Chairman Emeritus Reconnect 58 – Economics & Financial Acumen

My dear friends,

Economics and Finance have become the driving force of Humanity in modern times. A profound acumen is necessary for the empowerment of the whole of humanity to participate in an all-inclusive economic process. For example, providing good health care and quality education for the underprivileged or disadvantaged populations is not a charity but an investment creating quality human resource for expanded markets furthering the reach and scope of the economic engine (as discussed in World Economic Forum 2006 at Davos in Switzerland).

Three terms are generally used for Economic & Financial attributes

  1. Sense,
  2. Consciousness, and
  3. Acumen

Sense

A lack of sense like “Pennywise Pound Foolish” transpires when you are purchasing a hot water system for your bathroom, and you opt for an Electric Geyser of Rs 6,000/- against a solar water heater of Rs 30,000/- with no running electricity bill.

Consciousness

Delay in commissioning of a power project of 500 MW by a single day can cause a revenue loss of nearly Rs. 1 Cr. to the Generating Company and Rs. 10 Cr. to the national exchequer since multiplier effect of electricity on country’s economy (GDP) is more than 10 times. If this kind of awareness/ consciousness can be generated from concept to commissioning in the minds of engineers, time & cost over-runs can be eliminated from the landscape of project executions.

Acumen

Back in 1975, once a trainee engineer asked the Confederation of British Industry (CBI) President in U.K. a very embarrassing question during an Annual Dinner…as to why they were spending so much on the training of foreign scholars. What was their hidden agenda? (I was also present in that meeting as one of the scholars to listen to the prophetic acumen of the President). 

The President replied with a smile, “Even if one amongst you becomes GM of his company in his own country with a soft corner and appreciation for British Engineering & British products, even after 20 years from now, in one single contract, I shall recover all the expenses incurred on the entire batch of engineers sitting here”.

Deeper Intuitional Acumen

Rita w/o Prof. Robert E. Lucas of University of Chicago while divorcing in 1989 had a provision placed in the property settlement promising her half the winnings, should her husband receive a Nobel Prize before 31-Oct-1995. Getting Nobel Prize for Economics on 10-Oct-1995, Prof. Lucas had to shell out half of his One million $ winnings. His Nobel Prize was on the theory showing how Consumer experience rather than Govt. intervention shapes national economies. He could not envisage his divorced wife’s intervention in his own future economy!

Such deeper Financial Acumen can’t be taught in any Advanced School of Business. It can only be developed in a School of Life where spiritual intuitional powers interplay.

Time Value of money

A 1,000 Cr Project with a construction schedule of 10 years eventually costs Rs 1,650 Cr with 8% escalation per year on the unspent amount as per the normal implementation/expenditure profile. People generally keep planning (for future!) on the present value of money. This should be avoided by constant awareness that there is ‘time value’ of money.

Project time assignment for optimizing the cost

A World Bank study reveals the following:

 

 

 

 

 

 

 

As can be seen, Developing countries’ Model entails higher cost due to the disproportionate assignment of time amongst Planning, Implementation and Problem-solving. Developed countries, spending 40% of their time on “Planning”, demonstrate that they believe in the dictum “Well Begun is half done”.

NPTI Case Study of Financial Management

NPTI had decades of baggage of being a financial burden on the Ministry of Power, its revenue generation to expenditure ratio being 37% on an average when I joined as CEO in the year 2000. We decided to become 100% self-sustained at the earliest. We started looking at our operations microscopically. We found that there was a regular decrease of training load year by year from within the power sector. We realized that not being policy driven, training was becoming a least priority item on the agenda of Power Utilities. We approached the Ministry of Power to permit us to draft a “National Training Policy for the Power Sector”. It was agreed, prepared and got approved by the Union Parliament with the mandatory provisions such as “Training for All”-Minimum One week Training in a year made compulsory for each and every person working in the Power Sector, Provision of 1.5 to 5% of Salary Budget allocated to Training etc. This entailed 10 Lakh Trainee-weeks of Training Load spontaneously. NPTI being the sole National Power Training Organization in the Power Sector, everyone started looking at us for training.

However, making the National Training Policy was a long drawn process from concept to implementation, going through a series of meetings, seminars and workshops with the stakeholders at state, zonal and central levels, arriving at a consensus, Ministry of Power finally going to the Parliament for sanction, gazette notification and so on. This long drawn process took almost 2 years. Eventually, it was launched by the Hon’ble Union Minister of Power from the premises of NPTI on 27th March’2002.

Our resolve was to improve financially from Day-1. We looked at the possibility of educating and training the future generation of Power Engineers. On the training front, we realized that In-depth Power Training cannot happen without a strong conceptual back-up in the field of Power. For instance, without conceptualizing ‘Reactive power and Power factor’ can anyone imagine training on Capacitor banks; without understanding ‘Rankine Cycle’ can anyone predict the Performance of thermal plants?

Without feeling the Sine wave (the pulse) of Power Sector there can be no effective skill training, we were convinced. Academics and Skill Training are the two sides of the same coin. This led us to the backward integration of Power Training with academics. We started with Post-Diploma course in Thermal Power Engineering, B.E./ B.Tech. (Power); Post Graduate Diploma in Power Engineering and MBA in Power Management on the eve of Power Sector Reforms.

National Training Policy for the Power Sector did help us in generating training load but payments were still lagging from the bankrupt electricity boards on the plea that any cut on the budget is first applied on the training segment. In order to resolve this issue, we organized a workshop in New Delhi for Regulators (SRCs and the CERC) who agreed to include training expenses in the O&M budget forming a part of tariff structure for the entire Power Sector as was being accepted for NTPC. With this, the revenue component of Training started flowing with the tariff realization and consequently, our arrears started liquidating.

End of the day, NPTI was accepted as an ideal model of ‘Backward integration of Power Training with Academics’, UGC giving in-principle approval of Deemed University to the Centre for Advanced Management & Power Studies (CAMPS) of NPTI running a unique MBA program on Power Management, NPTI becoming the largest Power Training Institute in the world (expanding its 4-units to 10-units across the 5-Power Zones in the country), with the number of Trainees increasing by >600%, Training Load exceeding 75,000 Trainee-weeks per annum and at the same time becoming 100% self-sustained.

Summarizing the above, it can be inferred that “The wind may blow from any direction, but the direction in which you go depends on how you set the sails”.

Above given are only a few facets of economic astuteness (setting the sails) to show that there is a link between economic activity and human consciousness and spiritual sense. Deep acumen needs to be developed and practiced in life to achieve economic brilliance for the benefit and well-being of the Society at large.

 

Satyamev Jayate!!!

With Best Wishes and Regards,

Dr B.S.K. Naidu, Chairman Emeritus, Great Lakes Institute of Management, Gurgaon, INDIA

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