Tata Sons: What Next

 

On 11^th September, RBI issued a letter rejecting a long-pending application from Tata Sons to voluntarily surrender its registration as a core investment company. This has a huge impact on the Tata Group’s ownership structure and, perhaps, the future of the group itself. Before getting into the nitty-gritty of the storm it subsequently triggered at the Bombay House, let us first understand the unique architecture of Tata Group companies.

Tata Sons is the privately held principal investment holding company and promoter of 31 Tata Group companies, including TCS, Tata Motors, Tata Steel, Titan, Indian Hotels, Tata Capital, Tata Power, Tata Consumer Products, Tata Chemicals, Tata Global Beverages, Tata Investment Corporation, etc., besides unlisted companies in critical sectors such as aerospace and defence, electronics and semiconductor manufacturing. Each of these publicly listed Group companies operates independently under the supervision of its own board of directors.  As of March 31, 2025, the aggregate market capitalisation of 26 publicly listed Group companies stood at around $328 billion. 

About sixty-six per cent of the equity share capital of Tata Sons Pvt Ltd is held by philanthropic trusts, viz., Sir Dorabji Tata Trust (SDTT), the Sir Ratan Tata Trust (SRTT), and a few other similar Tata family trusts.  These trusts, which receive dividends from Tata Sons, support education, health, livelihood generation and art and culture. The only outside stakeholder in Tata Sons is the Shapoorji Pallonji (SP) Group, which owns around 18.37% equity stake through its investment companies, Sterling Investment Corporation and Cyrus Investments. The rest of the equity is held by Tata Group companies (12.86%) and a few other Tata family members (2.87%).    

This being the peculiar structure of Tata Sons, in March 2024, when Ratan Tata was alive, its board had considered the question of public listing and unanimously decided that it should remain unlisted. Accordingly, it proactively prepaid ₹ 21813 crore in debt during 2024 to become “debt-free” and claim the qualification for deregistration as a Core Investment Company (CIC). It is this request for deregistration that the RBI has now rejected, directing Tata Sons to comply with the regulatory framework applicable to an upper-layer non-banking financial company, which means it must go for public listing.  

As the Tata Trusts, majority stakeholders of Tata Sons, are wrestling with this new challenge, Tata Sons board that met on 17^th September passed two resolutions backed by a majority of four directors’ votes: One, to initiate steps to comply with the applicable RBI Upper-Layer NBFC guidelines, and two, to reappoint N. Chandrasekaran as the Executive Chairman for a fresh five-year term.  But Noel Tata, Chairman of Tata Trusts and the nominee director of the Trusts on the board of Tata Sons, was the only one who voted against these two resolutions.

The board meeting brought out the deep-rooted discord between the Tata Sons board and its principal shareholder, Tata Trusts, into the open. Indeed, this meeting was labelled as acrimonious and unseemly. Noel Tata is reported to have said in a note to the Board that RBI “does not mention listing. It prescribes no particular step, and it does not say that the company is in breach. What its legal effect is, and what it requires of this company and by when, are questions upon which this board has formed no view”.   He is for exploring all the  available alternatives, for he believes that going public will destroy the century-old character of the group's holding company, dilute the philanthropic mandate of Tata Trusts, and shift executive focus from long-term institution building to short-term stock market pressures.

The Tata Trusts have also described that as per the provisions of the Articles of Association of Tata Sons, the resolution to reappoint Chandrasekharan as Chairman, with four directors voting in favour and Noel Tata against it, was ab initio illegal. For, as per the Articles of Association, appointment or reappointment of a Chairman requires a majority affirmative vote from the Tata Trust nominee directors. In the instant case, Noel Tata, Nominee Director of the Trusts, voted against the resolution while Venu Srinivasan, another Nominee Director of the Trusts, voted in favour. Hence, there is no majority concurrence from the nominee directors for the resolution. Trusts also argue that the absence of majority concurrence cannot simply be overridden by the ‘casting vote’. That aside, this resolution raises a fundamental question: When the nominee director of the largest shareholder lacks confidence in the prospective Chairman, can he take crucial decisions well in time? Will he have smooth sailing? 

Intriguingly, there remain two more questions, which merit readers’ attention. The first is: Why did Mr Chandrasekharan change his stance within a month of announcing that he would not seek a third term, given the lack of unanimity on the board?  This perhaps needs to be made known to the Tata Group companies that employ over a million people globally for good order’s sake.  Similarly, in 2024, when Ratan Tata was alive, the Tata Sons board unanimously decided that it should remain unlisted. Fast forward to September 17, 2026, the same directors voted in favour of taking steps toward listing of Tata Sons. More striking is that when the SDTT and SRTT unanimously resolved in July 2025 that Tata Sons should remain unlisted, Venu Srinivasan, as one of the trustees, supported the resolution, and the same was communicated to Tata Sons for necessary action. Yet on September 17, he backed the board’s decision to take steps towards listing Tata Sons.   

Reports indicate that these issues may head to Court, but legal battles would only delay solutions, and prolonged battles are certain to harm the interests of the Group as a whole. Listing is indeed more likely to affect the nimbleness of any holding company. In the instant case, it may even shift the board’s focus from the founding fathers’ philosophy of philanthropy to immediate earnings to meet the expectations of new shareholders. At the same time, listing also helps the investment company raise capital and allocate it efficiently, which would, in turn, benefit trusts by boosting their philanthropic activity. Nevertheless, balancing these demands is a big challenge. Still, the House of Tatas, being what it is known for, is sure to live up to its 158-year legacy of good governance, stability, and honoring the Trusts’ philanthropic philosophy.

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Labor Reforms: A Paradigm Shift

On November 21, the Government of India issued gazette notifications bringing into effect four labor codes—the Code on Wages (2000), Industrial Relations Code (2000), Code on Social Security (2020) and Occupational Safety, Health and Working Conditions Code (2020)—aimed at “streamlining compliance, modernizing outdated provisions, and create a simplified, efficient framework that promotes ease of doing business while safeguarding worker’s rights and welfare”. These codes, however, will become fully functional once the rules regarding administrative and procedural issues are framed and notified. Nevertheless, these reforms are the most consequential structural changes to have occurred in a long time. 

These reforms indeed promise a simpler compliance for employers by consolidating 29 central legislations into four comprehensive Labor Codes. Replacing the existing overlapping statutes and the accompanying fragmentation and inconsistency with a unified architecture—the existing 1400 rules are reduced to 365—duly supported by single registration, consolidated returns, and electronic filings—the reforms are likely to minimise administrative friction and inspection delays, which is a great relief to businesses. Such a simplification not only reduces transaction costs but also improves ease of doing business by minimising the role of ‘rent-seeking’ agencies. With the rise in the threshold for seeking prior government approval for layoff, retrenchment, and closure of factories, mines and plantations from the earlier 100 to 300 workers, along with a provision for state governments to increase this limit further, flexibility in hiring by employers stands enhanced. Introduction of fixed-term employment facilitates hiring for shorter tenures in sync with the industry’s seasonality. And all this makes investors’ expansion decisions more timely and attractive.

The Industrial Relations Code states that workers cannot strike without giving notice within 60 days before going on strike or within 14 days of giving such notice. Even a mass casual leave program of more than 50% of workers is considered a strike. These norms are hoped to discourage flash strikes, which are indeed instrumental in disrupting productivity. Defining the core and non-core activities of an establishment, OSH code gave flexibility to employers to employ contract labor even in core activities. These reforms are set to enable India Inc. to align staffing with demand curves and execute projects speedily. 

The code on wages prescribes a national floor wage that guides states in setting minimum wages to cover all employees, which is likely to reduce disparities and offer more predictable earnings for workers. Issuing appointment letters is made mandatory. Wage is defined as basic pay, dearness allowance and retaining allowance, and is to be the basis for the calculation of other benefits and social security contributions. Working hours are also specified: 8-12 hours per day, and no employee shall be required to work for more than 48 hours a week. Overtime wage must be at least twice the normal wage for any work beyond normal working hours. Payment timelines are also made explicit with a direction to issue wage slips to every employee by employers, either in physical or digital format. These measures are likely to reduce disputes between the employer and employees, leading to enhanced trust in the workplace that is essential for improved productivity. 

The codes also elevate workplace safety by prescribing periodic health checks to all employees above 40 years at the cost of employers. Every factory employing 500 or more workers, employers employing 250 or more construction workers, and employers hiring 100 or more workers in mines are required to constitute safety committees with employers’ and workers’ representatives. Regardless of the industry type, Employees Provident Fund Organisation coverage is extended to all establishments having 20 or more employees. In contrast to the present norm of 10 employees, Employees’ State Insurance Corporation (ESIC) coverage is made mandatory even for a single worker employed in a hazardous occupation. Significantly, these codes recognise new work models for the first time by offering social security schemes for gig and platform workers. Aggregators for gig workers are required to contribute 1-2% of their annual turnover for social security. Fixed-term employees appointed for shorter terms are to be treated on par with permanent workers for all statutory benefits, including gratuity after one year of continuous work. Women are permitted to work at night, subject to their consent and provisions for safety. The net effect of these reforms on workers is improved income certainty, defined entitlements, and safer, more inclusive workplaces. 

There are, of course, resentments from unions about liberalisation of retrenchment norms and restrictions on workers’ right to strike. Similarly, employers are concerned about rising payroll costs. They are, of course, the obvious reactions. Still, the pertinent question is: How friendly are these reforms to strengthening the foundation for sustainable development and improving the capacity to generate employment for absorbing the growing youth population? 

The true impact of these codes, however, squarely rests on their implementation in right earnest. This calls for framing rules about administrative and procedural issues at the earliest in consultation with state governments, employees and employer representatives. Thereafter, regular tripartite meetings are necessary to identify bottlenecks early and take timely action to keep the reforms on track. Only then can the reforms deliver their intended outcomes.

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Tragedy indescribable

Air India Flight AI-171 bound to London carrying 230 passengers and 12 crew members crashed immediately after taking off from the Sardar Vallabhbhai Patel International Airport, Ahmedabad, at 1.38 pm on Thursday. A towering plume of smoke was visible following a massive explosion after the aircraft plummeted into a medical college hostel that was five kilometers away from the airport.

Reports indicate that the pilot of the Boeing 787-8 Dreamliner series issued a ‘Mayday’ call shortly after take-off with no response to subsequent calls from Air Traffic Control. My heart goes out to those two pilots who, in those final moments, must have become aware of the fate awaiting them. It is unimaginable what they must have endured.   

Perhaps a little mercy—that the passengers behind the pilots, unaware of the immanent disaster, may have been reminiscing about cherished moments with their kith and kin that they had left behind or looking forward to joyful reunions at their destination. But tragically, all those on board,  except for a lone survivor, perished in the crash and the resulting fire beyond recognition.

The tragedy deepened when the ill-fated plane rammed through the boys’ hostel of a medical college. At that time, many MBBS students, aged 18 to 22, were having their lunch in the mess. Reports state that four students and a postgraduate resident doctor lost their lives, while many others suffered injuries. Reports also indicate that a number of students sustained hematoma.

The CCTV footage captured by the CISF revealed that the aircraft crashed within 40 seconds of becoming air-borne. Soon after the crash, authorities announced the names of the pilot-in-command and co-pilot, despite the established international conventions advising against the immediate release of such information. The pilot-in-command, Sumit Sabharwal, had 8200 hours of flying experience and the co-pilot, Clive Kunder, had 1100 hours.  

Judging from the videos, aviation experts speculated that overloading, or a potential bird hit or the rare instance of both the engines failing could have led to plane not getting the required ‘lift’ to ascend. Some have said that simultaneous failure of both the engines during take-off is a rarity—a one in a billion possibility. Some have stressed on the possibility of plane being overloaded with 242 passengers and the fuel tank filled fully along with high external temperature might have caused the plane to stall and drop.

Capt. Ranganathan, aviation expert, opined that bird ingestion may have happened. Pointing to the landing gear that did not retract even after attaining a height of 400 ft, he said that it might have further worsened the ability of the plane climbing higher. Regardless of what went wrong, experts agreed on one point: The pilots had virtually no time to regain control of the plane as it began going down.

Amidst widespread speculation on social media and television channels regarding the cause of the Air India Boeing 787-8 crash, a video posted by Capt. Steve, a former US navy pilot, analyzing the cause for the crash has attracted significant attention. Logically dismissing the possibility of all the three theories that are in circulation, viz., twin engine failure, contamination of fuel and bird hit that many have put forward, he came up with a new theory: the co-pilot may have accidentally retracted the flaps prematurely instead of the landing gear during take-off, potentially leading to a critical loss of ‘lift’ required to ascend. But to my mind, this theory sounds pretty hollow.

However, with the recovery of the ill-fated aircraft’s black box, investigators from the Aircraft Accident Investigation Bureau (AAIB), in collaboration with the teams from the US and UK, are expected to offer definitive insights once the data of black box is decoded. Until then, the precise cause of the crash remains uncertain.  

Interestingly, Captain Steve came up later with another theory based on his analysis of another video footage that is sharper than the previous one. Based on it, he, ruling out his earlier theory, stressed the failure of electric or hydraulic power or a simultaneous failure of both the engines as the cause for the crash. His revised assessment is based on three facts identified from the new video: one, the apparent deployed Ram Air Turbine (RAT)—a device that activates only in the event of significant loss of power. Second, the distinct sound of RAT that is clearly noticeable from the video. Third, he quotes the remark of the lone survivor who said that prior to crash he heard a bang and seen the lights in the plane flicker. Based on all this evidence he now states that the crash is more due to simultaneous failure of the twin engines. But there is no cue as to how both the engines might have failed simultaneously.

Here, it is important to note that deployment of RAT at such a low altitude is of no use for the pilots to manage its landing except serving as an evidence about the severe power loss. We may have to therefore wait for the final outcome of the investigation by the government agencies for knowing the true cause of this unprecedented tragedy.

Our thoughts remain with the grieving families as they await answers.   

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US Tariffs: The Unintended Consequences

 

'Protectionism’, once considered an extreme idea in United States politics, has now become a guiding principle for the new regime. As promised, on April 2, Trump announced sweeping “reciprocal tariffs” against all trading partners. These included a basic tariff of 10% across the board, which came into effect on April 5, while individual reciprocal tariffs were set to begin on April 9. 

This move sparked a tariff war between the US and China. In retaliation, China imposed a 34% tariff on US imports. It also imposed sanctions on select US companies, along with a ban on certain rare earth exports critical to the US electronics industry. Angered by this, the US in turn imposed an additional 50% tariff on Chinese imports, raising the tariffs on Chinese goods to an unprecedented 125%. 

The apologists of Trump tariffs argue that there is logic behind imposing such abnormally high tariffs. One key argument is that the significant uncertainty created by these high tariffs may cause panic, leading to a “risk-off” scenario, in which investors may exit stocks and flock to US Treasuries. This automatically lowers yields on the Treasuries. This could make it easier for the US to refinance its debt of $9.2 tn maturing in 2025, potentially with lower interest payments. Furthermore, if the Fed cuts interest rates, the path to roll-over of debt becomes smoother, and hence the call for a rate cut from Fed Chair Jerome Powell.

Secondly, tariffs are considered powerful revenue generators—expected to bring in $600 bn to $700 bn annually. The next argument is that tariffs could be used as strategic tools by the US to force negotiations with allies like Europe, Japan, Australia, South Korea and Taiwan—countries that depend on the US for their security, in such a way that the outcome benefits US trade and investment. Their final argument in favor of tariffs is their potential to reshore manufacturing activities to the US, though no estimates are available about the likely investment, the number of jobs that such a move would create, and how long it would take for them to materialize.

While these arguments remain largely aspirational, the severe volley of tariffs unleashed by Trump on “Liberation Day” set global markets on fire: Stocks plummeted, portfolios evaporated, and panic swept across global trading floors. The US stock market suffered the worst of it: the S&P 500 was down by 3.3%, the Dow Jones Industrial Average lost 1160 points, down by 2.7%, and the Nasdaq composite was down by 4.5%.

After the meltdown in financial markets, Trump announced a 90-day pause on reciprocal tariffs on all countries except China, which faces a tariff of 125%. However, the baseline tariff of 10% and the tariff of 25% on aluminum and steel imports and the automobile sector remain as it is. With this policy reversal, stock markets rebounded on April 9: The S&P 500 jumped by 9.5%—its largest one-day gain in over a decade, and the tech-heavy Nasdaq Composite also soared. Markets in Europe and Asia followed suit, with the pan-continental STOXX 600 rising 5.3%. Major indices in London, Paris, and Frankfurt surged by 4.1% to 5.6%.

Intriguingly, during this fall and rise of the US and global stock markets, a puzzling phenomenon is noticed. Modern financial history tells that there is a reliable relationship between US equities, Treasury yields, and the value of the dollar. Traditionally, during market panics, investors are known to flock to US Treasuries and the dollar as safe havens. As a result, Treasury yields are driven down, causing the dollar to appreciate.

Surprisingly, after the tariff announcement, US bond yields went up—the 10-year yield jumped from 3.99% to 4.5% within just a week, despite turbulence in the equity market. At the same time, the ICE US dollar index, which measures the greenback against a basket of foreign currencies, fell as low as 97.92, the lowest since March 2022. All this could mean that investors are using less of the US Treasury as a “risk-free” asset.

Analysts suggest that this shift in global investor behavior is a fallout of aggressive tariffs, which have raised concerns about long-term US economic stability. Neel Kashkari, Minneapolis Fed President, observed that the dollar’s decline, alongside the tariffs, offers “credible evidence of investor preferences shifting”.

This divergence from the historical relationship between US equities, Treasury yields, and the dollar points to investors’ reduced confidence in the dollar’s reserve currency status; reassessment of Treasuries as “risk-free” assets given fiscal/policy risks; and potential long-term higher funding costs for the US government. The cycle of large deficits necessitating more borrowing, which in turn drives up interest rates and burdens debt servicing, could have significant economic implications. And that, in itself, is the irony!

 

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One Nation, One Subscription

The academic community in India has been greeted with pleasant news: the government is arranging access to the best Journals published worldwide for faculty and students of universities and research institutions under the proposed ‘One Nation, One Subscription’ (ONOS) scheme, which the Union Cabinet approved on  November 25, 2024.

The scheme involves an expenditure of Rs 6000 crore over three years starting from 2025. It aims to offer access to 13000 e-journals from 30 international publishers such as Elsevier, Springer Nature, Wiley Blackwell, Taylor & Francis, Oxford University Press, etc., benefiting 18 000 000 students and faculty, researchers and scientists of 6300 government-run higher educational institutions and research centers. It will be managed by the Information and Library Network (INFLIBNET), an autonomous body under the University Grants Commission. Over time, this facility which is expected to reshape the academic and research landscape of the country, is likely to be extended to the remaining institutions. 

However, this ambitious initiative, which aims to reduce subscription costs and facilitate improved access to scientific literature for higher educational institutions and government R&D laboratories, has sparked intense debate. Some librarians point out that according to the Web of Science database, about half of the articles published in the past four years are freely accessible. Over it, many papers published in 2023 by the Journals covered under the proposed ONOS are already freely accessible. In light of this, some have raised a fundamental question: Why invest in a subscription model when the world is moving towards Open Access (OA) publishing?  

Open Access journals make peer-reviewed papers freely accessible to the readers via Internet.  As against the traditional subscription model where content is made accessible for a fee, OA refers to publishing accepted papers, mostly electronically, after due peer review and making them freely accessible to the readers. There are, of course, different models of OA. The common model, known as gold OA, involves charging the authors a fee called Article Processing Charges (APC) to publish a paper in the journal.  APC for a single paper may run into thousands of dollars. For instance, Nature charges around $6970 per paper.  Under the Hybrid open-access model, journals contain both open-access and closed-access papers. Here a publisher is partially funded by subscription, and by authors in the form of processing fee for the papers that are made freely accessible. Another model is Green OA under which the author is permitted to post his paper to a website controlled by the author or the institute that funded the work, from where readers can download it without paying.  

Ideally, the scientific literature, particularly that is funded by tax-payers money, should be freely accessible. In line with this, the US Office of Science and Technology Policy has mandated that starting in 2026, all research papers derived from public funding must be made freely accessible without delay. Similarly, the European Union’s Horizon Europe declared that peer-reviewed publications resulting from its funding must be made freely available online. This trend is likely to grow further in the days to come.  Given all these developments, one wonders about the financial prudence of the ONOS.

While the initiative to support authors with processing charges for publishing in international journals has been welcomed by the academic community, many believe that a larger portion of these funds under the scheme should be directed towards financing active researchers from Central research institutes/ universities to pay processing charges – estimated to be around ₹ 985 crores per anum –  which are prohibitively expensive for young scientists wishing to publish in reputed OA journals.

That aside, a significant unintended consequence of the digital publishing of scientific Journals has come to light. A recent report reveals that long-term preservation of research papers in digital form is not guaranteed. For example, a paper published in the Journal of Librarianship and Scholarly Communication indicated that 28% of seven million papers with Digital Object Identifiers (DOIs) published online have been lost. The author of the paper, Martin Paul Eve, emphasized that systems to preserve papers online have failed to keep pace with the growth of the research output. Eve also warned that “The threat posed by the disappearance of the scholarly record is real”.  The author also cautioned that “without active understanding and intervention, we will continue to lose valuable material and threaten the persistence of digital links to scholarship and research”.

These global developments underscore the need for a new approach, particularly in an era where ‘self-reliance’ has become the national priority. While Indian scientists are currently publishing their papers in prestigious journals such as Nature, Science, etc., there remains significant scope for India to publish world-class journals. Achieving this, however, requires a robust journal publishing ecosystem. To build such a system, publishers must be able to undertake the pre-publishing process without charging prospective authors and make content freely accessible to readers online.  For this to happen, government funding is essential.  Such funding would enable Indian publishers to attract high-quality research papers from around the world, benefiting the country in two key ways: first, it would encourage Indian scientists to publish their research on credible digital platforms within the country; and second, it would position India as a trusted leader in global scholarly publishing of scientific literature.

All this may warrant a tweak in the ONOS program.

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Microsoft Systems Went into a Coma!

What a cascading failure of technology! 

On July 18, people sitting in front of their computers were greeted by that infamous “blue screen of death” and the world encountered Microsoft outage. 

The result is: Flights were grounded, airports were thronged with agitated passengers; a wide range of businesses were disrupted; healthcare providers were to cancel appointments, and even defer surgeries; and stores and broadcasters in several countries went offline. 

The Cybersecurity Company, CrowdStrike —the company that provides cybersecurity services and software for many large corporations including Microsoft— said that the outage was the result of a routine software update that had gone wrong but “not a security incident or cyber-attack”. 

Microsoft later estimated that CrowdStrike’s update “affected 8.5 million Windows devices”. In a blog post it said, “While the percentage [less than one percent] was small, the broad economic and societal impacts reflect the use of CrowdStrike by enterprises that run many critical services”.   

Now, security experts opine that the latest update of Falcon sensor software that was meant to make CrowdStrike’s customers’ systems more secure against cyberattacks might have not undergone adequate quality checks before it was released. And one probable reason for such lapse is attributed to the fact that such release of updates being so frequent—almost once a day—CrowdStrike might have not tested it as much. 

This posits a question: Why are we so bad at preventing them? One simple answer is: These technological systems are too complicated for anyone to fully understand. For, the programs are not built by a single individual. They are developed by many over several years. And they may have millions of lines of codes that no one entirely grasps. 

Over it, there are a number of countless components that might have been designed long back in a specific way for a specific purpose that no one remembers. It is the interaction of these countless components and millions of lines of code that keeps the system functioning. So, any one of them malfunctioning makes the whole system go dead. And that’s what the faulty update did! 

And, we do not appreciate all this till something unintended happens. Now that this has happened, and the fragility of the digital ecosystem is exposed, it is time to work towards creating a more resilient system by putting in place sound disaster recovery protocols. First things first: treat this outage as a “dry run” and evaluate our digital dependencies and the policies governing them. 

The security-providers such as CrowdStrike are uploading updates constantly, often many times a day with no visibility to customers, no accountability and no regulatory scrutiny. Of course, they may be having a reason for such secrecy: to stop hackers from knowing the underlying software. But it doesn’t mean that cybersecurity vendors can simply get away with no transparency and control. 

For instance, let us take a relook at the current outage. CrowdStrike, the cybersecurity vendor of Microsoft, having had kernel access in Windows, directly uploaded the update. Instead, if it was first tested by Microsoft before the vendor straightaway uploaded to the customer’s systems, the fault could have been identified by the Microsoft engineers and the outage could have been averted(?). 

Another important point that emerges out of this episode is: Microsoft cannot absolve itself from the responsibility for the current damage by simply saying it is the fault of the security vendor. After all, we the users place immense faith in Microsoft while buying its products. So, there is an implicit responsibility on Microsoft to ensure that what its vendors are uploading is faultless and indeed provides cybersecurity but not an outage. 

No doubt, CrowdStrike, to its credit, took the lead and did a speedy job: Withdrew the update and resurrected the systems reasonably quickly. Secondly, an excellent sense of collaboration was witnessed in the entire system to recover from the damage and move forward quickly. Credit also goes to Microsoft for mustering such collaboration.   

Yet, as the world is becoming increasingly digitized and interconnected, there needs to be a mechanism set in place to make security vendors’ behavior less and less risky. And Microsoft must take the lead in fostering such confidence among its customers. 

To manage risks associated with automated software updates, organizations may have to put in place an effective vendor management system. Some experts are even suggesting developing such technologies that could afford visibility and control over software supply chain. 

Lastly, it is perhaps, time for big users like airlines to plan for alternative system availability to limit the damage from such future eventualities. Simultaneously, businesses may have to look for a greater range of suppliers of security applications to obviate the concentration risk in the cybersecurity market. And, regulators must build a regulatory mechanism to analyze this kind of technical failures and suggest improvements —just as they analyze cyber-attacks—to sustain the resilience of global digital infrastructure. 

Else, such failures can cause severe damage to the global economic system.   

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A Blow to Currency Derivatives Trading!

 

India’s Forex derivatives market is all set for a profound transformation. According to the notification issued by the Reserve Bank of India on 5^th January 2024, proprietary traders and retail investors will be required to demonstrate contracted or prospective currency exposure to participate in the forex derivatives trading offered by exchanges such as NSE, BSE and MSEI. It effectively means that participation in derivatives trading is henceforth restricted exclusively to hedgers. Initially, this directive was supposed to be effective from April 5, but at the representations made by the market participants, RBI has postponed the effective date to May 3, 2024.

Until now, non-banking participants in exchange-traded currency derivatives were allowed to take positions, be they long or short, without having to establish the existence of underlying exposure, up to a single limit of $ 100 million equivalent across all currency pairs involving INR, put together, and combined across all recognized stock exchanges.

Given this, the stringent notification from the RBI caused a stir in the forex derivatives market. Reports indicate that the daily turnover in the currency derivatives segment of NSE has collapsed to less than one-tenth of the daily average that stood at Rs 1.46 tr since the April circular of RBI that pushed the effective date to May 3. As the market players – predominantly speculators and arbitrageurs – commenced unwinding their positions to comply with the notification, the number of outstanding contracts also has come down substantially. Even the premiums on some option contracts appeared to have surged more than 200%.

The circular had indeed ignited a significant controversy in the market that consists of proprietary traders who accounted for 62% of gross turnover followed by retail investors (19%), others (8.3%), foreign portfolio investors (6.2%), corporates (3.9%) and domestic institutional investors at 0.2%. True, FEMA regulations did say that the participants in the exchange-traded currency derivatives market have to have an underlying exposure. But what the market players arguing is that all along neither the underlying exposure nor contracted exposure was insisted upon to trade in currency derivatives at exchanges up to a limit of $ 100 mn. As a result, currency derivatives market is well established in India with trading volumes reaching $ 5 bn a day. Now with this RBI notification, speculators and arbitragers who contribute a large portion of the volume will be driven out of the market, which means drying up of liquidity.

Theoretically speaking, speculators are important to markets because they bring liquidity while assuming market risk. And, providing liquidity is the essential function of the market which alone enables individual traders, including hedgers to easily enter or exit the market. Secondly, a liquid market reduces the cost of hedging. That aside, derivatives trading in exchanges being well-regulated and transparent helps players in the price-discovery of the underlying asset.

That said, it must also be admitted that speculators, believing that a particular currency is going to increase in value, may choose to purchase it as much as possible even by resorting to high leverage, and in the process can create a speculative bubble by driving the price of a currency above its true value. Conversely, they can go short believing that the asset is currently over-priced and drive the price to fall continuously till the market stabilizes.

Perhaps, it is to avert such unwarranted swings in the currency market, particularly in the light of global uncertainties and the forthcoming entry of the nation’s bonds markets in global indexes from June that the RBI might have issued the notification restricting trading in currency derivatives in exchanges to hedgers alone.

Yet, no one can afford to ignore the unintended consequences of this restriction: one, the relevance of exchanges as facilitators of hedging forex risk without the participation of algorithmic, proprietary and individual traders who typically handle the risk of hedgers will be lost; two, with poor liquidity, hedging becomes costlier; and three, it may finally drive the hedgers to banks that offer costlier over-the counter hedging products leaving exchanges dead. It may even drive traders to shift their operations to the rupee NDF market in Singapore, Hong Kong, or Dubai, which incidentally can result in the same volatility that RBI wanted to check with its latest notification. Over and above all this, it portrays a poor image of India’s regulatory regime.  

As the fact remains that derivatives market needs all kinds of players such as speculators, arbitrageurs and hedgers, RBI may have to recalibrate its exchange rate management techniques and come up with a regulatory framework that ensures liquidity in the derivatives market while managing the swings in currency prices effectively.

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Ayodhya Temple: A New Hope for Harmony, Peace and Growth

The sprawling Ayodhya temple built with sandstones for Ram Lalla in Nagara style on a site believed to be Maryada Rama’s birthplace was consecrated on January 22 during Abhijeet muhurta—a highly auspicious period in Vedic astrology—by the Prime Minister Narendra Modi amid chanting of hymns and conduct of rituals by a select complement of priests. Watching the sacred ceremony live the whole nation rejoiced the occasion and paid its respect to Lord Rama, the personification of Dharma, by lighting traditional diyas—earthen lamps. A truly momentous event! 

This sacred ceremony has indeed brought the curtain down on the agony of Hindus. To better appreciate the significance of this day, one must first look at the history of this national trauma that began in 1528 when Mir Baqi, a general of Mughal ruler Babur, ostensibly pulled down a temple built at Sri Rama’s birthplace and constructed Babri Masjid. Since then, several skirmishes and communal violence reported over the Ram Janmabhoomi-Babri Masjid dispute. It fuelled polarization in the state of Uttar Pradesh along religious lines that rocked the state with frequent violent disturbances. 

After independence, it even spread to the whole of the country causing repeated religious violence threatening the very fabric of modern India. On December 6, 1992, as the agitation reached its peak, lakhs of kar sevaks who assembled at Ayodhya from all over the country pulled down the disputed structure—Babri Masjid. This stirred up communal riots across the major cities of north India. Notably, the Hindu-Muslim riots in Mumbai, the financial capital of India, caused 900 deaths and damaged properties running into thousands of crores. 

Immediately after the demolition of the mosque, a makeshift temple to Ram Lalla was built by Hindu activists. A new law was enacted by the Government of India to acquire a large area of land in Ayodhya that included the site where the mosque stood. A Presidential reference was also made to the Supreme Court to find out whether a “Hindu temple or any Hindu religious structure” existed where the mosque had been built in 1528. 

The legality of this enactment and the Presidential reference were challenged by Muslim representatives in the Supreme Court. A majority decision of the Court upheld the law acquiring the land, but declined to answer the question raised in the Presidential reference observing that it was “superfluous and unnecessary”. 

In September 2010, a three-judge bench of Allahabad High Court, setting aside a lower court’s order, allocated two-thirds of the disputed site to Hindu groups, with the remainder going to Muslims. It also gave a ruling—obviously, based on a 272-page report submitted by the ASI which summarized its findings as: “indicative of remains which are distinctive features found associated with the temples of north India”—that the disputed spot was Hindu God Ram’s birthplace and the mosque had been built after the demolition of a temple. But both parties appealed against the order in the Supreme Court. 

Finally, in 2019, the apex court settled this fractious issue once for all by a unanimous judgment that identified the disputed site as the birthplace of Sri Rama and handed over the disputed site to Ram Lalla Virajman, and directed the Central Government to form a trust to construct Ram temple at the disputed site in Ayodhya while ruling that an alternative five-acre plot must be found for a mosque in the Hindu holy town. 

It is in fulfilment of this order that the trust constructed the temple, which in the words of the Prime Minister, “will be a witness to the rise of a magnificent India”. Needless to say here that it becomes a reality only when what Mr Yogi Adityanath, Chief Minister of UP, aptly said, “Bullets will not be fired in Ayodhya, Sarayu Maiya will not be stained with blood. Curfew will not cause havoc in Ayodhya”, becomes a norm for the whole of the nation. 

It is also time for the nation, as Mr Mohan Bhagwat, RSS Chief said, to “stop fighting over petty issues” and “move forward with truth, compassion, wisdom, discipline and charity”. Even the wisdom of governance commands that we must bury the past, though it is inarguable that the Islamic rulers of our past destroyed many Hindu temples, to maintain harmony and peace in the country. Then only it becomes feasible to accomplish what the Prime Minister desired: the application of “collective wisdom and strength … towards nation building”.

 

Where Are We Heading?

Day by day it is becoming increasingly shuddering to pick up the newspaper and read it in the quietude of the dawn.

“A 16-year-old girl was stabbed multiple times and bludgeoned to death in northwest Delhi allegedly by a 20-year-old person in full public view on Sunday”, states the Hindu of May 30, 2023.

The irony of the whole catastrophe was: It happened in a densely populated and busy lane. And someone could even capture the incident on video which went viral on social media.

It had shown the accused “stabbing her more than 20 times and then attacking her head with stones, while passers-by watched, without trying to stop him”.

According to “the CCTV footage the incident took place around 8.45 pm” and the police got the information only around 9.35 pm” because of which, “the body remained on the street for nearly an hour”.

Unfortunately, the irony didn’t end there! This heinous crime stirred up “sharp political reactions”, says Hindu:  Chief Minister of Delhi tweeted urging “L- G sir … do something”. The Delhi BJP President tweeted: “It is regrettable that the Chief Minister is trying to portray the brutal killing … as a law-and-order issue, whereas it is a case of love jihad”.

How have we become so apathetic? How are we to explain this social and cultural malaise that has afflicted us? Yesterday, it was somebody chopping a woman and storing her pieces in a fridge. Yet another day, a school teacher molested a student. More horrible than it is: a man stabbing his daughter 25 times over a family dispute. What will happen to our society if we let go of the current trend of morality becoming a secondary concern uninterrupted? What would be the damage?

No explanation can perhaps be offered to placate a traumatized mind over these appalling crimes. But we can certainly introspect! This leads me to Alasdair MacIntyre, the philosopher author of the book, After Virtue, who states that “navigating a way out of our current societal malaise requires us to resurrect an older form of morality”. For, the “institutions of morality established in earlier eras have been dismantled, and we are simply performing a mimicry of them”.

He goes on to say that the oldest vice – which Aristotle named pleonexia – actually means “acquisitiveness as such, a quality that modern individualism both in its economic activity and in the character of the consuming aesthete does not perceive to be a vice at all”.  

He further states that modern friendship is mostly based on affection, while Aristotle’s concept of friendship is “a relationship defined in terms of a common allegiance to and a common pursuit of goods”. Aristotle also warns that friendship derived from “mutual utility and mutual pleasure” is likely to be less genuine.

Now, coming to the kind of friendship that one is witnessing of late on the roads in the form of boys and girls walking hand in hand, which rarely gives a feeling that it is driven by “a common allegiance to and a common pursuit of goods”. They appear to be driven more by ‘affection’.

And, once that affection wanes, the vice of ‘acquisitiveness’ and ‘possessiveness’ gets triggered in boys leading to all kinds of beastly acts, perhaps.

This simple truth demands that boys and girls may have to assess the ‘drive’ leading to friendship clinically and only after being confident of the common pursuits allow that to bloom. Else, problems are certain!

In this context, it is perhaps, girls who need to be more cautious in forming friendships. I am airing this feeling at the risk of being labelled a misogynist, for I have often noticed girls alone becoming victims of such vices. I have never heard of a boy ever getting hit by a girl at the termination of such friendships.

Secondly, even if a brave girl attempts to hit a boy, I am doubtful if her physic vis-à-vis a boy will ever support that act. Recall the present incident in which, the poor girl, apparently, could not even run away from the boy who was stabbing her—perhaps, such was the overpowering strength of the boy.

Thirdly, while discussing matters of this nature, I often get reminded of what that eminent neuroscientist, Dr VS Ramachandran once said: “We are not angels. We are merely sophisticated apes…”

Modern science also tells that there is only 1.2 percent of genetic difference between human beings and chimpanzees. Don’t you think it’s not much of a difference? And, we all know what an angry ape does?

That aside, I also remember to have read somewhere a scientist saying that biologically we are wired to be angry apes. And imagine if such an angry ape, which is driven by the vice of acquisitiveness, fails to own up to what it is striving to possess, how mad it would turn and do whatnot.

It doesn’t however mean that all boys are bad, certainly not. Nevertheless, girls, being what they are, perhaps, need to be assertive right from initiating a friendship and always be on guard: “never to take the obvious for granted” and be prudently alert not to become a victim of such atrocities. For, protection from the onslaught of socially-deviant prima facie rests with the ‘self’.

This incident also makes another subtle pointer: When it comes to the common good of the society, political parties engaged in governance need to ignore their identities and particularly, in matters of this nature where the common good of the society calls for resurrecting morality in the society, and work collectively towards the goal. Indeed, this calls for a sane debate across society …

Adani Group: A Ride by a Short Seller!

 

It all happened within a week: Gautam Adani, founder of the Adani Group, who until recently was the richest Indian in the world, has now slipped to the 22nd spot in the Forbes billionaire list.

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On January 24, Hindenburg Research, a US-based investment research firm with a focus on activist short-selling founded by Nathan Anderson in 2017, released a report accusing the Adani Group of “a brazen stock manipulation and accounting fraud scheme.” Citing two years of research, including talks with former Adani senior executives and the analysis of thousands of documents, it stated that the key listed companies in the group had “substantial debt,” and thus the group companies are on “precarious financial footing.” 

The report further stated that “the seven key listed companies of the Adani Group are 85% plus overvalued even if you ignore our investigation and take the companies’ financials at face value.” It is, perhaps, in support of this averment, the report furnished a table indicating a company-wise PE ratio, a price/sales ratio, and an EV/EBITDA ratio, along with the industry average and the implied downside thereof. They are all on the higher side vis-à-vis industry averages. For instance, the PE ratio of Adani Enterprises is shown at 508x as against the industry average of 12x, which would mean a downside of –97.68%, a price/sales ratio of 5.7x as against the industry average of 0.5x, which implies a downside of–91.33%, and an EV/EBITDA ratio of 66x as against the industry average of 8x, which means an implied downside of –88.16%. 

Within a couple of days of the release of the Hindenburg report, Adani Group countered the accusations with a 413-page response calling the document “a malicious combination of selective misinformation and concealed facts relating to baseless and discredited allegations to drive an ulterior motive. This is rife with conflict of interest and intended only to create a false market in securities to enable Hindenburg, an admitted short seller, to book massive financial gains through wrongful means at the cost of countless investors.” This is, however, rebutted by Hindenburg, who states that Adani’s response did not address any of the substantive points that the report raised. 

The outcome of all this is the free fall of the share prices of the Adani Group companies. According to a report in Reuters, the combined market cap of the group fell within a week by 47.44% to $108 bn as against $218 bn before the release of the report. Its spillover is felt by the rest of the market too: the share prices of LIC and SBI declined by 8% and 5%, respectively. This has also moved Gautam Adani out of the top 20 richest people’ list of the world. It even hurt the FPO of Adani Enterprises, which was opened for subscription on January 27, for the participation of retail investors was tepid, leading the group to finally junk it, although subscriptions from qualified institutional investors and anchor investors came in. 

Now, the moot question is: What did Hindenburg get out of all this? As mentioned in its report, having taken a “short position in Adani Group companies” through bonds that trade in US and other investments that trade outside India, it might have made a profit. For, shorting is nothing but borrowing the stock from the market and selling them expecting its prices to fall substantially owing to the report released, hoping to buy them back at a lower price and thus make a killing. However, in view of the prevailing Indian regulations that make upfront disclosure of short positions mandatory, it is not clear how it structured its bet. One possibility is that it might have taken a position in the derivatives market or in the bond market. Nevertheless, going by its past actions, it becomes very clear that it released the report with the intention to make a profit. 

Amidst this crisis, Adani Group has made a smart move: it has called off the FPO of Adani Enterprises. In a regulatory filing, Gautam Adani, Chairman of Adani Group, said, “… the market has been unprecedented, and our stock price has fluctuated over the course of the day. Given these extraordinary circumstances, the company’s board felt that going ahead with the issue would not be morally correct. The interest of the investor is paramount, and hence to insulate them from any potential financial losses, the board has decided not to go ahead with the FPO.” He also said, “… the company shall forthwith refund to the bidders the entire application bid amounts or subscription amount received in the offer in accordance with applicable law.” 

Of course, one has to wait and see how good this move would be in creating confidence in the governance practices of the group. There is a general perception in the market that the stocks of Adani Group have outperformed the market, but its debt instruments are declining in value. This phenomenon, coupled with the regulator’s likely probe of the whole issue, could mean the group would have to wait longer than expected before it regained investors’ confidence. Meanwhile, it may be safe to say that there may not be any existential threat for the group, although its ability to fund its Capex programs will be affected. Also, the fact that no rating agency has yet reappraised its debt too could give some relief to it and also to its various stakeholders. Nevertheless, in light of the canceled FPO, it will have a tough time servicing its debt from internal revenues. And to that extent, the extant lenders to the group stand exposed to default risk. But Mr. Adani, who is known as an able operator, is sure to wriggle out of the crisis.

Russia’s War on Ukraine: The Brutal Impasse!

Pounded shopping centers and burnt-out apartments and fleeing women, children and the aged from the war-affected zones to the neighboring countries are what on the 56^th day of the Russian invasion greet the citizens of this once beautiful city, Kyiv of Ukraine. And, as its citizens are taking shelter in the metro stations, its armed forces along with volunteers—much against the expectations of Russia and even the defense intelligence of the Western countries—are still bravely resisting the Russian invasion. 

Amidst this, Ukrainian officials gave an indication in the Istanbul talks to discuss about neutrality for Ukraine against the guarantee of the five permanent UN Security Council Members, viz., the US, Russia, France, China, and Britain along with Germany, Poland, Turkey, and Israel—all in the anxiety to halt Russia’s invasion of their country. They have even proposed to separate and postpone for 15 years negotiations on what it calls “the temporarily occupied territories of Donetsk and Luhansk regions and Crimea.” 

In a way this offer of Ukraine not to join NATO or host foreign bases in its territory enables Putin to claim that he has successfully stalled NATO’s expansion to a Slavic country and ensured that Ukraine remained a buffer zone. But the expectation of Ukraine from the proposed guarantors to accept a legally binding duty to defend Ukraine by sending their own forces should anyone attack it, may not be palatable for Russia. However, nothing has so far been heard from President Putin himself, except for the Russian negotiators agreeing to examine the proposals. 

It is also equally not yet clear if the countries from which Ukraine sought guarantees in return for its maintaining neutrality would agree to undertake such a guarantee, for it would mean going to war with Russia if it encroaches on Ukraine again. Nevertheless, the current proposal of Ukraine is certain to ignite discussions among the countries, for such treaty commitments call for ratification by their respective legislatures. 

Of course, there are a couple of tricky issues/pitfalls in the proposal: the first and foremost issue is how to resolve the annexation of Crimea and other areas of Ukraine that Russia currently occupied. Secondly, Ukraine President, Volodymyr Zelensky stated that the peace deal must be approved in a referendum by the Ukrainians, which appears to be a difficult proposition to accomplish, for after having the people fought so boldly to defend their country for this long and witnessing the kind of damage caused that their people and cities were subjected to, would they agree to such a concession?   

Here it is also worth bearing in mind by both the warring countries and the NATO and EU countries that Russia, owing to the stiff resistance offered by Ukraine, could not achieve its goals of invading Ukraine; nor Ukraine could get the military assistance—offering ‘no-flying zone’ and supply of combat aircraft and advance weaponry —that it sought from the Western countries. Ironically, while Ukraine is facing the brunt of the war all alone, these NATO and the EU countries are staring at this brutal impasse and the resulting decimation of Ukraine as helpless bystanders. 

“A bad peace”, says a Russian proverb, “is better than a good quarrel”. This wise counsel should prevail upon Russia to open an honest dialogue with Ukraine to end the war immediately. The NATO countries should nudge them towards a negotiating table, for there is an urgent need to wriggle out of this brutal impasse. And, for a truly substantive negotiation to progress, all those countries that share democratic values must in the meanwhile sustain their financial support and supply of defense equipment to Ukraine to protect itself from the onslaught.   

All the agencies that are one way or other involved in the crisis must also realize that a prolonged war will also hurt those who are not directly involved in it, for it can cause lasting damage to the world economy. Inflation is already raising its ugly head all over the world. The rise in commodity prices and the soaring oil and wheat prices are enough to cause fiscal pressures in many countries. The collapsing trade growth is certain to worsen the growth in developing countries that was already hit by the Covid-19 pandemic. Global supply chains are once again disrupted. The resulting pressure is certain to push the developing countries into a debt trap.

Therefore, the crisis calls for an immediate cease-fire from Russia. And the rest to nudge these two countries to take forward the negotiations, however difficult it might be, to a meaningful end.