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At software powerhouse SAS, the good life is under siege

Steve Lohr / NYT — Sun, 22 Nov 2009 18:53:00 GMT

Cary, North Carolina: A tour of its carefully tended, 300-acre corporate campus here leaves little doubt why surveys, year after year, rate SAS Institute Inc., the world's largest private software company, among the best places to work.

There is the subsidized day care and preschool. There are the four company doctors and the dozen nurses who provide free primary care. The recreational amenities include basketball and racquetball courts, a swimming pool, exercise rooms and 40 miles of running and biking trails. There is a meditation garden, as well as on-site haircuts, manicures, and jewellery repair. Employees are encouraged to work 35-hour weeks.

Academics have studied the company’s benefit-enhanced corporate culture as a model for nurturing creativity and loyalty among engineers and other workers. Six years ago, in a report on 60 Minutes, a news magazine on US channel CBS News, correspondent Morley Safer called working at SAS “the good life”.

Nurturing creativity: A day care centre subsidized by SAS in Cary, North Carolina. The US software firm, which encourages employees to work 35-hour weeks, is consistently ranked among the best places to work. Jeremy M Lange / NYT

But that good life is under threat today as never before. SAS’ specialty, a lucrative niche called business intelligence software, is becoming mainstream. Free, open-source alternatives to some of the company’s products are increasingly popular. On the other end of the spectrum, the heavyweights of the software industry—Oracle Corp., SAP AG, Microsoft Corp. and, especially, International Business Machines Corp. (IBM)—are plunging in and investing billions of dollars.

“It will be a dogfight,” says Bill Hostmann, an analyst at Gartner Inc. “SAS has never faced a competitor like IBM And I do think IBM sees SAS as a big, fatted cow.”

The term “business intelligence software” applies to a wide range of products and services, but all the technology is aimed at helping businesses mine nuggets of insight from mountains of data. SAS has traditionally specialized in advanced software to analyze huge data sets and to generate predictive statistical models for large corporations and government agencies.

Credit card companies, for example, use SAS to detect unusual buying patterns in real time, and to spot potentially fraudulent charges. Giant retail chains use SAS to tailor pricing and product offerings down to the store level. Telecommunications companies use SAS to identify the few thousand customers, among millions, most likely to switch to another cell phone carrier, and to aim marketing at them. SAS software is also used to parse sensor signals from North Sea oil rigs, combined with weather and structural data, to predict failure of parts before it happens. Of the 100 largest companies worldwide, 92 use SAS software.

But as the stream of firms’ collected data turns into a torrent, SAS and other software companies are trying to find new ways to harness it. The information is generated not only by computerized systems for tracking operations, customers and sales. It also comes from new data sources such as website visits, social network chatter and public records accessible over the Internet, as well as genome sequences, sensor signals and surveillance tapes, all in digital form.

This data explosion, experts say, is an untapped asset at most companies, which lack the tools and skills to exploit it. Yet the long-range potential, they say, is to use this data for far more fine-grained analysis of markets, customer behaviour and operations, making business more of a science and less a seat-of-the-pants art.

”Now, the data is available so business can move toward evidence-based decision-making,” says Erik Brynjolfsson, an economist and director of the Center for Digital Business at the Massachusetts Institute of Technology. “This market is a huge opportunity.”

That opportunity is not lost on SAS. “Our advantage is the incredible depth of our technology, developed over years and applied to specific industries,” says James H. Goodnight, the chief executive and a co-founder of SAS. “No one can match our toolbox.”

Indeed, no one underestimates SAS’ technical prowess. The big question is whether the firm’s seemingly pampered culture can embrace the higher-octane institutional metabolism that it will need to succeed.

“We know we have to change—no question about it,” says Jim Davis, 51, a senior vice-president at SAS. “Our market space has changed dramatically in the last 18 months or so, more than at any time over the 33-year history of the company. We can’t sit back. Things are only going to get faster.”

SAS invested heavily in research and development, and even today allocates 22% of the company’s revenue to research. The formula has paid off in steady growth, year after year. Revenue reached $2.26 billion (Rs10,531 crore) in 2008, up from $1.34 billion five years earlier.

Yet the company also faces the classic challenge of being the innovative pioneer—enjoying rich profit margins but facing new competition from rivals seeking to gain market share with lower prices and substitute technology.

In the last two years, the major software companies have scooped up firms in the business intelligence market. Among the larger moves, SAP bought French firm Business Objects for $6.8 billion, IBM bought Cognos Inc. for $4.9 billion and Oracle picked up Hyperion for $3.3 billion.

Still, those firms compete in the broad business intelligence market for reporting and analysis products. Such data on sales, shipments, customers and operations amount to a numbers-laden portrait of the recent past. The SAS stronghold is a more sophisticated kind of software typically called “advanced analytics and predictive modelling”, which uses historical and current data to try to peer into the future and model likely outcomes.

The competitive thrust that really grabbed SAS’ attention came in late July, when IBM announced that it planned to pay $1.2 billion for SPSS Inc., a maker of predictive modelling software. IBM has placed SPSS and Cognos into a new business analytics and optimization group. That business will be supported by 200 scientists, and the company has said it will retrain or hire 4,000 consultants and analysts to work in the group.

“This is the big growth strategy for IBM, the company's next big play for this decade,” says Ambuj Goyal, a computer scientist who is general manager of IBM’s business analytics software unit. “SAS comes from the legacy world of statisticians and programmers. The real opportunity is in deploying this technology broadly in corporations.”

To counter IBM and others, SAS is looking to forge a tighter relationship with a big technology services company. It is also shortening product development cycles to 12-18 months, down from 24-36. “That’s what the market expects,” Davis says.

The most sweeping change is the company’s move toward the Internet model of software delivery—as a service that customers tap into over the Web, much as Google Inc. and other Internet companies do. SAS has dipped its toe in, with some initial products. But a major expansion is planned, supported by a vast $70 million data center scheduled to begin operating next year.

The remotely delivered software is part of a drive to broaden the market for SAS technology beyond an elite corps of quantitative analysts and into the rank-and-file of corporate professionals.

Analysts say firm’s strategy looks sound, even if the outcome is uncertain. “SAS has to do a lot of things right to succeed,” says Peter Sondergaard, senior vice-president of research for Gartner. “But if it executes correctly, it could be a winner.”

New companies introduce ads among tweets

Brad Stone / NYT — Sun, 22 Nov 2009 18:21:00 GMT

Tuesday was another typical day for John Chow, blogger and Internet entrepreneur in Vancouver, British Columbia. Chow treated his 50,000 Twitter followers to a photograph of his lunch (barbecued chicken and French fries), discussed the weather in Vancouver and linked to a new post on his Internet business blog.

Sponsored updates: Websites such as Ad.ly and Izea.com are paying users for sharing ads on networks such as Twitter and Facebook

Then he earned $200 (Rs9,320) by telling his fans where they could buy M&M’s candies with customized faces, messages and colours.

Chow is among a growing group of celebrities, bloggers and regular Internet users who are allowing advertisers to send commercial messages to their personal contacts on social networks. For the last month, he has used the services of Ad.ly, a start-up based in Los Angeles, and Izea.com, based in Orlando, Florida, to periodically surrender his Twitter stream to the likes of Charter Communications Inc., the Make a Wish Foundation and an online seminar about working from home.

In October, Chow’s income from Twitter ads was around $3,000. “I get paid for pushing a button,” he said.

It is perhaps the last frontier in advertising—getting regular people to send a sentence or two of text, on behalf of paying advertisers, to their friends and admirers. The idea, according to the entrepreneurs who are developing such services for Twitter and other Web networks, is that people trust recommendations from those they know and respect, while they increasingly ignore nearly ever other kind of ad message in print, on television and online.

Even the Internet giants are warming to the idea of harnessing informal chats between friends to promote their products and services. This month, Amazon.com Inc. said it would start paying commissions to individuals who refer buyers to the site via Twitter messages. (People must first sign up for Amazon Associates, a programme in which Amazon pays Web publishers for referrals to its site.)

But the bigger opportunity may be in matching advertisers with so-called influencers—the more popular users of services such as Twitter.

A number of start-up firms, such as Ad.ly, Izea and Peer2, a division of Creative Asylum, a Hollywood ad agency, are pursuing the opportunity to put persuasive messages into regular dialogue on social networks.

“We don’t want to create an army of spammers, and we are not trying to turn Facebook and Twitter into one giant spam network,” said Joey Caroni, co-founder of Peer2. “All we are trying to do is get consumers to become marketers for us.”

For the most popular celebrities and bloggers on Twitter, such advertising can generate a surprisingly sizable payday. Ad.ly and Izea, which runs a service called Sponsored Tweets, say celebrities such as Kim Kardashian and musician Ernie Halter can earn up to $10,000 by sending a single message to their hundreds of thousands of followers.

Izea receives at least 15% of the advertiser’s payment to more popular Twitter users, and up to half for the less distinguished. Ad.ly takes a 30% cut across the board.

While both companies note their celebrity connections and the involvement of big advertisers such as Microsoft Corp. and National Broadcasting Co., they really salivate at the prospect of marrying less notable Internet personalities with the huge pool of smaller advertisers. For example, an expert on cycling, with 1,000 Twitter followers, might agree to send an ad about a new bike helmet—a message that might well be implicitly trusted by his followers.

One problem is that many Internet users eschew the idea of these ads, saying they commercialize authentic dialogue and undermine people’s credibility. “It interferes with your relationship with your friends and your audience,” said Robert Scoble, a technology blogger with more than 100,000 followers on Twitter, who says he “unfollows” people on Twitter who send him ads.

Facebook does not allow members to insert paid ads into status updates or profiles. “For us, it goes against the authenticity of the page,” said Brandon McCormick, a Facebook spokesman. Peer2 gets around the ban by offering users points instead of dollars; points are redeemable for Amazon products.

Part of the unease with this emerging form of advertising is rooted in the past. Three years ago, with a service called PayPerPost, Izea paid bloggers to pitch products to their readers. The endorsements were not clearly labelled as ads, and the service kicked up a dust storm of criticism in the blogosphere.

Ted Murphy, the CEO of Izea, a 30-person business backed by $10 million in venture capital, said the company initially “made a big mistake” by not setting disclosure standards for publishers and advertisers. Today, ad networks promote their standards; Izea’s ads on Twitter are typically demarcated with signifiers such as “£ad” or “£sponsor”.

One new company trying to add transparency to the business is Likes.com of San Francisco, which plans to introduce its ad network in December. The company encourages bloggers and Twitter users to specify their tastes in restaurants, movies, books and other products, and then to publish those recommendations to their blogs and social network pages.

Advertisers can then see who has favoured their products in the past, and how effective their recommendations have been at getting people to click on links. Depending on the advertiser, bloggers and Tweeters will be paid for every ad they send out, or every time someone clicks on the link.

Every Likes.com ad is clearly labelled as such, and once people click on a link, they are taken to another page that is also clearly labelled as a sponsorship. People are limited to posting an ad from Likes.com once every other day.

“We are trying to limit it, to prevent people from losing their following,” said Bindu Reddy, a former Google product manager who started the company with her husband, Arvind Sundararajan, a former Google engineer. “We know people are queasy about this.”

Tata Tele to bill roaming calls per second

Reuters — Sun, 22 Nov 2009 18:10:00 GMT

Mumbai: Mobile services provider Tata Teleservices Ltd on Sunday extended its per-second billing scheme to roaming calls as well, as the tariff war in the world’s fastest growing wireless market heats up.

On Friday, industry leader Bharti Airtel Ltd introduced a new billing plan that cut mobile roaming rates by nearly 60%, depressing the company’s shares.

From Monday, Tata Teleservices, 26% owned by Japan’s NTT DoCoMo Inc., will charge one paisa per second for both incoming and outgoing calls made while roaming across the country, irrespective of the network used, the company said.

Denmark says 65 world leaders to join climate talks

John Acher / Reuters — Sun, 22 Nov 2009 17:54:00 GMT

Copenhagen: Sixty-five world leaders have confirmed that they will attend a United Nations (UN) conference in Copenhagen in December that will try to clinch a new global climate deal, and many more are considering, Danish officials said on Sunday.

Seeking dialogue: Danish Prime Minister Lars Lokke Rasmussen. Analysts say the decision to invite leaders is a calculated risk. Simon Dawson / Bloomberg

Facing splits in the climate talks, Denmark 10 days ago formally invited the heads of state and government of 191 UN member states to come for the final two days of the 7-18 December conference to push for a deal at the meeting, originally meant for environment ministers. Danish officials declined to provide a full list of those who had agreed to come to the Copenhagen conference, but noted some leaders, such as those from Britain, Germany, France, Spain, Australia, Japan, Indonesia and Brazil, had announced their intention to attend.

UN said this month that around 40 leaders had indicated plans to attend, mostly from developing nations as well as from Germany and Britain, even before the official invitation. European Commission president Jose Manuel Barroso has said he would come. And US President Barack Obama has said he would attend if it could give impetus to a deal.

Danish Prime Minister Lars Lokke Rasmussen’s decision to invite world leaders is a calculated risk, analysts say. Their presence can raise chances of a deal but the need for a summit is an admission that negotiations are in trouble after a final round of talks in Barcelona this month.

(Anna Ringstrom contributed to this story.)

Manufacturing sector showing signs of revival: CII

Samar Srivastava — Sun, 22 Nov 2009 17:43:00 GMT

New Delhi: India’s manufacturing sector is showing signs of revival, according to a survey carried out by the Confederation of Indian Industries (CII).

“This improvement in manufacturing growth has been a result of the stimulus packages announced by the government,” CII director general Chandrajit Banerjee said in a statement.

Positive outlook: CII director general Chandrajit Banerjee says the improvement in the sector has been a result of the stimulus packages. Rajkumar / Mint

The survey, carried out by CII’s Association of Manufacturing, Agriculture and Service Councils (Ascon) acts as a bellwether for manufacturing output measured by the Union government’s Index of Industrial Production (IIP)— usually reported with a lag of six weeks.

Growth rates in the CII-Ascon survey are based on data from member firms of CII and its affiliated associations. These make up around 65% of total industry output in the country. A total of 100 sectors were surveyed.

The survey showed an increase in sectors reporting “excellent” growth, which the survey describes as over 20%. One-tenth of the sectors surveyed in the April-September period fell in this category compared with 7% during the same period the year before.

Significantly, construction and earth moving equipment recorded excellent growth. This echoes the pick-up in economic sentiment that has resulted in rising truck sales in the last two months.

While the sectors recording high growth (10-20%) stayed the same at 26%, there was a decline in the sectors that registered “moderate” growth of 0-10%. They fell from 42% to 36%. Aluminium, cement, fertilizers, paints, circuit breakers and light commercial vehicles registered moderate growth.

Exports continue to be a laggard as the global economy takes time in recovering. Twenty out of 29 sectors surveyed reported negative growth rates. Automobiles exports were a bright spot as global demand for small cars increased. Car exports jumped 35% in the April-September period while light truck shipments jumped 26%.

Upholding the law: the difficulty of being good

Off The Record | Srivatsa Krishna — Sun, 22 Nov 2009 17:35:00 GMT

Manjunath Shanmugam, an employee of Indian Oil Corp. Ltd, stood for the good. Raised his voice against corruption in the adulteration of oil. He was silenced forever, this week, four years ago. V.P. Baligar, an outstanding IAS officer, a brilliant IIT product, raised his voice against the Mafiosi-style rampage of Karnataka’s coffers. Baligar, who was principal secretary to the chief minister, was transferred this month.

V. Lakshmi Ratan, an old school IAS officer, tough as nails, with a spine that never ever bent before anyone, took a tough stand against shoplifting by an IAS officer at Harrods caught on tape, wanted her dismissed from service immediately. He was unceremoniously dumped overnight by the political powers that be. All of them tried upholding the law. All of them stood for the good. All of them discovered the difficulty of being good.

A few years ago, Bibek Debroy, one of India’s most imaginative and brilliant economists, whose work on law and economics is seminal, who also happened to be one of Congress party chief Sonia Gandhi’s closest advisers, chose to quit than cling to power at the Rajiv Gandhi Institute for Contemporary Studies, Rajiv Gandhi Foundation, or RGF, only because he analysed evidence to demonstrate that Gujarat’s economic performance was astonishing. Just analysing publicly available data and writing about it made Debroy a persona non grata, for others felt threatened by his sane counsel and position. More recently, Gyanendra Badgaiyan, another smart IAS officer, a Princeton PhD, and someone who deftly combined practical ground-level administrative judgement with scholastic rigor, discovered for himself the difficulty of being good when he, too, found RGF had no use for him.

Also Read Srivatsa Krishna’s earlier columns

Like Debroy, he, too, was shown the door in a quiet, below-the-radar move. In my own career there have been at least two occasions where I and my family were under threat and attacked, when I enforced the law on Delhi’s famous land mafia. I was acting because I thought I must. I was enjoined by law, office and dharma to do so. And I acted, only to pay a price.

In each of these cases, who is the “real” loser? Not RGF. Not Indian Oil. Not the government of Karnataka or Delhi. But you and I. For these are examples of the few voices of sanity and sane counsel at the very top where they are in a position of highest leverage, which get silenced for being good. They don’t modulate their counsel depending on whom they are giving it to, and say the same thing in front of any audience, when they are enjoined to do so.

The media won’t always talk about them, for all this happens far away from the arc lights and there are many others who stand up to be counted, in the IAS and outside, every single day. But they won’t be darlings of the media, for more often than not, it’s the man-bites-dog story that makes good copy, not the dog-bites-man one.

History teaches us that few who rise to the dizzying heights of power use that power imaginatively to do good for the people and yet manage to keep their feet on the ground. Many of the “good”, stumble for they begin to believe that they are unassailable, irreplaceable and omniscient. No one is. Or they begin taking themselves too seriously and become intolerably arrogant. There are still fewer political leaders who have the balance and judgement to hear and take advice which may be not just contrary, but even against their interests.

Gurcharan Das’ fascinating book The Difficulty of Being Good (Penguin, 2009) discusses the subtle art of dharma in great detail and brilliantly reinterprets Mahabharata for our times, and tells how the remorse of Yudhishthira, if understood by modern-day leaders, could well reduce war and suffering. Manjunath, Lakshmi Ratan, Baligar, Badigaiyan and Debroy—taking a leaf out of Yudhishthira’s remorse—exemplify the difficulty of being good. Dharma is a word which probably has no equivalent in any other language and it encompasses so much in so little. Morality, righteousness and good.

In Mahabharata Draupadi asks: “What is the point of being good? Isn’t it better to be powerful and rich than to be good in an unfair world where those who steal and cheat sleep on sheets of silk and pillows of down while those who are good have to settle for the hard earth? Why be good?” To this Yudhishthira replies pithily and powerfully: “I act because I must.”

We all want our leaders to symbolize and stand for the right, for the good. But in everyday society when they do so, when they act for they must, they are often sacrificed at the altar of short-term political survival or myopic, pyrrhic gains. Sometimes the media speaks up and supports them. Even when they do, it is soon forgotten, after the candles are lit and blown out. Till one more leopard, which refuses to change its spots, gets sacrificed for doing good.

We persist with this drama of democracy. But we forget that while drama and dharma sound alike, they are as different as chalk from cheese. Till we don’t abandon the drama, in favour of the dharma, we risk hurtling (or the more optimistic would say gently moving) towards becoming a sad republic, with a banana prefixed to it.

Take your pick: Do you want the drama or do you stand by dharma? What indeed counts more democracy or dharma? This is one of the central questions of our times, which beg an answer from all of us.

Srivatsa Krishna is a Harvard MBA and an Indian Administrative Service officer. He writes weekly on business, government, infrastructure and entrepreneurship. The views expressed here are his own. Respond to this column at offtherecord@livemint.com

The road ahead

Larissa Fernand — Sun, 22 Nov 2009 17:33:00 GMT

In the bull run of 2007, this was one fund everybody was watching out for as the next big winner. But the shocking performance of JM Financial MF in 2008, in the wake of the economic slowdown, was a complete turn-off, leaving investors with the feeling that they had probably come down with a bad case of whiplash. Bhanu Katoch, CEO of the fund, lists his strategies to revive the asset management company’s fortunes and restore investors’ faith in it. Edited excerpts:

At this stage, what would your message be to investors?

Our equity funds will stay true to their respective mandates. So funds where the mandate is growth will continue to focus on growth even at the cost of short-term volatility. Most of our schemes have a mandate to chase growth and we will stay true to that even in future. We believe that the growth approach will provide maximum rewards to investors as India continues (on) its path to becoming an economic superpower.

We believe that in India, growth as a strategy will tend to do exceptionally well over a longer period of time. So a high beta/alpha strategy portfolio will always deliver. We believe that our investment style will offer substantial alpha as and when confidence starts to come back and money starts chasing growth countries and growth stocks. If you look at the recovery period between 5 March and 4 June, and even the period following, JM schemes have done much better than the indices and even their peers. JM Basic Fund delivered 154% during that period and JM Emerging Fund delivered 135%. Our other equity schemes gave returns in the 70-150% range. During this same period, the Nifty returned 77% and the Sensex, 83%.

What can your investors expect in future?

We feel that after a bit of consolidation, the market will move up and we may see 17,000 levels within the next six months. In the next two years, we expect the Sensex to rise above 25,000. Our schemes are well positioned to capture this kind of an up move.

Also See The highs and lows (Graphics)

What disappointed the investors in your opinion?

(The) majority of the money that we manage is in funds where the mandate is growth and the portfolio is more mid-cap oriented. So far, 2009 has been good for us and if our call on the market goes right, then our funds will deliver a very strong performance in the coming months and coming years. When the equity market was in a bullish phase in 2006-07, most of our mid-cap and large-cap schemes performed extremely well. They surpassed the indices by a huge margin. In 2007, the Sensex delivered 47% and the BSE Midcap index delivered 68%. Our flagship funds delivered returns in the 90-111% range. In fact, most of our schemes figured in the Top 50 Lipper world rankings.

In 2008, we witnessed the most severe fall in the history of the Indian stock market. The Sensex fell by 52% and the BSE Midcap index fell by 67%. Against that, our flagship funds fell by 65-75%.

What were the reasons for your dismal performance?

Had we taken a cash call, we would have performed better. But having said that, a 2008 kind of year comes only once in 50 years or so and, therefore, cannot become the basis for any change in our fund management style. We do not believe in taking aggressive cash calls and only in extreme conditions will we use cash as a strategy.

Are you taking steps to ensure there is no undue exposure to illiquid stocks?

All the liquid names in 2007 became illiquid in 2008. And what happened took the entire market by surprise. But several measures have been put in place. We have strengthened our parameters on stock and sector concentration, and stop-loss limits. Our risk parameters now have multiple “flag off” levels that are more stringent than the regulatory requirements. We also have a more pragmatic approach towards risk management, with multiple checks and balances.

Graphics by Ahmed Raza Khan / Mint

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Write to us at businessoflife@livemint.com

What to do about inflation

Policy Track | S Narayan — Sun, 22 Nov 2009 17:29:00 GMT

There has been a lot of discussion in the media about what the Reserve Bank of India (RBI) should be doing to tackle the inflationary pressures that are now so evident in the economy. Just a few days ago, the chairman of the Prime Minister’s economic advisory council had suggested that RBI should act quickly in tackling inflation, a clear sign of the anxiety that rising food prices are causing at the decision-making levels of government. The recent climbdown by the government on the sugar cane price ordinance will only exacerbate these pressures. Policymakers appear to be caught in a bind and there appear to be several reasons for this.

First, there is the concern that RBI may be able to do very little about inflation. Deena Khatkate has argued in a recent book, Money, Finance and Political Economy, that inflation in India arises from non-monetary factors, and inflation targeting as an operational strategy will not be able to address core inflation. We saw this happen in 2007 and 2008, when inflationary pressures were caused by rising commodity prices, and the government, yielding to public pressure, kept increasing interest rates with little effect on core inflation. Monetary policy changes work into the economy with a lag, and it is unlikely that raising interest rates will have any effect in the short to medium term on supply-side constraints.

Second, there is the larger question of the rolling back of the fiscal stimulus of last year. I had argued earlier that the fiscal stimulus package in India was very different from that in other countries, as it consisted of subsidies and giveaways for consumption—through the National Rural Employment Guarantee Scheme (NREGS) and other programmes—and that it would be difficult to roll back these grants. Given an extremely soft state and decision-making that yields at the slightest pressure, the packages for food, fuel subsidies and doles for idling are likely to remain.

Third, the pressures on the fiscal deficit continues, with poor revenue collections leading to all sorts of curbs on expenditure—even Plan expenditure is way below expectations, and the infrastructure initiatives are still only on paper. There is a scramble to meet the revenue deficit through small stake sales in public sector units—there is now no talk of better governance or transparency as a cause for disinvestment; it is purely a revenue generation exercise.

These problems will not go away easily and, given the structure of politics, will be addressed only incrementally, not frontally. This does not mean there are not other, meaningful, public policy opportunities that can be acted on. There is tiredness among policymakers, a “what can we do” attitude, which is perhaps making them miss out on several opportunities that have presented themselves.

Among the more important is the goods and services tax (GST) initiative. Now that the draft paper is available for discussion, it is important to take it forward to be implemented as quickly as possible and find ways of convincing some of the reluctant states. There is also an opportunity for pushing forward a lot of legislation on financial reforms— there is a need for managers of parliamentary affairs not to allow emotional matters such as sugar cane prices overwhelm the legislative agenda. The report of the Finance Commission is due and affords an opportunity for putting the finances of the states on an even keel once again—coupled with GST, there is a unique window of enabling the states to stand on their own feet.

Some of the social sector initiatives offer exciting prospects—the National Rural Health Mission is one such. Here is an opportunity to work with the states, to put the fear of god into implementation agencies and to provide affordable healthcare solutions for the majority of the population. The constant review of NREGS is good sign that there is a sincere effort to make it efficient and productive. There are healthy signals coming out of the human resource development ministry—one hopes for some serious improvements in primary, secondary as well as tertiary education deliveries and standards.

Finally, the real solution for inflationary pressures caused by supply shortages is to have a strategy for removing supply-side constraints. We have heard repeated articulation of the need to increase the size of the manufacturing sector as well as to revitalize agriculture. However, there appears to be little in the nature of strategy or programme to enable this to happen. This is surprising; given the reports of the knowledge commission, the manufacturing competitiveness commission as well as the reports on agriculture that are available with the government, it is really time for action on these. Otherwise, these supply-caused shocks will become a regular feature of our economy, and we will be moving from food price inflation to commodity price-based inflation to huge current account imbalances.

An important feature of economic policy-making in China appears to be the ability to seize windows of opportunity. This requires goals to be set, strategies in place and to wait for opportunities. With a healthy economy, we have several opportunities—it is for us to seize them.

S. Narayan, a senior research fellow at the Institute of South Asian Studies, Singapore, is a former finance secretary. We welcome your comments at policytrack@livemint.com

Bomb blasts in Assam leave seven dead

Wasbir Hussain / AP — Sun, 22 Nov 2009 17:16:00 GMT

Guwahati: Suspected militants set off two bombs outside a police station in Nalbari town near Guwahati on Sunday, killing seven and wounding at least 50, police said.

Five people died instantly after two blasts went off within minutes of each other, a local police official said. Two people died later in a hospital, he said. The official, speaking on condition of anonymity as he is not authorized to speak to the media, said what officials had earlier reported was a third bomb in a market a few miles away, turned out to be a firecracker.

At least 52 people were wounded in the blasts, said Bhaskar Mahanta, Assam’s inspector general of police. He said authorities suspect the militant separatist group United Liberation Front of Asom (Ulfa) is behind the blasts. The bombers had parked two bicycles fitted with carriers packed with explosives outside the Nalbari police station, which is located in a congested part of the town, he said.

Mahanta said police had received intelligence reports suggesting that Ulfa was planning to avenge last week’s arrest of two of the group’s leaders.

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India not worried about US honouring N-deal: PM

Lalit K. Jha / PTI — Sun, 22 Nov 2009 17:10:00 GMT

Washington: Ahead of his meeting with US President Barack Obama, Prime Minister Manmohan Singh has said India has no worries about US honouring the Indo-US nuclear deal, but would like to get a “positive reaffirmation” from the present administration to carry forward the process.

Equitable order: A file photo of US President Barack Obama (left) and Prime Minister Manmohan Singh at the G-20 summit in London. PIB

Singh, who will arrive in Washington on a state visit late Sunday, said India would like to operationalize the “watershed” agreement and ensure that the objectives for the nuclear deal are realized in full merit.

“We have no worries, but we would like a positive reaffirmation of this administration to carry forward the process,” Singh said in an interview to NewsWeek magazine, the full transcript of which was released by the ministry of external affairs on its website.

He was asked whether he was concerned about the US honouring the consent agreement.

Singh said the partnership with US was for sustained and sustainable development of India and the new global world order which is in search of a new equilibrium.

“India and the US could be partners in refocusing our attention on an equitable, balanced, global order,” Singh, who will meet Obama on Tuesday, said.

Asked whether India is worried about the Comprehensive Nuclear Test Ban Treaty which President Obama seems very intent on pushing through the senate, Singh said. “Why should we be worried? We are not worried at all.”

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Candidates, test centres gear up for online CAT

Aparna Kalra — Sun, 22 Nov 2009 17:03:00 GMT

New Delhi: Gaurav Kishore, a student at the Dr B.C. Roy Engineering College in Durgapur, a steel city that’s a commuter train ride away from West Bengal’s capital Kolkata, had his parents buy him a Dell laptop and an Internet connection in September.

He had class assignments to complete for which a computer could be useful. But there was another over-riding consideration behind the purchase: Kishore, 20, wanted to get into the habit of reading online.

Tech-savvy: Students taking a mock test for the online CAT run by prep firm Career Launcher. Considered one of the world’s toughest, CAT deals with reading comprehension, besides math and data interpretation.

He plans to join some 240,000 candidates who have registered for the first computer-based Common Admission Test, or CAT, to open from Saturday this week for 10 days. The high-stakes test can get him a seat next year in one of the prestigious Indian Institutes of Management (IIMs), among other business schools.

A chunk of the two-hour, 15-minute test, considered one of the world’s toughest, deals with reading comprehension, besides math and data interpretation.

“(We are) used to reading on paper since our childhood,” said Kishore, who has opted to take the CAT on 4 December. “It gets a bit difficult to concentrate on computer.”

As candidates arm themselves with online skills, US-based testing company Prometric Inc.’s local arm, Prometric Testing Pvt. Ltd, mandated to conduct the test, is gearing up for its big challenge in the Indian assessment market. The company won a closely fought battle to secure a five-year, $40 million (Rs185.5 crore) contract to administer CAT, beating competitors such as Pearson VUE of Pearson Plc, based in the UK, the sole testing partner worldwide for the Graduate Management Admission Test (Gmat).

Prometric, which handles global exams such as the graduate record examination, or GRE, and Test of English as a Foreign Language (Toefl) for admission to universities and colleges in the US, has sanitized and secured 105 test locations in 32 cities, including Durgapur, where Kishore lives. Roughly 24,000 candidates will take the test daily over the 10-day duration.

It’s “for the first time”, that Durgapur is getting a test centre, said Kishore, who travelled to Kolkata to sit for a qualifying examination for the Institute of Rural Management Anand, or Irma, and will do so again for an entrance test for the Indian Institute of Foreign Trade, or IIFT.

The test locations for CAT, said Prometric, were evaluated for candidate access and convenience, physical space, computer availability, generators, uninterrupted power supply, Internet connectivity and security.

The locations are equipped with closed-circuit television cameras and devices for the fingerprint identification of candidates.

One of the test locations, a privately run business school in Delhi, said it made little investment in terms of money to become a centre. The school is offering over 150 computers in three enclosed areas for CAT. It expects 3,500 candidates per day for the test and considers the exercise a good way of reaching its future clientele.

“They will see our institute for the first time, interact with our students, come to know our faculty,” said the director of the Delhi business school, who requested that he and his institute not to be identified as they are not allowed to seek publicity under the contract with Prometric. The school’s name is listed among the test centres on the official CAT website.

Prometric declined Mint’s request to visit a test centre. Earlier this month, the company issued guidelines on the test, warning candidates they will not be allowed even bathroom breaks. The company said it is prepared for power outages, computer crashes, natural calamities and even terrorist attacks.

The computer-based test is seen as the IIMs’ effort towards creating a market for testing services in the country and also introducing an error-free mechanism for their entrance examination, which, in the last few years, has been marred by complaints of leaks and errors in question papers.

In 2003, for instance, the question paper for CAT was leaked ahead of the exam, a first in the 28-year-old history of the test. The CAT 2006 had printing errors. The institutes acknowledged the errors and formed a committee that ruled that answers to the wrong questions would be ignored.

Kerala govt aims at 25-year master plan for land use

Ajayan — Sun, 22 Nov 2009 17:03:00 GMT

Kochi: Kerala is working on a land use policy that will ration land for housing, agriculture and industry and include strict environmental caveats, attempting to boost food production and avert what the state government calls an “imminent eco catastrophe”.

The draft policy, which aims to put in place a 25-year master plan for land use, is expected to be presented to the state cabinet later this month.

The policy, “which we propose to legislate after cabinet clearance, is to ensure food, water, housing, livelihood security and basic living amenities to every citizen of the state and maintain sustainability of the ecosystem in harmony with the integrity of the landscape,” Kerala revenue minister K.P. Rajendran said.

While the Land Reforms Act of 1963, initiated by Kerala’s first Communist government in 1958, was effective in redistributing land, there has been no follow-up action, leading to fragmentation of farm land on which food crops are grown. In the meantime, commercial utilization of land for mining, large shopping complexes, special economic zones, tourism resorts, and golf courses have been chipping away at food production.

Of the 3.88 million ha that comprises the state, only 268,000ha (6.86%) is under food cultivation, of which paddy land accounts for 247,000ha, down from 763,000ha at the time of the state’s formation in 1957. Rubber, cardamom, coffee, tea, cashew and pepper plantations cover 650,000ha (16.5%).

The total built-up area is 154,000ha (3.96%), of which residential area is just 36,000ha.

“Kerala is under unmistakable threat from an imminent eco-catastrophe that will make life miserable for the people,” the draft policy warns.

At least 685,000 of the more than 3.18 million people in the state do not own a house and live in rented or makeshift houses. And the 372,000 that own land are unable to afford building a house.

Ironically, there are at least 730,000 unoccupied homes in the state since it is treated as “a commodity to make lucrative business and investment”, the draft notes. Many of these are built by non-resident Indians as an investment from their savings.

The draft policy also takes into account demands by environmental organizations. A. Latha, head of the Kerala-based non-governmental organization River Research Centre, or RRC, says green activists have for long demanded that the floor size of housing units, for instance, be based on the number of persons staying or expected to live there. This will help in controlling use of land, she says.

Unscientific land use, historical lack of societal control on land management and conversion of land into “the most sought-after commodity for amassing material wealth have led to the present scenario where the land is debilitated, production plummeted, water resources depleted and contaminated; landlessness continues to haunt when land mafia flourishes”, the draft policy notes.

While the land reform in Kerala was important for social change and reform, it failed to satisfy the basic needs of people at the lowest social and economic strata, said P.K. Michael Tharakan, vice-chancellor of Kannur University in northern Kerala, and an economist who has written several studies on land reforms in the state,

“The present proposal prioritizing housing for the poor and promoting only environment-friendly industries in the state is in the right direction,” he said, adding that a conservative approach will be needed to ensure that all people are provided with basic housing facilities.

“Besides, in its efforts towards industrialization, a lot of environmental issues were forgone earlier,” he said. “Though some of the blunders cannot be undone, henceforth the government will have to be much stricter in allotting land for industries, keeping in mind ecological concerns.”

A terror suspect with feet in East and West

Ginger Thompson / NYT — Sun, 22 Nov 2009 16:55:00 GMT

Philadelphia: The trip from a strict Pakistani boarding school to a bohemian bar in Philadelphia has defined David Headley’s life, according to those who know the middle-age man at the centre of a global terrorism investigation.

Different worlds: David Headley was raised by his father in Pakistan as a devout Muslim. He returned to the US at the age of 17 to live with his American mother. Headley as a child, with his mother Serrill Headley and younger sister in an undated photo. NYT

Raised by his father in Pakistan as a devout Muslim, Headley arrived back here at 17 to live with his American mother, a former socialite who ran a bar called the Khyber Pass.

Today, Headley is an Islamic fundamentalist who once liked to get high. He has a traditional Pakistani wife, who lives with their children in Chicago, but also an American girlfriend—a make-up artist in New York—according to a relative and friends. Depending on the setting, he alternates between the name he adopted in the US, David Headley, and the Urdu one he was given at birth, Daood Gilani. Even his eyes—one brown, the other green—hint at roots in two places.

Headley, an American citizen, is accused of being the lead operative in a loose-knit group of militants plotting revenge against a Danish newspaper that published cartoons of the Prophet Muhammad. The indictment against him portrays a man who moved easily between different worlds. The profile that has emerged of him since his arrest, however, suggests that Headley felt pulled between two cultures and ultimately gravitated toward an extremist Islamic one.

“Some of us are saying that ‘Terrorism’ is the weapon of the cowardly,” Headley wrote in an email message to his high school classmates last February. “I will say that you may call it barbaric or immoral or cruel, but never cowardly.”

He added, “Courage is, by and large, exclusive to the Muslim nation.”

Headley’s email messages, including many that defended beheadings and suicide bombings as heroic, are among the evidence in the government’s case against him and his accused co-conspirator, Tahawwur Hussain Rana, who was born in Pakistan, is a citizen of Canada and runs businesses in Chicago.

The men, who became close friends in a military academy outside Islamabad, were arrested last month in Chicago. They are charged with plotting an attack they labelled the Mickey Mouse Project against Jyllands-Posten, the Danish newspaper whose cartoons provoked outrage across the Muslim world.

Since then, the investigation has widened beyond Chicago and Copenhagen. The authorities have learned more, with cooperation from Headley, about the two men’s network of contacts with known terrorist groups, including Al Qaeda and Lashkar-e-Taiba, a Pakistani militant group, as well as officials in the Pakistani government and military. US and Indian investigators are also looking into whether the two Chicago men, who travelled to Mumbai before the deadly assault there last November, may have been involved in the plot.

Headley, 49, and Rana, 48, stand out from the young, poor extremists from fundamentalist Islamic schools who strike targets in or close to their homelands. Instead, their privileged backgrounds, extensive travel and bouts of culture shock make them more like Khalid Shaikh Mohammed, the self-proclaimed architect of the 11 September 2001 attacks, who attended college in the US, and Mohammed Atta, one of the lead hijackers.

Rana’s father is a former principal of a high school outside Lahore. One of his brothers is a Pakistani military psychiatrist who has written several books, and another is a journalist at a Canadian political newspaper, The Hill Times.

Trained as a physician, Rana immigrated to Canada in 1997 and became a citizen a few years later. Then he moved his wife and three children to Chicago, where he opened a travel agency that also provided immigration services on Devon Avenue, which cuts through the heart of the city’s Pakistani community. In 2002, he started a halal slaughterhouse that butchers goats, sheep and cows according to Islamic religious laws.

The Khyber Pass in Philadelphia. The bar was once owned by Headley’s mother. In 1985, his mother put him in charge of the bar, but he proved to be such a poor manager that the family lost it.Jessica Kourkounis/NYT

He and his family live in a small brick house on the North Side with a huge satellite dish on the roof. Neighbours described Rana as a recluse who rarely spoke to anyone and whose children never played with others on the street.

“He seemed very committed to his Islamic religion,” said William Rodosky, who once managed Rana’s slaughterhouse, in Kinsman, Illinois, about 100km south-west of Chicago. “He said he wanted the business so he could provide meat to his people and make a little money.”

Rodosky echoed the views of several others who knew and did business with Rana when he said he was “shocked about the terrorism charges”.

“As far as I knew, he was very nice man and a very good businessman,” Rodosky said.

But Headley did not draw the same expressions of shock. Those who knew him paint a more troubled image.

“Most people have contradictions in their lives, but they learn to reconcile them,” said William Headley, an uncle who owns a day care centre in Nottingham, Pennsylvania. “But Daood could never do that. The left side does not speak to the right side. And that’s the problem.”

Daood Sayed Gilani was born in Washington, where his parents worked at the Pakistani embassy. Friends of the family said his father, Sayed Salim Gilani, a dashing diplomat and an avid musicologist and poet, charmed his way into the heart of Serrill Headley, who had left Philadelphia’s Main Line to work as a secretary at the embassy.

In 1960, the couple and their infant son, Daood, left the US bound for England aboard the ship America, and from there went on to Lahore. But the marriage quickly soured, friends said, as Salim Gilani immersed himself in the traditions of his homeland and his bride refused to submit to them.

After Serrill Headley left Gilani and her son and a daughter, Syedah, in Pakistan, friends say, the details of her life become lost in a jumble of fact and fiction. Serrill Headley, a red-haired, green-eyed woman, told friends she married an “Afghan prince” but then had to flee Kabul after he was murdered.

She arrived back in Philadelphia, friends said, in the early 1970s, taking different office jobs and dating wealthy suitors until one of them lent her money to buy an old bar. She turned it into the Khyber Pass, decorated with billowing Afghan wedding tents and stocked with exotic beers.

In 1977, Pakistan’s government was overthrown in a military coup, and Serrill Headley, friends said, feared for her children. She travelled to Pakistan, withdrew her son from the Hasan Abdal Cadet College and brought him to live with her, a move recorded by The Philadelphia Inquirer. (Her daughter, Syedah, stayed behind with her father for several years.)

“He has never been alone with, much less had a date with, a girl, except the servant girls of his household,” the article said, referring to the teenage Daood Gilani. “But he has just this day found a cricket team to join. And he has just this day, after watching American TV, said to his mother in his soft Urdu-English that she is to him like the Bionic Woman.”

The second-floor apartment where Headley’s family lives in Chicago. Peter Wynn Thompson/NYT

According to family friends, the teenager soon rebelled against his mother’s heavy drinking and multiple sexual relationships by engaging in the same behaviour.

“Those were the days when girls, weed, and whatever, were readily available,” Jay Wilson, who worked at the Khyber Pass, wrote in an email message from England. “Daood was not immune to the pleasures of American adolescence.”

Later, said Lorenzo Lacovara, another former worker at the bar, Daood Gilani began expressing anger at all non-Muslims.

“He would clearly state he had contempt for infidels,” Lacovara said in a telephone interview from New Mexico. “He kept talking about the return of the 14th century, saying Islam was going to take over the world.”

Serrill Headley tried to help her son straighten out his life. In 1985, she put him in charge of the Khyber Pass, but he proved to be such a poor manager that they lost the bar a couple of years later, friends of the family said.

Serrill Headley embarked on her third marriage, and her son set off for New York, where he opened two video rental stores in Manhattan. It is unclear where he got the money to start the ventures. But court files suggest that the source may not have been entirely legal.

In 1998, Gilani, then 38, was convicted of conspiring to smuggle heroin into the country from Pakistan. Court records show that after his arrest, he provided so much information about his own involvement with drug trafficking, which stretched back more than a decade, and about his Pakistani suppliers, that he was sentenced to less than two years in jail and later went to Pakistan to conduct undercover surveillance operations for the Drug Enforcement Administration.

In 2006, he changed his name to David Headley, apparently to make border crossings between the US and other countries easier, court documents say. About that time, his uncle said, he moved his family to Chicago because it had a large Muslim community and he wanted to send his four children to religious schools.

There, the family lived in a small second-floor apartment. Headley claimed to work for Rana’s immigration agency. The two men attended the Jame Masjid mosque on Fridays, then stopped at the nearby Zam Zam restaurant to eat and talk politics. Cricket, neighbours said, was their passion.

But Headley never seemed to fully fit in. Masood Qadir, who sometimes watched cricket with him, said he was “different” and kept mostly to himself.

Email messages show, however, that Headley stayed in regular contact with classmates from the military high school he attended in Pakistan, often engaging in impassioned debates about politics and Islam.

Earlier this year, Headley complained about “Nato criminal vermin dropping 22,000 pound bombs on unsuspecting, unarmed Afghan villagers” or “napalming South-East Asian farmers”. Writing about Pakistan’s chief enemy, he said, “We will retaliate against India.”

And in an email message defending the beheading of a Polish engineer by the Taliban in Pakistan, he wrote, “The best way for a man to die is with the sword.”

Puk Damsgard in Islamabad, Pakistan; Emma Graves Fitzsimmons in Chicago; Nate Schweber and John Eligon in New York; Ian Austen in Ottawa; and Barclay Walsh in Washington contributed to this story.

Testing the frontiers of a new friendship

Capital Calculus | Anil Padmanabhan — Sun, 22 Nov 2009 16:52:00 GMT

On 22 September, the World Bank put out a press release on the decision by its governing board to approve four loans for India worth $4.345 billion (around Rs20,250 crore)—the second largest volume of lending to a single country in a single year. This included a $2 billion loan for the capital restructuring of public sector banks. However, it is what the release left unsaid that is significant and probably holds a lesson. What it didn’t state is that the US had opposed the loan and threatened to vote against it before eventually succumbing to diplomatic pressure and deciding to abstain, allowing the loan to go through.

Along with the unexpected India-related sermons included in the US-China joint communiqué, it should serve as a timely reminder to our upright and astute Prime Minister, Manmohan Singh, as he prepares for the honour of being the first state guest of the Obama White House.

Also Read Anil Padmanabhan’s earlier columns

In the world of realpolitik, all friendships are relative, a matter of convenience and every country has to look after its own interests. The US clearly knows that, but does India?

The US move is baffling for a host of reasons. India is considered a “strategic” partner of the US. Further, unlike Pakistan, India does not have a track record of diverting aid towards dubious activities.

Three people I spoke to independently confirmed that the US did surprise India at the World Bank’s board meeting, forcing a lengthy debate. One person said the US challenge to the loan was broadly twofold: Why should the World Bank lend for capitalization of banks, and why was it being restricted only to public sector banks?

The argument is inherently flawed, considering that the US has only recently engaged in one of the biggest bank nationalization efforts to bail out erstwhile blue-chip financial companies that had fallen into trouble precisely for not showing the prudence that its representatives were seeking during the loan discussions.

Also, India is probably the best customer of the World Bank, with a flawless record of loan repayment and an ability to deliver results—albeit well below the potential. Further, a key to modernizing the public sector banks is to top up their capital; since the Union government is strapped for budgetary resources, it makes eminent sense if the funding comes from the World Bank so that the process is not held up and fiscal pressures do not worsen.

Disaster was averted by some astute diplomacy undertaken over the weekend preceding the World Bank’s board meeting by Planning Commission deputy chairman Montek Singh Ahluwalia and finance secretary Ashok Chawla. It also helped that the Europeans were ranged behind India. It was conveyed to the US that a “negative vote” would not be acceptable to India. The US acceded, but left its mark of protest by abstaining. My sense is that the US backed off realizing that it would lose the vote.

This was nearly two months before a joint statement by the US and China—which make up an emerging bipolar world—explicitly encouraged the latter to act as the sheriff of South Asia. India’s spin doctors can claim till they are blue in the face that we are being oversensitive. Sorry, the facts suggest otherwise.

It is evident that self-interest dictated US actions. China is important—for a host of reasons, which are well known—to the US at this point in time. More importantly, the US is a shadow of the power it used to be. It has overextended itself in prolonged wars in Afghanistan and Iraq, and has a highly vulnerable economy. Making friends with the Chinese is the smartest thing the US could have done at this point in time. If it means sacrificing something or someone else, so be it.

The lesson for India: be unabashed about maximizing its self-interest. Don’t react in pique, like, say, coming up with a joint communiqué with Japan suggesting that the latter get involved in resolving differences between China and Taiwan. It will only give a false notion of moral superiority and signal to the world that India is a sore loser.

The moral of the story, if any, is that if US President Barack Obama is extending India a special honour, then be sure that the bill will follow—in this case, I would say that part of it preceded the banquet. It is for India to remind the US, too, that its moment in the sun will come, sooner than later. The path to this emergence is littered with business opportunities for US companies—money talks.

This is not to suggest that the US is not and cannot be a friend. Instead, this friendship should be defined by mutual interests and not based on some personal relationship. Viewed this way, the US will be more tolerant the next time India maximizes its gains by economically engaging Iran, just as India will be less sensitive about the growing bonhomie between the US and a China that is so openly hostile to its interests.

Albert Camus may hold the key to such a relationship:

“Don’t walk in front of me, I may not follow.

Don’t walk behind me, I may not lead.

Just walk beside me and be my friend.”

Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com

Smaller banks for breakfast, lunch, dinner

Banker’s Trust | Tamal Bandyopadhyay — Sun, 22 Nov 2009 16:44:00 GMT

Tourists at the Tadoba-Andhari Tiger Reserve in Nagpur were recently treated to a rare sight. On an early morning in November, a healthy sambar was seen trying to dodge two tigers by entering the shallow waters of Telia Lake, only to be attacked by a pair of crocodiles. The sambar battled hard with the crocodiles for most part of the day before being mauled by the tigers in the evening when it came out of the lake and tried to sneak into the forest. The tired crocodiles had given up, but the tigers were waiting for the kill.

For a moment, replace the sambar with some of the relatively smaller public sector banks in India such as Dena Bank, Vijaya Bank, Andhra Bank and Corporation Bank. They are a bunch of efficient and not-so-efficient banks with assets ranging from Rs40,000 crore to Rs1 trillion. Also replace the tigers and crocodiles with the relatively bigger public sector banks—Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, IDBI Bank Ltd and Union Bank of India (UBI) (with assets of between Rs1.5 trillion and Rs2.5 trillion). The Denas and Corporations will be attacked by the Canaras and Bank of Indias the moment the government converts the Indian financial sector into a reserve forest of big banks.

Also Read Tamal Bandyopadhyay’s earlier columns

A day after a few bureaucrats of the finance ministry held a meeting with the chief executive officers of five big banks on consolidation, Canara Bank chairman A.C. Mahajan told reporters that he would look for acquisitions and an internal team would identify the potential targets. S.K. Goel, chief of Kolkata-based UCO Bank, would draw up a blueprint to buy a smaller bank. I am going by media reports and haven’t spoken to Mahajan or Goel. I have, in fact, spoken to a few others who have not been quoted in the media and most of them, given a choice, would love to have a small bank on their table for breakfast, lunch and dinner much the same way the crocodiles wanted to kill the sambar and the tigers devoured it.

I am not against consolidation. Neither am I against big bankers’ appetite for a healthy meal. But there is something called dinner table etiquette in terms of the dress code, use of napkins, knife and fork, and so on. Just because India’s capital market regulator is not sensitive enough to the wishful market-moving statements, bank bosses should not compete with each other in fantasizing about who will take over whom. After all, barring two, all such banks are listed and investors rush to buy stocks when they hear the chiefs talking about identifying targets and setting up merger and acquisition teams for inorganic growth.

The talk about consolidation of public sector banks, which account for roughly three-fourths of the Indian banking industry, is at least five years old. In early 2004, then banking secretary N.S. Sisodia had sought the views of large public sector banks on consolidation at a meeting in Jaipur, kicking off the debate. At that meeting too, every banker wanted to be an acquirer.

To be sure, the Congress-led coalition government is in a better position to push for consolidation today than it was in 2004 as it does not depend now on Left parties for its existence. The Left parties oppose bank mergers out of concern that such mergers will lead to large-scale job losses. Any merger between two public sector banking entities takes place under an Act that stipulates that two banks can initiate merger talks, but the scheme of the merger must be finalized by the government in consultation with the central bank and it must be placed in Parliament, which reserves the right to modify or reject the scheme. In case of a merger between a public sector bank and a private bank too, parliamentary approval is a must. This means that unless the government is in a position to push through any merger, consolidation in Indian banking cannot take place.

Indeed, a near-decimated Left gives the government a handle to ensure Parliament’s approval for such mergers, but this alone cannot ensure consolidation. Since 1969, when Bank of Behar was merged with State Bank of India, till the union of Centurion Bank of Punjab Ltd with HDFC Bank Ltd last year, most mergers have been an offshoot of the central bank’s efforts to protect the financial system and depositors’ money and very few of them have been driven by the need for consolidation and growth.

At this point, bankers are looking at different geographies to find their strategic fits. So, Canara Bank in the south is eyeing Dena Bank in the west; Bank of India in the west is looking at Oriental Bank of Commerce in the north; UBI in the west is wooing Corporation Bank in the south; and Bank of Baroda in the west seems comfortable with Vijaya Bank in the south. Geographical reach is one of the many critical issues that needs to be considered along with work culture, technology platform, business mix and so on. Most importantly, who will head the merged entity? The CEO of a small bank will never be excited about merger prospects as he runs the risk of losing his job. One way of tackling this could be initiating the process after the CEO of the bank to be acquired retires. Also, it’s not acquisition, but amalgamation where the employees of small banks must be treated with the utmost respect. Finally, the CEOs should not talk till they act. I love the way some of them run their banks, but I don’t share their fantasy.

PS: I am taking a week’s break and won’t write this column next week.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch as Mint’s deputy managing editor in Mumbai. Comment at bankerstrust@livemint.com