https://t.me/pdf4exams https://www.estore33.com/ https://t.

me/TheHindu_Zone_official

>
OPINION 11
STAY INFORMED THROUGH THE DAY @ WWW.BUSINESS-STANDARD.COM.

Volume XXII Number 210 ILLUSTRATION: BINAY SINHA

MUMBAI | TUESDAY, 5 JUNE 2018

A question of propriety
ICICI Bank’s board should resign would create “another South China Sea rising out of

O
the world’s highest mountain range”.
n current reckoning, the board that manages ICICI Bank has failed in
The next day, on May 21, communist party
its core fiduciary duties of safeguarding shareholder interests in the mouthpiece Global Times rebutted the Post’s report,
country’s largest private bank. Two whistle-blower complaints, two declaring (somewhat obviously) that there was no
years apart, have raised allegations of conflict of interest involving similarity between the South China Sea and the
Chanda Kochhar, chief executive officer (CEO), and loans ICICI Bank extended Himalayan border. Global Times quoted a Chinese
to prominent corporate groups that had business dealings with her husband at expert who said the Post’s “groundless hype reflect-
the time. For the first complaint, involving the Videocon group, the board seemed ed the fact that some Western powers are constant-
to be in a hurry to pronounce that it was satisfied that Ms Kochhar had not ly sowing discord between China and India, and
using Delhi as a pawn on the frontline challenging
indulged in any impropriety. The statement issued by the bank was a model of Beijing.”
opacity, offering no details on the scope of the enquiry, how it was conducted, who This is typical of China’s clever, new propaganda,
carried it out, and the basis for the conclusion. The bank’s chairman, M K Sharma, which keeps alive its claims over disputed areas even
declined to answer media queries, nor was Ms Kochhar available for comment. as its leaders vow tranquillity in “informal summits”
No less extraordinary was the fact that Ms Kochhar did not step aside for the with India. Beijing, knowing that reports of a high-
duration of the enquiry, which inevitably raised doubts about the credibility of value mine in Tibet near the Arunachal border would

Talk to the graziers

the exercise. No surprise, the share price tanked, eroding shareholder wealth by interest India, breaks the story through a planted
report. Then it rebuts that with another (barely)
nearly 12 per cent or ~270 billion between mid-March and early April. ICICI Bank
deniable report that baldly stated: “Chinese mining
remained in the eye of public suspicion not least because it holds the highest pro- in its own territory will not provoke conflict, unless
portion of bad loans (8.8 per cent) among private sector banks, and the Videocon India allows western powers to use it against China”.
group is a major contributor to that portfolio. Those doubts endured as the India’s border security lies more in integrating and developing the Thus, Beijing shapes international perceptions, con-
Serious Fraud Investigation Office and the Central Bureau of Investigation fuses and unnerves Indian policymakers and keeps
stepped in. territory it claims than in agreements with foreign leaders the border issue on the boil.
The board’s collective ineptitude was highlighted again late last month Were China really interested, as Global Times

P
when the Securities and Exchange Board of India issued a notice to the bank and rime Minister Narendra Modi’s speech last
Friday at the Shangri-La Dialogue in Singapore
Ms Kochhar for allegedly violating basic disclosure requirements on the case
was, for many, a damp squib. That annual
involving the Videocon group and the CEO’s husband. Four days after the mar- event has traditionally provided a forum for the US-
ket regulator’s notice came an announcement from the bank that it would con- led camp in the Asia-Pacific to lambast growing
duct an independent enquiry into fresh allegations from another whistle-blow- Chinese aggression and expansionism, and for sen-
er alluding to conflicts of interest between Ms Kochhar and loans ICICI Bank ior Chinese officials to blandly signal back that
extended to the Essar group, which had also had business dealings with her hus- Beijing does not care what they feel. This was where,
band involving offshore entities. The group is also a defaulter. The statement said in 2010, Yang Jiechi – then China’s
the bank’s audit committee was in the process of appointing an “independent and foreign minister and, until April,
China’s Special Representative in
credible” person to conduct this enquiry.
border talks with India – famous-
This begs the question about the credibility of the board’s first enquiry, and ly brushed off Singapore's foreign
particularly the role of the independent directors, whose status demands unim- minister with: “China is a big coun-
peachable impartiality. Given this serial evidence of incompetence, it is surely try and other countries are small
incumbent on the board members to resign and make way for others more capa- countries, and that's just a fact.”
ble of asking the hard questions that are needed to clear the air. This is not so This year, there was high anticipa-
unprecedented; late last month, the controversies over the sale of Fortis Hospitals tion over Mr Modi’s participation
saw three directors resign ahead of an extraordinary general meeting (EGM) as keynote speaker, given recent
scheduled to remove them and another was voted out at the meeting. If Ms
Sino-Indian tensions like last
year’s confrontation between BROADSWORD
Kochhar took leave of absence during the duration of the enquiry, she would have Indian and Chinese soldiers at AJAI SHUKLA
gone some way towards allaying shareholder misgivings. With foreign investors Doklam, in Bhutan, where blood
accounting for over 60 per cent of its shareholding, ICICI Bank’s governance deficit came close to being spilt.
is squarely in the global eye. It’s clear by now that the board has lost the impor- Mr Modi, however, motivated apparently by
tant battle of perception. Rescuing its reputation must surely be more critical than agreements reached with China’s President Xi
holding on to power. Jinping at their “informal summit” last April in
Wuhan, passed up the opportunity to call out China’s
worrying aggression. Instead, in a throwback to
This sensitivity towards China has become appar-
ent this year. Assuaging Beijing’s concerns over
India’s role in Tibet, the government has placed
severe restrictions on the Dalai Lama and the
100,000-plus Tibetan refugees in India. An “inter-
faith meeting” planned at Rajghat on March 31, to
commemorate the 60th anniversary of the Dalai
Lama’s escape from Lhasa to India, was cancelled on
March 2. Another rally planned in
New Delhi on April 1 was similarly
cancelled. There are restrictions
now on “security grounds” on
meetings between Chinese (read
Tibetan) monks and the Dalai
Lama. This sidelining of the Dalai
Lama contrasts sharply with his
high profile visit to Arunachal
Pradesh a year ago, when he was
warmly received by chief minister,
Pema Khandu, evoking strong
protests from Beijing.
Separately, compared to last
year, New Delhi has sharply scaled
down participation in the trilater-
al, US-Japan-India naval exercise Malabar, which
begins on Thursday. Unlike the US and Japan, which
are fielding aircraft carriers and submarines, India is
sending just three mid-sized surface warships.
Beijing will be pleased with that.
claims, in “addressing disputes through direct nego-
tiations and making sure such issues won't under-
mine normal ties”, would Beijing not be engaging
New Delhi on contentious issues like water sharing
and the downstream impacts of mining and indus-
trialisation in places like Lhunze, which threaten
damaging effects on the Subansiri river in
Arunachal? Instead, China watchers note that Beijing
is aggressively prioritising border infrastructure
development and establishing “model border vil-
lages”. Chinese leaders in Tibet have visited 1962
war memorials, and held mobilisation drives near
Lhunze, particularly in areas inhabited by Monpa
tribals, who also populate Tawang. As Chinese state
media widely reported last October, Xi Jinping wrote
a personal letter to a family of Tibetan herders living
in Yumai, a border village near Lhunze, thanking
them for keeping China’s claim to that border area
alive by inhabiting that inhospitable area. “Yumai
would be occupied by India already if the family
had decided to leave,” Chinese National Geography
quoted the village’s headman as saying.
Beijing regards all the area it controls, whether
disputed, loyal or not, as its own and develops it
relentlessly. In contrast, New Delhi views its bor-
ders almost exclusively through the lens of defence,
security and militarisation, evaluating even devel-
opmental infrastructure in that framework and often
treating local inhabitants as potentially disloyal.

IBC’s blind spot Jawaharlal Nehru at Bandung, he dwelt on India’s

Rights of operational creditors need to be spelt out
historical role as a bridge between the Indo- and the
-Pacific and as a champion of the liberal, interna-
tional order. While duly ticking the boxes of freedom
of navigation, connectivity and rule of law, Mr Modi
While New Delhi has tamped down on activities
that might upset Beijing, in the belief that the prover-
bial “reset button” has been pressed between Messrs
Modi and Xi, it is business as usual in Beijing, which
recently served up a pointed reminder of its claim
Road development in Ladakh, Uttarakhand and
Arunachal Pradesh remains a sorry joke, tourism
has never been promoted seriously; and healthcare,
sanitation and education remains utterly neglected.
With most northeastern states, the Centre’s com-

A
s the first exercise of its kind in India, the Insolvency and Bankruptcy took an emphatic step back from maritime con- over Arunachal. This began with a news report on pact boils down to: We’ll allow you the run of a few
frontation with China, stating that India wanted on May 20, in the South China Morning Post (hereafter billions and station military troops; in return, you
Code (IBC) has been a work in progress, entailing periodic adjustments
“return to the age of great power rivalries” in the “the Post”), which is owned by Alibaba’s Jack Ma, maintain the fiction of your state being a rose in the
to the rules as unforeseen issues come to the fore in settlement pro- Indo-Pacific. and is Beijing’s favoured media outlet for capturing bouquet that is India. Unlike in authoritarian China,
ceedings. These issues oblige the National Company Law Tribunal Again echoing Mr Nehru, who he has often readers’ eyeballs outside China. The report, titled no prime minister since Nehru has harnessed local
(NCLT) and the National Company Law Appellate Tribunal (NCLAT) to create a reviled as a peacenik, Mr Modi stated: “No other “How Chinese mining in the Himalayas may create communities, including tribal leadership and gra-
body of precedents and settled law for the smooth functioning of the debt recov- relationship of India has as many layers as our rela- a new military flashpoint with India”, described a ziers, to give them a major stake in their own secu-
ery process, which has become critical to kick-start the economy. Earlier, the rules tions with China. We are the world’s two most pop- $60 billion trove of precious metals” unearthed near rity. New Delhi must realise that border security lies
were tweaked to bar promoters from bidding for the own companies under the ulous countries… Our cooperation is expanding. Lhunze, close to the border with India, which would less in agreements with foreign leaders, and more in
IBC, as also those who had stakes in debtor companies. Even as the NCLAT is hear- Trade is growing. And, we have displayed maturity provide China with a powerful incentive to exercise integrating and developing the territory it claims. It
and wisdom in managing issues and ensuring a its claim over “South Tibet” (as China calls Arunachal is in this important aspect that Mr Modi must borrow
ing these issues, two cases before it in the past fortnight have raised another con-
peaceful border.” Pradesh). Predicting conflict, the report said this from Mr Nehru.
tentious issue: That of the rights of operational creditors or supplier-creditors.
Understandably, perhaps, much of the focus of insolvency has been on financial
creditors (banks), which was the basic raison d’etre for the IBC law in the first place.

EM currency fears: Right, but misplaced

Although the IBC allows operational creditors to invoke the insolvency resolution
process, the cases of Larsen & Toubro (L&T) and Ericsson reflect the unanticipated
variables in the mix.
L&T’s case concerns the resolution process for Bhushan Steel, the first of the

T
here’s a reason to worry about emerging-mar-
12 major debtors that the Reserve Bank of India (RBI) had referred to the IBC. Last
ket currencies, but not the one investors have in
week, Tata Steel completed its purchase of a 72.65 per cent stake in Bhushan Steel mind.
after agreeing to pay banks ~352 billion. About ~12 billion is reserved for operational Some developing countries are stumbling, and
creditors in the agreement, of which L&T alone accounts for a hefty ~9.6 billion. their currencies aren’t taking it well. Turkey’s lira is
The catch here is that the distribution of banks’ dues has been defined in con- down 16 per cent against the dollar since its peak on
sultation with Committee of Creditors, but not that of the operational creditors. February 1 through Wednesday, and Brazil’s real is also
Indeed, operational creditors are typically not part of creditor committees, on down 16 per cent since Jan. 24.
The declines have recently
grounds that their payments are routed through bank loans. Since this clearly has
spread to other EM currencies. The
not been the case, L&T has moved the NCLAT, seeking a definitive settlement. This MSCI Emerging Markets Currency
ruling when it comes will be the first case to address this issue. Index — a basket of currencies that
Swedish telecom equipment maker Ericsson was the first operational cred- tracks the country allocations in
itor to invoke the IBC for Reliance Communications (RCom) and two subsidiaries the MSCI Emerging Markets Index
to recover dues worth ~16 billion. If the cases were admitted, RCom would have — is down 3.5 per cent since its
been unable to push through its restructuring plan, which entailed selling its assets peak on April 3 through
to Reliance Jio and reducing its ~460 billion debt to ~60 billion. RCom appealed Wednesday.
Investors didn’t need more rea-
to the NCLAT, which stayed the IBC reference, allowing the company to go
sons to fear the swings in EM cur-
ahead with its asset sale on the stipulation that it pay Ericsson ~5.5 billion upfront rencies. Mark Haefele, the global NIR KAISSAR
and that both companies would file an affidavit by June 7, confirming that they chief investment officer for UBS
would abide by the settlement. Group AG’s wealth-management unit, summed up
The interesting point about the order for the parties to settle the matter is the the conventional wisdom recently, telling Bloomberg
observation by NCLAT Chairman Justice J Mukhopadhyay that the fate of oper- TV that “there’s so much volatility in these EM cur-
ational creditors under the corporate resolution process was “not ideal”, suggesting rencies that global investors are taking a pause.”
that the issue demands some more clarity. With the tribunals headed for a Investors’ concerns are misplaced, however,
because there’s little evidence that the volatility of EM
month’s summer vacation, L&T will have to wait for a decision on its appeal. The
currencies has a meaningful impact on their portfolios.
issue at stake is whether financial creditors and operational creditors should be Most investors are exposed to foreign currencies
treated on a par, and this extends to the status of statutory creditors such as the through investments in overseas stocks. One way to
tax authorities. How the NCLAT treats this issue will determine the nature of the gauge the volatility of those currencies is to compare
IBC process in the future. the return from overseas stocks in dollars —which is
subject to currency fluctuations — with the return in
local currency — which isn’t.
Consider that the standard deviation of the EM
index has been 21.4 per cent in local currency from 1988
through April — the longest period for which numbers
are available — compared with 22.6 per cent in dollars,
or 6 per cent more volatile. In other words, EM cur-
rencies have added only modest volatility to the return
from emerging-market stocks in dollars.
In fact, the incremental volatility from foreign cur-
rencies has been higher in devel-
oped markets. The standard devi-
ation of the MSCI EAFE Index —
a collection of stocks in developed
countries outside the US — has
been 14.6 per cent in local curren-
cy from 1988 through April, com-
pared with 16.7 per cent in dollars,
or 15 per cent more volatile.
Nor is that incremental volatil-
ity meaningfully higher during
downturns, when investors reput-
edly flee to the dollar for safety. I
counted six episodes since 1988 in which the EM index
was down 20 per cent or more. The average standard
deviation during those periods was 21.6 per cent in
local currency and 24.1 per cent in dollars, or 11 per cent
higher on average.
Here again, developed-market currencies kicked up
more volatility. I counted five drawdowns of 20 per cent
or more for the EAFE index since 1988. The average
standard deviation was 17 per cent in local currency
and 19.5 per cent in dollars, or 15 per cent higher on
average.
So for most investors, the problem with EM cur-
rencies isn’t volatility. Instead, the real threat lurks in
another conventional wisdom: That currency fluctu-
ations even out over time. It’s an appealing assumption,
and there’s some evidence for it. The EAFE index has
returned 3.3 per cent annually from 1988 through April
in both dollars and local currency.
But that assumption hasn’t held up in emerging
markets. The EM index has returned 23.6 per cent
annually in local currency from 1988 through April, but
just 8.4 per cent in dollars. EM currencies, in other
words, have depreciated a lot relative to the dollar over
the last three decades.
That’s not the only thing that has changed. A grow-
ing number of emerging-market stock mutual funds
and exchange-traded funds hedge their currency expo-
sure, which means that investors can invest like locals.
The only catch is that currency-hedged funds are gen-
erally more expensive than unhedged ones.
In hindsight, currency-hedged funds would have
been a boon to emerging-market investors had they
existed three decades ago. But it’s not obvious that the
higher cost of hedging will pay off going forward. As my
Bloomberg Opinion colleague Robert Burgess pointed
out recently, there are good reasons to believe that
developing countries are better able to defend their cur-
rencies than ever before. And despite all the tumult in
places such as Turkey and Brazil, emerging markets are
generally more stable and financially savvy than in
decades past. All of that should firm up their currencies.
Still, as the frantic warnings about EM currencies
pile up, investors should bear in mind that the real gam-
ble isn’t the fleeting ups and downs. It’s the risk of a slow
decline that goes unnoticed until three decades have
passed.
@Bloomberg

Attention for sale

we try to fit in all the things we need to get
done, but somehow, the sheer mass of
distraction that turn our heads is
astounding. The business of grabbing
attention, and holding it, is tough and
has been tempered over several decades.
BOOK REVIEW Tim Wu’s The Attention Merchants: The
Epic Struggle to Get Inside Our Heads
MANASA VENKATARAMAN offers a thorough, introspective study of
the evolution of this attention industry,
on the global trend in India as well.
The book covers three themes: A his-
tory of the leaps in the advertising indus-
try; an introspection of online ads and
merchants of these wares today; and
why there is a need for a human recla-
mation project.
Beginning by tracing the evolution of
the American ad industry over the last
century, Mr Wu analyses how technolog-
We start by seeing that once sold as med-
icine, snake oil was just hogwash market-
ed as magic. We then march through the
World War II years and notice how gov-
ernments held their nations’ attention by
evoking fear, righteousness, and even
vengeance. Once the fifties hit America,
we begin to see chinks in the attention
merchants’ armour – consumers began
realising that scams were being conduct-
ed to capture their mind-space, and this in
turn ushered in a different theme of ads.
The second theme of the book rough-
ly begins in the glorious nineties, with the
disturbing precedent this would set for
the future, if it goes unchecked.
Mr Wu argues on behalf of the unas-
suming consumer, who is often forced to
pay the attention currency. He makes
important arguments when he discusses
the personal data that digital advertising
companies amass, especially by collecting
data without obtaining its audience’s free
and knowing consent.
However, as these things don’t take
place in a vacuum, it is necessary to look
at the ad industry from the perspective
of the business as well. In a heavily com-
Interestingly, Mr Wu proposes adopt-
ing a different technological ethic as a
means to reclaim the human attention.
He argues for a shift in thinking such that
technology can actually help us focus and
think instead of distracting us. Because
they create room for businesses, atten-
tion merchants as well as lawmakers to
adapt to this ethic, solutions on this front
are endless and desirable.
The Attention Merchants is a fascinat-
ing book, a needed reminder that we must
not blindly follow the Pied Piper to the
brink of the river.

T
here is a memorable line in the chil-
dren’s story, The Pied Piper of
Hamelin. Asked what was so great
about his invention, the cunning, flautist
replies: “I attract attention; chiefly with a
secret charm… Who doesn’t know of the
Pied Piper?”
Who knew that the story of the Piper
would one day be a metaphor for the
advertising industry?
When we get down to thinking about
it, consciousness is really a scarcity. In
the limited waking time we have in a day,
i.e., the advertising industry in the United
States over the last 100 years.
The Attention Merchants is perhaps
summarised best in the harmless way
we phrase the instruction “pay atten-
tion”. In fact, Mr Wu says that we are
defined by what we pay attention to and
by what occupies our mind from
moment to moment.
The book is a fascinating read and
though Mr Wu only traces the mushroom-
ing of the attention industry in the United
States, we find relatable examples that ride
ical breakthroughs such as the radio, the
television, the internet, even the remote
control paved new roads for the advertis-
er to get inside our heads. Riding on the
back of these inventions, the attention
merchants forever changed consumer
behaviour by tapping into our deepest
desires and our insecurities. They con-
veyed to us that their wares were not just
things – they were important indications
of social standing.
Mr Wu brings out the landmark
changes in advertising over each decade.
advent of the internet. Mr Wu shows us
that even on the web, the attention indus-
try is ever-present, ads are permanently in
the background, lightly knocking at the
corners of our consciousness, advocating
answers to our problems. Here Mr Wu is at
his best – taking us through the invention
of Google’s subtle AdWords program, the
novel contribution of social media like
Instagram to the attention industry, and
the sprouting up of bloggers and influ-
encers as the attention merchant’s agents.
He asks us to stop and take notice of the
petitive market, a business thrives when it
stays on in as many minds as possible. The reviewer is a Research Associate at the
Equally, not all attention merchants set Takshashila Institution, an independent
out to sell snake oil. As Mr Wu says, think tank
“Where the human gaze goes, business Twitter: @nasac
soon follows.”
Understanding this, Mr Wu suggests
that the most effective way to not be over- THE ATTENTION MERCHANTS:
come by the attention merchant is to con- The Epic Struggle to Get Inside
sciously, meticulously switch off from Our Heads
time to time. While this is a healthy prac- Tim Wu
tice, it might be too far and too little in the Atlantic Books
face of a robust beast such as advertising. 416 pages; ~499