Monday, 31 August 2015

Jan Dhan Sarjan Yojana

You have heard that the :

>  Jan Dhan Yojana completed one year on 28 Aug 2015

>  By creating some 17.5 crore accounts during this period , it became ,
    "  World's largest financial inclusion "  scheme

>  There was no need to have a minimum " Bank Balance " to open account

>  Zero bank balance accounts declined from 76% to 45% in last year

>  Bank Overdraft of Rs 5000 allowed after 6 months

>  Of 10 lakhs a/c qualifying for overdraft , 1.65 lakh have used it

By all accounts , this Yojana ( Scheme ) is all set to bring about a revolution in the matter of financial transactions of the poor people of India

Especially thru the use of RuPay Debit cards , every time these poor buy any goods or services from a local " Kirana " shop ( except that 99.99 % of these small local shops don't have card-readers ! )

In the meantime , there are a few other " Game Changing " revolutions
shaping up

These are :

>  RBI permissions to some 20 Organizations to start " Payment Banks "
    ( Including Mobile Service Providers / India Post / PayTM etc )

>  Launch of a large number of " Hyper Local " e-commerce firms which
    deliver goods / services to local residents, placing orders thru mobile apps

>  Launch of quite a few " Mobile Wallet " apps, tied up with no of banks
    and millions of small shop-keepers , all over the country

>  Last - and most important - expected launch of  GST  in April 2016

Can we seize this opportunity to " Synergize " these parallel changes ?

It seems , not only possible , but outright essential  !

By launching ,  Jan Dhan Sarjan Yojana 

 ( People's Wealth Creation Scheme )

As follows :

>   If GST is going to be ( say ) 20 % , Government will transfer from this ,
     2 % ( ie 10 % of that 20 % ) , to the PPF account of the Consumer /
     Buyer , who pays for the Goods / Services purchased , using a RuPay
     Card or a " Mobile Wallet " app

     This will motivate millions of self - employed to open  PPF  accounts !

>   Since interest from a PPF account is tax-free , every citizen would , now
     want to make all payments thru RuPay card or a Mobile Wallet App

>   RuPay cards are already tied up with accounts opened under Jan Dhan

>   Mobile Wallets Apps will also get tied-up with thousands of branches of
     Payment Banks , which will open in next 18 months

     Just imagine the number of new accounts that will get opened in the
     1,55,000 + post offices of India Post  !

>   In this way , Social Security will become " Self Financing " !

>   Currently , in India , some 97 % of all payments are " Cash Payments ".
     With introduction of this proposal , these will drastically decline

>   Any payment made , using RuPay card or a Mobile Wallet App , will make
     available to the Income Tax Department , full digitized record of each
     such transaction , including :

     *  Who  made the payment

     *  To whom was that payment made

     *  When was that payment made

     *  For what purchase , was that payment made

     *  What was the amount paid

>   One , very desirable consequence of  Jan Dhan Sarjan Yojana
     will be that our " Domestic Savings Rate " will climb back to 30 % !

      In turn , this will help us wither global economic crisis , much better  !

I have a feeling that my proposal will be welcomed by all sections of our Society and find overwhelming support for the passing of the GST bill by all political parties


hemen  parekh

31  August  2015



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Friday, 28 August 2015

Time to Re-Think ?

Time  to  Re-Think  ?

Among many problems being faced by India these days ,are :

>  World - wide slowing down of economy

>  Rapidly rising workforce / unemployed

>  Resistance to Labour Reforms by Unions

>  Chinese currency devaluation

>  Rapid decline in our Exports

Even as Central Government Ministers sit down today, to listen to ,and address the Charter of Demands of Labour Unions , may be they need to articulate , in no uncertain terms , what the Unions must " Give " , in return for what they expect to " Take "

At this stage , the only thing that can save our country going the way of Greece , is :

Make India , a " Low Cost Economy "

I hope what I wrote to 7,500 employees of L&T Powai Works , some 31 years back , provides some clues

with regards,

hemen  parekh

27  Aug  2015


16 AUG 1984

To: All Employees at Powai Works

Dear Friends :

In Brazil they call it......    Indexation

In America they call it...... COLA  ( Cost of Living Adjustment )

In Italy they call it ......... Scala - Mobile  Escalator.
 In India we call it..........  D.A.  ( Dearness Allowance )

But everywhere,  it means  the same  thing to  the employees.
Whenever  inflation pushes  up  prices  in  the  market,  some index  published  by  the  Government  will  also  rise. 
In India, we call it   Consumer Price Index  (  CPI  )
Whenever C.P.I, goes up, D.A.  goes up, putting more money in the hands of an employee.

The  idea is that  even though  the prices may  have gone  up , with  the  extra  D.A.  in  his  hands,  he  can  continue  to purchase the same quantity  of articles as before.

Rising prices raise the " Cost of Living " .

So the experts  thought :

"Let us put  more money in the  hands of  an employee - to   take care  of  the  rising  prices  -  to neutralize the rise in the ," Cost of Living "

Fine idea ! 

In fact, originally this is an Indian idea 

We, in India, introduced it  40  years ago. 

Americans and Italians introduced it only a few years ago.

Italians call  it " Scala - Mobile  Escalator ".  

Seems like  they borrowed the  idea  from our own " Escalator-culture " !

Except that they  seem to have discovered  something within 5 years  (1979-1984) which we have  still not  discovered after 40 years .  Or do not wish to discover !

And that is :

Every time D.A. goes up, " Cost of Production" also goes up !

And if  " Cost of Production "  goes up, " Selling Prices " must also go up. 

( We were forced to  raise the selling  prices of our Switchgear  Standard products a few days ago )

If we do  not raise our selling prices,  our profits will  go down

But  nobody   likes  profits   to  go  down   -  neither   the shareholders nor the employees.

So  what is  the problem ?  Just keep  raising  the selling prices, whenever costs go up.

But the Italians are thinking :

"No that won't  work. 
If we  wish to  sell fertilizer plants in India, our  selling prices must be  lower than the selling prices of the  Japanese manufacturers  ( who last month gave a YEN 6 billion  loan to India, to buy  a fertilizer plant from Japan )
And our  selling prices  must be lower than those of an Indian company  called L&T
But we cannot force L&T to raise its selling  prices. 
All that  we can do  is  to reduce  our costs, by slowing  down the " Scala Mobile Escalator  "— Down with D.A. ! "

If our Mr. V.G.Desai (Divisional Manager -Chemical Division ) could hear the  Italians thinking, he would  jump-up and say:
 " Very dangerous thinking ! "
He means  dangerous  for us - for  L&T

Let me  assure you, VGD  has  no love  lost for  the Italian   workmen !

And  with all  the  affection he  has  for our  own employees  he  keeps gazing at the following chart.


And he wonders :

How  the Italians  ( even Japanese ) would  love to  get a copy of this chart  !

Does  Indian  Industry  have  the  "Italian Option"   ( of stopping or slowing down the D.A.) ?

If not , can   people   of   Powai,   possibly   increase   their productivity quickly enough  to neutralize the following increases in the wages ?

Increase/ Employee
Rs / Month
Jan. 1979 Settlement   (Average)
D.A.Increase (Jan1979 -July 1984)
475 to 1114
April 1984 Settlement (Average)
1225 to 1864

How shall we respond to these questions ?

h c parekh


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Saturday, 22 August 2015


Shri Arvind  Panagariya

Vice Chairman , NITI Aayog


Dear Shri Panagariya ,

I refer to a Business Line ( 22 Aug 2015 ) article titled :

" India Inc should offer ideas to create jobs : Panagariya "

This article quotes you as follows :

"  They should say what the government should do so that employment increases at good wages

Where is the passion for hiring workers in the industry here ? .. You need to lobby to the government  to bring more employment

What are those conditions ( for creating more jobs ), only entrepreneurs can tell
What is keeping them from employing more workers ?  "

Dear Arvindbhai ,

This is a complex issue where many opposing interests collide

It is almost like : An irresistible force acting upon an immovable object !

But here are my suggestions :

Fear ( Dis-Incentive )

Industrialists and Entrepreneurs " fear " that , once hired , they will not be able to " lay off / retrench " workers , when there is a downturn in business.

No one knows it better than an eminent economist like you that , in the life of all businesses , occasional downturns are inevitable


With devaluation of Chinese currency , Chinese companies will become very competitive and aggressively export their products to India

Many Indian Companies will be forced to shut down - unless they can reduce their costs , in order to match the Chinese prices ( eg: Solar PV panels ? )

Since manpower cost is a " Variable Cost " , employees will need to be laid off ( temporarily ) or retrenched ( permanently ) , with adequate compensation to the employees affected

And , to have any impact ( on the survival of the business ) , this should be allowed to happen within days ! Without seeking umpteen permissions !

As long as Employers have this assurance , they will not hesitate to hire more workers when the business picks up again

Profit ( Incentive )

To provide a positive - and a very powerful - incentive to more and more hiring , we must keep reducing incremental Corporate Income Tax , as a Company's worker-strength / manpower , keeps rising

That is :

The more no of persons ( on permanent rolls ) a Company employs , the less incremental Corporate Income Tax , it pays !

That would be Government's way of telling the Corporate World :

" You get rewarded for creating employment

   This ( incremental tax reduction ) , is our way of recognizing you as " Job Creators - the Brahmas "

#   Cost Reduction

In the large organized sector , DA ( Dearness Allowance ) is linked to monthly rise ( there is rarely , a " fall " ! ) in CPI

In almost all cases , this " Cost Neutralization " is pegged at 100 % - and in case of a few Companies , even higher !

As a result , in case of many Companies , wages ( - and consequently , salaries of Supervisors and Managerial Staff ) , have gone thru the roof !

As a consequence , following things are happening :

*   Companies are resorting to more and more " Mechanization / Automation " - thereby needing less and less manpower


Companies in advanced countries are paying 10 times higher wages ( than in India ) , but still getting 10 times higher " Worker Productivity " - because their factories are forever getting automated !

Last week , news reports talked of a factory without a " Single Worker "  !

*  Companies are moving out of cities / towns which have become " High Wage Islands " - creating unemployment in such cities

*  Companies are hiring more " Contract Workers / Temporary Workers "

Whereas , we may not be able to totally reverse this trend , there is a way to " Slow It Down "

By reducing " CPI linked " Cost Neutralization from 100 % to 50 %  !

Important questions to be answered here , are :

>  What is our " Long Term " goal ?

    Is it to enable the existing employees to  maintain their current
    " Standard of Living " ( thru 100 % Cost Neutralization ) , or is it to create
    more jobs ( even if low-paid ) and a " Low Cost Economy " ?

>  Who ultimately benefits thru 100 % Cost Neutralization ?

    Is it the " Working Class " or is it the " Trading Community " , who raise
     the selling prices as soon as DA goes up ?

>  Can 50 % cost neutralization (in Aug ) , lead to lower manufacturing
    costs ( in Sept ) , resulting in lower Selling Prices ( in October ) ?
    Resulting in a lowering of CPI ( in December ) ?

    In this manner , is it possible to set in motion , a VIRTUOUS CIRCLE ?

#   Productivity

    Can an increase in productivity lead to increase in employment  ?

      On the face of it , reverse seems to be the case !

      Workers are opposed to increase productivity by working harder , if that
      would mean , need for less workmen !

      Which labour union would agree that its members would increase
      productivity, if that would lead to " sacking " of some workers rendered
      " surplus " due to increased productivity ?

      Hence , the very first thing that Employers need to do is to promise :

     "  No worker will get laid-off / retrenched , if Union / Workers promise to
      increase absolute productivity ( at CONSTANT PRICES ) by 5% per year"

      Result ?

      Increased productivity will result into lower manufacturing costs

      Lower manufacturing costs will make products more competitive

      Keeping same selling price or even lowering it , will increase demand /
      market-share of a given Company

      That would lead to more hiring !

      With such a " PRODUCTIVITY / NO LAY OFF "agreement , workers will
      not resist introduction of mechanization / automation !


#    Prosperity Sharing

    Whereas sharing of a Company's prosperity with its employees is highly
      desirable , it seems , we have gone about it in such a way that it inhibits
      more hiring !

      Thru " Payment of Bonus Act " , we have mandated that the Employers
      share the Company's profits thru a complex formula , which totally
      ignores various external factors which also play an important role in
      determining a Company's year-end profit

      And , employee productivity increase / decrease ( at constant prices ) ,
      is not even a factor in this formula !

      As a result , when the upper limit of 20 % bonus got reached , workers
      started telling the Management :

      " 20 % is what the Government gave us . What are YOU giving ? "

      Today , many employers are forced into paying a hefty " Ex Gratia " , on
      top of that 20 %  !

     This acts as a deterrent to more hiring !

     I am aware that Government's efforts to introduce a" Productivity-linked"  
     bonus formula , some 30 years back, was vehemently resisted by Unions

     But times have changed .

     Any resistance ( whether on part of Workmen / Unions or Managements )
     which comes in the way of increasing employment , must be overcome
     thru continuing dialogue

#   Imparting Skills

    Time and again , employers have complained :

      " New recruits , don't have the necessary skills to do their jobs well  "

      Apparently , this comes in the way of hiring more persons and vacancies
      remain unfilled

      Recognizing this , Central / State Governments / Other Agencies , have
      launched a massive program to train some 500 million youth by 2020

      In this effort , the lead role will be played by some 11,500 ITI
      ( Industrial Training Institutes ) , which offer a large number of Craft /
      Trade related courses , approved by NCTVT

      Most of these are 2/3 year courses

      These ITI trained youth are supposed to be given further " On the Job "
      training in factories and offices , in the ratio of 1:7 ( ie: one such trainee
     to be employed for each 7 permanent employees of same trade )

     Under the Apprentice Act , this is mandatory for employers , unless they
     have their own " In-house " training schemes approved by Govt

     My suggestions :

    >   Change ratio from 1:7  to  1:2

    >   Ratio not to apply " Trade-wise " but to the total no of
          permanent employees

    >   Increase in-house training period from 1 year to 3 years

    >   Reduce monthly stipend to " Statutory Minimum Wages "

    >   No compulsion for absorbing such trainees at the end of
         the  training period

As a result of the suggested changes , following will happen :

>    Millions acquiring skills under NCSD , will get stipendiary jobs at once

>    Some 57 million MSME will each take , 1 to 2 such trainees

>    Even if not absorbed by the Company , they will be ready to become
      self employed

>    They will become eligible for Start-Up loans ( from MUDRA support )

>    Manpower costs of training companies will come down drastically ,
      since stipends will be quite low as compared to regular wages

      This will make companies ( especially , MSME ) , competitive

>    In future , Companies will get a ready supply of skilled workers

>   There will be increased demand for such " Company - trained " workers
      in Gulf Countries

Dear Arvindbhai ,

I have no doubt that Industry Associations ( ASSOCHAM / FICCI / CII etc )
and various Chambers of Commerce , will send to you their own suggestions
 in this matter

But , I feel , we need to build a broader consensus on this vital issue

We need to involve millions of ordinary citizens in arriving at a solution
This is not only possible but simple as well

I suggest , NITI Aayog , frame an objective / multiple-choice / Yes - No ,
 type of questionnaire , incorporating ( wherever considered , relevant )
suggestions made by me above

Such a questionnaire may be sent to :

>   All Industry Associations / Trade Bodies

>   All Chambers of Commerce

>   All Professional Associations

>   All MPs / MLAs

>   All Indian Companies ( including 57 million MSMEs )

Apart from that , the Questionnaire may be uploaded on as many
 Government Web Sites as possible , for online " Voting " by ordinary

You may even consider use of Social Media web sites and use of Mobile App

I will be happy to contribute with design of such a Questionnaire , if desired

with regards ,

hemen  parekh

(M) 0 - 98,67,55,08,08


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