaign.  Reduction in budgetary support to public sector enterprises other than those key to infrastructure development is a must and this government has the numbers to go alone without hesitation.

Fiscal Reforms and the LTFP

The Vajpayee government has taken the correct steps in the direction of fiscal reforms with the ambitious FRBM Act, 2003. Union Budget 2017 may see the FM operating within the domain of fiscal discipline without any big ideas. The government already has many and needs the process discipline of an American multinational to bring projects and ideas to their logical conclusion while keeping its vision of the LTFP intact. Disinvestment of sick PSEs is on the table. The FM may do away with the MAT (Minimum Alternate Tax) completely or phase it out, while looking to generate additional non-tax receipts through branding of top tier trains like the Shatabdi, the Rajdhani and the Duronto in addition to the Bullet Train project. The railway budget may consider a growth in outlay for maintenance, security and safety by 2-3%. The taxman’s talisman (IT slab) may see an upward revision with the exemption limit being raised to INR 3 lacs by conservative estimates and INR4 lacs by radical estimates. A cess on online payments and transactions may be implemented. Despite criticism from all quarters, an online payments tax shall make sense in the context of demonetization thereby widening the tax base, improving the tax to GDP ratio and in due course of time moving from an income tax to a consumption tax. While this shall hamper sales of consumer goods and durables and have a slight inflationary effect in the short run, it shall induce a structural change in the economy and redirect efforts towards saving and investment rather than consumption.

This being the first piece in the series of blogs on the Union Budget 2017, the top PGDM college in Delhi NCR, Ishan Institute of Management & Technology encourages deliberations on the Union Budget to make it more participatory and inclusive.
(All opinions expressed are of the author and do not reflect any ideological bias of Ishan Institute of Management & Technology in any way)

Monday, July 25, 2016

The Top PGDM College in Greater Noida Speaks on Abenomics

The top PGDM college in Greater Noida, Ishan Institute of Management & Technology has been at the forefront of incorporating contemporary issues of business and economics into its curriculum. While the last few weeks have focused on BREXIT, in today’s piece we turn towards Asia. Japan forms the centre piece of our analysis. It makes enormous good sense to assert that the Japanese economy is in the midst of string recessionary currents and there are no signs of the Japanese PM Shinzo Abe being successful in navigating the ship of the Japanese economy. The point that makes the entire episode so bizarre is that Abenomics that is essentially an extension of the Keynesian policy of pump priming has failed to produce the desired results in the case of the Japanese economy. The stimulus packages offered by the Shinzo Abe led government in Japan has incorporated pump priming but to no avail. At the top PGDM college in Greater Noida, Ishan Institute of Management & Technology we believe that the curious case of Mr. Shinzo Abe and consequently the Japanese economy presents a case for rethinking on the viability of Keynesian pump priming policies. The devil in the data shows that Japan is slowly but unfortunately walking the path of fiscal profligacy that if not addresses with concurrent measures like taxation to reinforce inter-temporal equilibrium may lead to far worse consequences.

The Top PGDM College in Greater Noida on Abenomics: Devil is in The Data
At the top PGDM college in Greater Noida we believe that the failure of stimulus packages to lift the drowning animal spirits of capitalism in Japan require an analysis into the budgeting technique being used in Japan along with an inquiry into possible leakages that may exist. To begin with here is some interesting data on the Japanese economy:
·        Investment levels are still below pre-crisis levels.  Investment for Q1, 2016 stands at 72 trillion Yen vis-a-vis 77 trillion Yen for Q1, 2007.
·        Japan is yet to overcome deflation. The inflation level for 2015 was at 0% against -0.2% in the year 1998.
·        Japan cannot leverage the demographic dividend. It has 26.3% of its population above 65 years of age.
·        Japan has one of the lowest population growth rates. It has a fertility rate of 1.4% against the global median of 4%
·        Japan is not receptive enough to immigration. The immigration percentage stands at 1.6% against a global median of 45%.
·        Japan has an incredibly high debt to GDP ratio of 246.6% against the global median of 82.2%.
Probably this set of data offers a possible explanation for the continued crisis in Japan and the failure of the stimulus packages. For the Japanese economy to be analysed in economic terms, the academicians of the top PGDM college in Greater Noida, Ishan Institute of Management & Technology have translated these statistical measures into cultural and administrative insights. Take a look.
Expand the workforce by including women and allowing old people to keep jobs longer
Cultural workforce traditions and seniority systems in corporations
Counteract negative demographics by allowing immigration
Deep aversion to immigration from policy makers and the local population
Hike taxes to lower government debt
Political compulsions from people and corporations against tax hikes
Institute industrial and labour market reforms
Resistance from labour unions, industries and lack of political will

Japan has done more than enough to foster economic ties with the world in the aftermath of the Second World War. To this extent Japan has aggressively promoted foreign direct investment by other companies in Japan and vice versa. Japan has a very strong export sector that has proven competencies in the verticals of automobile, software, heavy engineering, infrastructure and logistics. Yet Japan somewhere represents the face of a society that is yet to come to terms with the latest and the most advanced level of globalization i.e. immigration and cultural exchanges. Hidden behind the sophisticated bullet trains, total quality management revolutions and fast cars of Honda, Suzuki and Nissan are the age old orthodoxies of a culture that is steeped in tradition, seniority, rigid social strata that is by and large immobile and does not allow too much scope for interaction of foreigners with Japanese. Under such circumstances Japan is left to lick its wounds while leading a sequestered lifestyle.
At Ishan Institute of Management & Technology, one of the top PGDM colleges in Greater Noida we wish to engage in greater data collection on the economic plight of Japan with a belief that the issue with Japan has larger ramifications and roots that extend beyond the obvious mathematical economics of pump priming and need to be seen in the broader context of the CAGE framework of Dr.Pankaj Ghemawat, IESE School, Barcelona by incorporating cultural and government factors to the stereotyped mathematical modelling preferred by macroeconomics experts.

Monday, July 18, 2016

Top PGDM Colleges in Delhi NCR Offer Business Lessons from Sir Alex Ferguson

One of the top PGDM colleges in Delhi NCR, Ishan Institute of Management & Technology, has endeavoured to offer students unique business lessons from non-profit enterprises and other unorthodox verticals. Given that sports has witnesses unprecedented commercialization and a new wave of professionalism has created a major impact on sports like cricket and football. While south Asia is largely under a perpetual and eternal grip of cricket, it makes enormous good sense to assert that as an industry vertical football has the market value, offers some of the highest pay packages and rewards to sportsmen and boasts of record transfers and signings that tend to rewrite records every year. There are reasons behind bracketing Ishan Institute of Management & Technology under the top PGDM colleges in Delhi NCR. Our tryst with sports management and efforts to extract business lessons initiated with the lectures on strategic management for the 17th batch of PGDM. It helped that two students had gifted one of the faculty members a copy of the autobiography of Sir Alex Ferguson, the legendary manager of Manchester United, “Managing My Life”. The 18th batch continued with the efforts with some students occasionally asking for the copy of the book for self study and raised genuine questions on sports management on the floor of the classroom. The 19th batch of PGDM took it a step forward by offering a presentation based on extensive research on the World Cup winning team of Germany (2014). Finally the efforts bore fruits in the 20th batch with the coverage of a fully fledged case study on Sir Alex Ferguson published by Harvard Business Review. In this piece we take a look at some of the major takeaways from Sir Alex Ferguson’s career with Manchester United. Take a look.

Build a Grassroots Level Talent Development System

It was 1986 when Sir Alex Ferguson first joined Manchester United. One of the first things he did was to initiate two centres of excellence dedicated to the youth. His definition of youth was as young as nine years of age. To streamline his efforts to build the grassroots level program he recruited many scouts whose job was to spot and identify top football talent in schools, localities and clubs and report their findings to Ferguson, brief him and initiated proceedings for trials at the centres of excellence. This led to some major talent developments. David Beckham, Ryan Giggs, Paul Scholes and Garry Neville were among some of his early finds who later became top performers for Manchester United and England. At that time many had questioned the rationale behind such steps but the results paid put the questions with time. There are two lessons. Create the ambience of being back in school. Enable top young talent to learn from a very young age and pool them together so that they learn about each other’s game and grow up being part of a cohesive unit before joining the senior team.

Rebuild the Team to Maintain the Competitive Advantage

Even at the peak of the team’s success Sir Alex Ferguson continued to streamline his search for top talent. All the players available with the club were categorized into three demographic levels: above 30, 23 years to 30 years and the young ones who fell into the age bracket below 23 years of age. Players falling under the age group of above 30 years of age were assigned the task of leading the team, setting examples in the training session, working with the manager on strategy and tactics for matches and share their experience with the young players below 23 years of age and groom them on and off the pitch. The players in the age group of 23 years to 30 years were assigned tasks of performance on the pitch, maintaining discipline in the club in practice sessions, gym session and relief and rehabilitation sessions. The young players were put to test in the practice and occasionally used as substitutes for the senior players in matches. Ferguson’ assessment was that a team’s cycle lasted for 4 years and hence it was imperative to maintain a portfolio of talent on these lines and match roles and responsibilities to the stage of the team life cycle the concerned player was going through. It was in a sense very similar to the inventory based approach to human resource retention.

Total Quality Management On and Off the Pitch

Ferguson was the ultimate total quality management freak in football. He never allowed a single bad training session during his entire tenure at the club. More than sharpening the technical skills of the players at Manchester United, he was more concerned about the players not giving in. Attitude formation was given due importance and discipline was chosen over motivation. Work ethic and sustainable high energy levels were stresses upon in training with the single minded logic that what is produced in training gets manifested on the field. Ferguson recruited what he called “bad losers”. These were players who were great on dedication, work ethic and talent and yet may have lost some golden opportunities at the junior level. Each of his training sessions was based on development of intensity, speed, focus and a high level of performance. There was not a single day when Ferguson allowed any player, not even the great players like Beckham, Ronaldo, Rooney, Scholes or Nistelrooy to get away with a half hearted or less than 100% commitment at training. This showed in the games that Manchester United played. Such was the impact that these great players would practice for hours at a stretch so much so that Ferguson would have to actually chase them in from practice to prevent exhaustion.

Being in Charge and in Control

Ferguson kept things simple and in control. Right from the first day when he took charge at Manchester United he was high on self belief that if he had to transform Manchester United into one of the best in the business he had to do things his way not the players’ way. For that to happen he had to be in control of the tactics, strategy, discipline, training sessions, off days and recruitment. His personality was higher and bigger than that of the players. That allowed him to earn the respect of the players and everybody else at the club. Not for a single day was indiscipline tolerated. For example when Nistelrooy disgruntled in public he was promptly transferred to Real Madrid. When Roy Keane publicly criticized his team mates his contract was terminated. These actions sent out a message that it was the manager of Manchester United who was in command and not anybody else.

Timing the Communication

Nobody likes to be criticized and especially not the superstars of football. There has to be a courage, honesty, politeness and firmness in the way a manager says no to players. The manager needs to have these elements in him to be able to match the message to the moment. This is especially needed in situations when players had to be rested, substituted or axed from the team. Ferguson combined the roles of a doctor, teacher, parent and critic as a manager and his boys knew that he meant business. There was no messing around with him once a message had been delivered. A no nonsense approach improved the longevity of the team along with that of Ferguson and the players. No big player created at Manchester United ever wanted to leave the club because they knew that the opportunities for self development at the club were immense. This was in part a result of the communication that Ferguson committed himself to.

Play to Win

Managers talk of being flexible and situational. There are three coordinates for any situation in business and sport: time, space and scale. To play to win teams have to learn to prepare to win. A great part of that preparation need to be streamlined across these three coordinates of time, space and scale. That meant that Ferguson had to build and develop tactics, strategy, intensity and above all the technical and analytical skills in players separately for these three coordinates of time, space and scale. Manchester United practiced separately for a situation when they were going down 0-1 with 45 minutes, 30 minutes, 15 minutes, 10 minutes and 5 minutes of play left. The efforts reflected in the results on the field with Manchester United winning many close matches during Ferguson’s tenure. Also the team practiced very differently for away matches and home matches. The third check point in training sessions was that of scale. Ferguson prepared his players to repeat performances time and again and that was done keeping in mind the long schedules of the EPL and the UEFA.

At the top PGDM colleges in Delhi NCR like Ishan Institute of Management & Technology we pick up business lessons just like that from every nook and cranny possible to bring you of the box insights on business. The piece above is based on the efforts of the students of the college to bring high quality discussions and academic issues in management to the floor of the classroom. The top PGDM college in Delhi NCR acknowledges the efforts of Binay Kumar Singh and Subhash Yadav from 17th batch of PGDM, Uttam Singh Rajput and Zeeshan Khan from 18th batch, Abhishek Kumar Singh and Bipin Srivastava from 19th batch, Pawan Sinha, Utsav Kundu, Samir Akhtar and Alka Mishra from the 20th batch. 

Thursday, July 14, 2016

Designing the Exit Strategy for BREXIT: The Top PGDM College in Delhi NCR Speaks on Theresa May

At the top PGDM college in Delhi NCR, Ishan Institute of management & Technology, we have been following the chain of events that have followed BREXIT. The event is one of historic importance and epic proportions at that. Not since the end of the Second World War has Great Britain seen itself in such a quagmire. While it looked like a financial issue, the turn of events that led to the promise on a referendum by the former British PM David Cameroon and the results that have astounded many across the world have left room for the impression that it is a political issue with many dimensions. Now that Great Britain has its second woman Prime Minister in Theresa May there are some positive things to look forward to. At the top PGDM college in Delhi NCR, we are attempting an ambitious and intellectually stimulating academic surgery to diagnose the BREXIT issue and its different dimensions along with the probable solutions that Mrs. Theresa May may design to streamline the exit strategy. The BREXIT design issue promises to be a exciting case study in designing an EXIT strategy from the perspective of strategy, business environment and human resources management. Take a look.

Trade Policy of Theresa May and BREXIT

It may sound paradoxical if not subversive to hop and jump over to trade policy discussion on day two of the tenure of Mrs. Theresa May. Yet, it makes enormous good sense to assert that at the heart of the BREXIT is an unhealed wound of a meagre economic growth rate of 0.2%, one of the lowest in the last eight decades. Great Britain had virtually surrendered its competitive advantage in international trade by signing for EU membership. Negotiating a free trade agreement with European Union requires holding talks with each of these 28 member nations that call for diplomatic talks at government level. The entire process of signing one free trade agreement with EU takes 6 years. Trade data available with the Conservative Party shows that more than 50% of Great Britain’s trade volume is shared with non-EU nations like United States of America, Canada, India and China. Among all these nations, India takes the highest time to streamline and finalize a free trade agreement in 3 years while Canada, United States of America and China do the same in 1 year. Theresa May shall do well to accept the recommendations of the David Davis Conservative plan to design and sign free trade agreements with each of these non-EU nations while simultaneously exiting EU.

FDI and Reclaiming the Industrial Class of Great Britain

It is given and granted that London has taken a beating over the issue of BREXIT as a financial hub of Europe and the world. Many banks, financial corporations, insurance companies and microfinance institutions may think of exiting Great Britain and London in particular in the coming 2 years. Their next choice may be Dublin. What can Theresa May do loss offset this situation? She can design corporate income reductions to streamline the tax regime and use it as a tool to attract FDI from the blue chip corporations in the world. Great Britain houses a skilled workforce that is productive, healthy and industrious. They can look forward to recreating the manufacturing sector in which Great Britain had once done exceedingly well. First enable inexpensive import substitution through a flexible trade regime that allows manufacturing companies to import raw materials, spares, parts, accessories and value addition components from labour intensive economies like China and India. Second, offer corporate enterprises a corporate income tax rationalization program to reduce the corporate income tax rate from the existing 20% to 15% on EBITDA. Third, laser focus on sunrise sector verticals like automobile, pharmacy, biotechnology, genetic engineering, IT and software development and textiles through an unbalanced growth approach that leverages the high quality social overhead capital left over by the David Cameroon legacy.

Single Market Access and Using Free Trade on a Reciprocal Basis

The EU leadership consisting of the German Chancellor Angela Merkel, the French PM Francois Hollande and the Italian PM Matteo Renzi will be gunning for Great Britain to exit early. Theresa May is a known leader in the international community for her strong bargaining and arrogant, brash and abrasive style. This must be put to good use by Great Britain to push through bilateral free trade agreements on a country specific basis. Do not allow the EU members to form a cartel of sorts to pressurize Great Britain into giving into their demands for a single market access as it was during the good old days of Great Britain’s EU membership. The use of free trade on a reciprocal basis focusing in industry verticals will build the lost competitive advantage in sectors like automobile Most importantly Great Britain’s great strength is the large population of knowledge workers and the knowledge economy must be leveraged to build competitive advantage in select verticals on a reciprocal basis. On the contrary if Great Britain is forced to a raw deal, Theresa May does not have to be taught to reciprocate in the same coin.

Poland, Lithuania, Latvia and Ukraine: Engaging the East

In terms of foreign policy there are challenges galore. United States of America mus know and it hopefully does know that they have lost an essential ally and friend in David Cameroon. In Theresa May, Great Britain has found the British version of an American Donald Trump. Her priorities would not be to oblige United States of America but to keep Russia at bay. Four nations are strategically important namely: Poland, Lithuania, Latvia and Ukraine. It is for Theresa May to restore confidence to these nations as a military and economic power to offer them a shield against the expansionist regime of Vladimir Putin. That is easier said than done though. In the absence of EU, it will not be easy to negotiate with Vladimir Putin’s Russia.

At the top PGDM college in Delhi NCR, Ishan Institute of Management & Technology, we envisage a historic turn of history itself for Great Britain, as Theresa May takes charge at 10, Downing Street. We will keep updating as events come across.