Tuesday, May 24, 2016

760 (Part 6/100 of Indian Economic Enigmas): How many Industrial Houses in India are Sand Structures? Let us pray the non-existent God that GMR Empire will not go the Vijay Mallya way.

Here is a Deccanchronicle.com report titled "...gmr group-s founder gm-rao has-a-bad-day..." Click to go to http://www.deccanchronicle.com/business/in-other-news/240516/gmr-group-s-founder-gm-rao-has-a-bad-day.html (print edition tabloid 24.5.2016) . One wishes that it should not happen, but, events in India and the World do not happen or fail to happen, depending on our wishes. Let us WISH that GMR Group will not go the Vijay Mallya way, though there are some similarities and some divergences between the two Groups. Two quotes in this report are worth noting.

"...Rao was not in the best of moods as he was overheard telling one his employees accompanying him to get in touch with a publishing house that had just come out with a not-so-flattering book on the tycoon.

The book labelled him a “business failure” and Rao was furious. “Please write to them immediately and ask them on what basis do they call me a business failure? How can they? Just because we have some debts doesn’t mean that they ignore everything I have done,” he was heard saying. ..."

"...Rao’s next target was the pilot himself. Apparently the landing was not to his liking and Rao, who normally flies in his private jet, decided to have a word with the captain. He was overheard telling the hapless pilot: '...This is not the way to land a plane. I will write to the DGCA about this. ...' One can only wonder how his day went after this.

The GMR Group is said to have debts aggregating Rs. 43,439 crore (Rs. 434 billion).

Question: What are similarities between Mr. Vijay Mallya and GMR ?

Mr. Mallya is owner of IPL Cricket Team Royal Challengers, Bangalore. Shri GMR is owner of Delhi Dare Devils.

Mr. Vijay Mallya promised to donate for making a "gold wall cover" around Lord Venkateswara Temple, Tirupati. Whether this promise is fulfilled or not, Mr. Mallya was said to be donating some kilos of gold to TTD occasionally. Shri GMR is reported to have dedicated his entire shareholding in Infrastructure Sector to Charitable Truts.

Both Mr. Vijay Mallya and Shri GMR own PRIVATE JETS. For that matter, many industrial houses in India and abroad own private jets. Jets are as ESSENTIAL as SUITS AND TIES for BUSINESS PERSONS.

Question: What are dissimilarities between the businesses of Mr. Vijay Mallya and Shri GMR?

Ans: Unless we get complete details of the assets purchased by Mr. Vijay Mallya using moneys sent from India through normal banking channels, and the assets purchased by him using money laundering services, it is difficult to get any clear picture.

As far as GMR Group is concerned, their main investments seem to be in infrastructure sector, in projects such as airport-building, power generation, hotels and resorts. They do not have any investments in breweries. In all fairness to GMR Empire, we must say that while LIQUOR MAKING BUSINESS IS RISK FREE, IT HARMS THE NATION. It is not so with Infrastructure Building. Hence, we should be thankful to the GMR Empire that they have not spread their wings into breweries.

Question: Will it not be safer that Liquor making and selling remains in the hands of Indian Industrialists, rather than their falling into the hands of foreign Companies like Cobra Wines! When liquor making and marketing goes into the clutches of foreign Companies, they may force the entire Nation to compulsorily drink wine instead of water!

Ans: Though your apprehension is prima facie reasonable, as far as the poor man on the Road is concerned, it will not really make any difference. In Telugu language, there is a proverb: "yE rAyi aitE nEmi tala pagula koTTukOTAniki" (approx. English: If our intention is to break our heads, whichever be the stone, it makes little difference.) Granite, marble, Feldspar, everything will be fine. We can break our heads either with Italian Marbles or with Jodhpur Marbles.

Here also, banks have a tendency not to make public, details of defaults made by business empires, unless and until things go to the extremely worst state.

Right now it will not be prudent to arrive at hasty conclusions about GMR Group or any other Group in India or abroad.

90% of Indian Industrial Houses whether traditional or modern- i.e. promoted by 1st generation entrepreneurs, are not sky-scrapers. They are SAND-SCRAPPERS i.e. built with sand dunes. When our great sand sculpture artist of Puri Shri Sudarsan Patnaik makes sand structures on the banks of Bay of Bengal, we know pretty well that they are just made of sand. Whereas, in case of our industrial houses (both Indian and non-Indian), such pre-knowledge or prior-awareness is not possible. This is because our Chartered Accountant Firms which audit our industrial houses, are not Chitra Guptas who always remain loyal to Lord Yama instead of the Creatures. Our Chartered Accountant Firms are more loyal to their paymasters i.e. the promoters and the de-facto guys (need not necessarily be owners!) who drive our industrial empires, and they may not bother even to know that stake holders (small share holders, employees, creditors, suppliers, banks and Mutual Funds, Trusts, et al) exist. Recall what the overseas audit house and its Indian Organ had done in the audit of Satyam Computers.

Top-to-bottom Managers of our Indian Public Sector Banks may have a strong desire and will to supervise the disbursement and end-use of the funds they sanction to industrial houses. They may also have a strong urge to follow up their advances to industrial houses with meticulous care. But, they do not have the wherewithal to supervise and follow-up. Our Public Sector Banks neither have the manpower, nor the equipment and systems to monitor the end use. Hence, once a credit limit is granted to a very large business empire, the PSBs will have to remain mute spectators, even if they know that funds are being lavishly frittered away or being diverted. Then, every year, or every two years the Banks have to renew / review the credit limits which is done in a routine manner, by increasing the loan amount to take care of the old loan plus interest. It will be sufficient for the industrial borrowers to show some highly-overvalued, apparently-though-not-really tangible immovable properties as security, and sign all the loan documents on dotted lines, affixing the Company seal. For that work, the Company's CFO and Company Secretary will help. What for are they?

In case of Private Sector Banks, things appear to be more hazy. The top bosses of the Private Banks and the top bosses of the Industrial Houses, may be personal friends, distant relations, mates in Clubs and Pubs. They may even be sharing same film stars or girls. All the industrial loans and large business loans made by Private Sector Banks have not really been tested (are not being tested) for their liquidation. Truth will come out only when a forced sale takes place.

It is not possible in one blog post, to examine the entire evolution and rot in the Indian Banking, Insurance and Finance Sectors. We may need a thousand blog posts.

There will also no point in blaming only the Vijay Mallya or the GMR Empire or some other Industrial House. All the Business Houses and Industrial Houses in India need deeper probes, about their Financial Management, using the services of dedicate teams of Audit and Inspection (not from the existing Tribe of Auditors). Thousand Justice Lodhas will be necessary to cleanse the mess.

To temporarily close this blog post, let us wish, and pray the NON-EXISTING GOD, that GMR Infrastructure Empire will not go in the same route, trajectory and way as the Vijay Mallya Empire.

Incomplete. Subject to thorough future revision depending upon availability of evidence.


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