June 27, 2009

 

Go Nandan. Go!

Nilekani has been appointed the Chairman of Unique Identification Authority of India and he will be equivalent of a cabinet minister. I must admit I was quite disappointed with UPA govt's last term and was hoping they will lose election. But a thumping victory has catapulted the mood of the government. And now I have nothing but admiration for the new govt. This definitely marks a new beginning in governance where an eminent, competent person has been entrusted with a major responsibility. According to some estimates this project will have budget of Rs 10,000 Cr spread over 3 years.

But, guess what, not everyone is happy with govt's this decision. Immediately, the red flags of conflict of interest have been waived. Yes, Infosys will be competing to get this project (or part of it as I see.) Nilekani has already resigned from the Infosys office. He has also made it amply clear that he will excuse himself from the decision process which involves Infosys. It seems that's not enough. They are asking what will he do with his some $700 million dollar worth holding in Infosys.

Few things.

First. Infosys is one of very few companies in India which made "Corporate Governance" way of life long before the term gained currency. Nilekani has been an integral part of the process with which they built Infosys. The conduct of Infosys management has been impeccable. (Short exercise. Pull out the list of top paid management executives on India. Check how many of them are promoters of the companies. Check if their compensation was in line with the performance of the company.) If you are asking for highest (and unreasonable) ethical standards from the man who has amply demonstrated it, you need a break. And let's not forget we are the country which elects hundreds of murderers, embezzlers, criminals, rapist, robbers as our representatives.

Second. Let's find out how much Infosys stands to earn if they win the project. The budget of 10,000 Cr will be spent over 6 years. A significant portion of this money will be spent on hardware which includes hundreds of millions of smart cards. (When you buy a new vehicle, the RTO issues a smart card with details of vehicles. They charge Rs 350 for that. If you take Rs 50 per card or $1 for mass production we are talking about hundreds of millions of dollars, which is significant portion of the budget.) I would be surprised if the actual spend on software is more than Rs 3,000 Cr in all - that is Rs 1000 Crore per year. Obviously this is a huge project and you will have multiple software vendors. Let's say we are talking about 3 vendors. That roughly translates to Rs 300 Crore per year per company. If Infosys is one of the vendor, it will get 300 cr revenues per year. Don't expect the profit margins on this project to be superhigh as there is no labour cost arbitrage.

To put numbers in context, Infosys reported revenues of Rs 21,693 Crores. An additional 300 Cr will hardly change their financials in a tangible way.

For the sake analysis, let's say Infosy's stock prices moves up by 10-15% due to revenues of this project. Now, what is it in this world that Nilekani can do with $800 million but not with $700 million? Nilekani has spent his lifetime to build reputation and name for himself. He is not going to take any action which will jeopardize that pristine reputation. It's foolish if someone thinks he will trade his reputation for few extra millions. Last I heard he didn't own a private jet or a yacht or an island. He seems like a frugal man to me.

It's been 15 years since the start of Voter's ID card project and even today the cards are issued with wrong name and address. This is a himalayan waste of public money. We need competent person to look after such gigantic projects. By making fuss out of nothing, we are scaring lots of good people from corporate world whose expertise govt may wish to utilize. Now, if Deepak Parekh is asked to head a new authority on affordable housing and there are going to be similar noises due to his connection with HDFC, we will keep him away. It would be a shame if such great people, who are willing to commit their time and energy for the larger good of society, are kept away due to some non-issues.

All the best, Nadan!

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2
Comments:
Very well put. +1
 
Same here. Very well put.
I read somewhere, its around 6 billion dollers, now its not more than 2 billion dollers ( with current exchange rate of Rs 50 per doller).
Though, there will be scope creep and budget will get extended and it will not be delivered with-in time, add few extra thounds crore, its sizeable chunk. To the interest of greater good, Infy should opt out.
Milind
 
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