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FOREWORD.

The successful and healthy development of an economy consists of taking into account not only one side of business life consisting of abnormal cycles (corresponding to a person who suffers from prolonged illness like tuberculosis) but also the other side of business fluctuations referring to normal lags between demand and supply and between savings and investment (corresponding to a person who suffers from) usual strain and sickness due to cold, fever and back-ache). Ineffective management and control of abnormal business cycles and business fluctuations would derail the 'organic development' path and would land the countries in deep recession and structural maladjustment. In this context, the following statement is highly pertinent to recall:
in countries with deficient financial management systems the publicly
available evidence is often sketchy, consisting of quite trivial
lapses: small breaches of financial regulations, misappropriations,
improper use of government assets, missing vouchers, and so on. A
closer acquaintance in some cases would reveal additional serious
deficiencies such as large-scale diversion of funds, reconciled and
irreconcilable accounting figures over long periods of time, inflated
pay rolls, extensive failure to collect revenue and debts, budgets
which have no contact with reality, and important financial decisions
taken with little regard for the consequences.


Dean, P., Appropriate strategies for developing countries in government management: paper prepared for World Bank Staff Seminar on Implementing Economic Reform (April 1988)

These abuses have occurred due to major deficiencies in accounting and Management Information Systems especially in developing countries such as scarcity of qualified accounting and management personnel, inadequate-cum-unreliable and untimely databases, ineffective systems of internal control, and inadequate technology and data processing systems. Again, as very aptly pointed out by the erstwhile Chief Executive Officer of Union Carbide, Warren Anderson:
If you say something before you really know the facts, you are
speculating; if it is subsequently wrong, you are a liar; if you don't
say anything, you are a stone-waller.


Business Horizons (July-August 1994)

It is not enough merely to show a narrow, private, profit and loss statement for a company; it is necessary to know what the costs are to society, if that company proposes to pollute its water supply, and the air above it: or if it proposes to pay below normal wages to employees for many years to come. It is not enough to asses a government' o/ performance on the basis of Its ability to win votes at every election; financial economists must be willing and able to check its performance against more objective criteria, to keep the long-range targets of the nation before every citizen. It is the responsibility of the financial economist to analyze the objectives of the institution and to assess whether it is accomplishing them as economically as possible. If it is failing to do its job, he should be in a position to design new institutions which will perform more efficiently, and should be capable of charting the period of transition between the two, so individuals may adjust their lives to the new situation. Unless he can do these things and show clearly how the society will benefit, he has little right to be taken seriously by those who must bear long-run responsibility for major societal decisions. In this perspective, the following question has remained unanswered:

Is an enterprise's success solely dependent on its profit and if so by what means is the profit achieved ? Or is it a call for better risk management practices with the bankruptcies of two automobile industries (2007-2008) - - General Motors and Chryster - - and Thoruburg Mortgage in focus. Thoruburg Mortgage focused primarily on mortgages above US$400000 while General Motors and Chryster were bailed out by the U.S. Government through the Troubled Asset Relief Program (TARP). Thus, the risk management problem was systemic and most firms realised that systemic risk could not be effectively predicted which prompted the U.S. Government to start implementing and improving systemic risk management practices such as stress testing.

'Risk Management - - A panel discussion' (Panelists : Hunter Holzauer, et.al., Journal of Applied Finance (1 : 2015)
But the key issue is not accounting : It is accountability. The use of
cash accounting, which vastly understates the true cost of government,
is not accidental. It has enabled politicians to increase benefits to
special interest groups continually without reporting the true cost of
those obligations. Thus the most important benefit of accrual
accounting would be to reduce politicians' incentive to curry favor
with today's voters at the expense of tomorrow's taxpayers.
Alan C. Shapiro. Why the budget deficit doesn't matter. Continental
Bank : Journal of Applied Corporate Finance (Fall 1989).


From a different perspective we may note that one of India's leading software companies, Infosys paid out a record 230 per cent dividend in 2004-05 and the company's liquidity policy was dictated by the return on capital employed (ROCE) and the return on invested capital (ROIC) nomns. According to the chairman of Infosys:
Our benchmark is that the ROCE should not be less than twice the cost
of capital and thrice the cost of capital for ROIC. We have calculated
the cost of capital at 14 per cent which means the ROCE needs to be 28
per cent and the ROIC needs to be 42 per cent. If it is anything lower
we have to look into it.


Indeed, this is a laudable business strategy which is worth emulating by other organisations elsewhere in the world.

The Economic Times: Bengaluru : Bangalore (June 12, 2005).

Additionally, the views of internationally acclaimed corporate academic-cum-practitioner Professor Joel Stern are highly relevant to mention here:
All of the nonsense that is being written on stakeholder's theory is
enough to convince a microeconomist to become a political scientist.
Also, tax considerations appear to be reviving margin dividend payouts
in America and even this appears to be a mistake since markets have
already responded to high marginal income tax rates on dividends
already by converting ownership to tax-free institutions called pension
funds and by reducing the incidence of the tax on dividends In
addition, we have the most recent talk on the subject of restricted
shares as a substitute for stock options. This really concerns me
because restricted shares have many of the characteristics of simple
deferred compensation without a performance test. All the recipients
must do is continue breathing in and out for the time of the
restriction to lapse and riches are bestowed.


Joel M. Stern's (Chief Executive Officer, Stern Stewart & Co.) Communication with M. R. Kumara Swamy (July 16, 2003)

In a different context, it may be mentioned that keeping in view the fact of the matter that oil economics is a strategic and powerful weapon in influencing and steering the world political decision-making and that, of late, politicians, without knowing the intricacies of oil economics, have been engaged in wishful and Utopian thinking like proposing laying of gas pipelines across countries from oil producing countries to oil deficit countries in exchange for supply of technical know-how, goods, etc. To set matters in the right perspective, the expert views of the renowned oil financial economist, Dr. M. R. Kumara Swamy, published in the world's highly influential, respected and authoritative publication, The Economist, are pertinent to recall :
It is quite clear that, barring oil exports, these oil-rich (Arab)
countries have no other source of economic strength. Basically, these
oil-exporting countries are import-oriented in that they have to import
practically everything from a grain of mustard' to motor cars.
As an oil economist who has advised an Arab government, let us look at
the other side of the coin. Of late, several Arab countries have
ventured into natural gas-based industries like urea, fertilizer,
refinery, etc. It may be pointed out that, as the Arabs have the sole
monopoly of oil production on their land, the monopoly of technical
collaboration lies with the western industrialized countries.
Let us also note that most of the marketing of fertilizers and other
products of the Arab countries is designed for countries east of Suez.
Further, like an oil agreement entered into for exploration between the
producing countries and the operating oil companies, there is no
agreement between the oil-producing countries and the operating
companies on the supply of natural gas to the oil-producing countries
which have established petro-chemical industries.


Kumara Swamy, Oil & Israel (The Economist, London: December 1, 1973)

Against this background, there is an urgent need on the part of the Organisation of Petroleum Exporting Countries (O.P.E.C.) and other oil producing countries in the developing world to set up without delay the Organisation of Natural Gas Producing Countries (O.N.G.P.C.) on the lines of the O.P.E.C, where by the O.N.G.P.C. would take the crucial role as natural gas price fixer and giver rather than price taker - - This step would go a long way in strengthening their monopoly right over their precious natural resource endowment. Thus, there is a big question mark in ensuring regular natural gas supplies from oil producing countries to oil deficit countries and any investment plan based on short-sighted approach and clouded with political uncertainty would pose long-term risks combined with untold financial losses.

Thus, it may be said that it is not enough to assess a government's performance on the basis of its ability to win votes through politicians' utopian promises backed up by non-familiarity with techno-economic issues confronting the country at every election; financial economists must be willing and able to check its performance against more objective criteria, to keep the long-range targets of the Nation before every citizen. Unless he can do these things and show clearly how the society will benefit, he has little right to be taken seriously by those who must bear long-run responsibility for major policy (public) decisions. The job of the modern economist, and his challenge was summed up by the celebrated scientist, Archimedes when he described the lever, in the year 250 B.C., as follows:

Give me a firm spot on which to stand, and I will move the earth.

In full realization of the strategic role of an understanding of financial management techniques with a view to find practical solutions, competent authorities may set up Policy Study Group on Financial Management with the following Terms of Reference:

* To conduct a detailed study of the present system of financial management in the public and corporate and cooperative sectors, identify features, weaknesses and inadequacies and make appropriate recommendations;

* To examine the adequacy or otherwise of the existing sources of revenue and to identify measures to broaden the revenue base of the Federal / Central and state governments.

* To propose a formula for the allocation of available revenue among competing sectors / demands (especially in the core sector);

* To examine the feasibility of establishing a stabilization reserve fund for the Federal / Central and state governments and the mechanics for doing so, having regard to the existing revenue allocation formula.

* To review the use of ways and means advances as a device for financing government expenditure;

* To review the present systems of monitoring revenue and expenditure on a monthly basis and make appropriate recommendations with a view to eliminating cash flow problems;

* To develop a system of monitoring the financial implications, on a continuing basis, of all contracts awarded by government;

* To develop methods to establish natural disaster specifying modalities.

* To review the problem of the application of cost escalation formula to government contracts.

* To study and undertake detailed financial management analysis of the issue of farm loan sanction and its disbursement to the core group (cultivators / Killers of soil) to ensure that the loans sanctioned for the said purpose reach the core group and are not channelled to middlemen and, competent authority to ensure that farm loans are not misused by vested interests to minimuse loan default.

* To appraise the foreign and local debt management problems and borrowing policies of government and make recommendations.

* To examine and make recommendations on any other matters which in the opinion of the study Group appear to be relevant and therefore ought in the public interest to be a subject of its study.

Keeping the above mentioned and associated problems in mind, the Journal of Financial Management and Analysis has been attempting to tackle the above - said problems and other allied issues by developing the science of financial management to serve as a useful decision kit to financial practitioners, policy makers and scholars from throughout the world.

Om Sai Ram Centre for Financial Management Research

Mumbai-400 054, India

November 23, 2018

Professor Dr. M. R. K. Swamy

Managing Editor

Journal of Financial Management and Analysis

Statement about ownership and other particulars about Journal of Financial Management and Analysis

International Review of Finance

Form IV, see Rule 8

1. Place of publication : Mumbai, India 2. Periodicity of Publication : Half Yearly 3, 4 & 5. Printers's, Publisher's and Editor's Name : Prof. Dr. M. R. Kumara Swamy Whether citizen of India : Yes. Address : 15, Prakash Co-op. Housing Society, Relief Road, Santacruz (West), Mumbai-400 054, India. Names and addresses of individuals who own the newspaper and partners of shareholders holding more than one per cent of the total capital : Prof. Dr. M. R. Kumara Swamy and address as in nos. 3, 4 & 5.

I, Prof. Dr. M. R. Kumara Swamy, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/-

Prof. Dr. M. R. Kumara Swamy

Publisher and Managing Editor
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Author:Swamy, M.R.K.
Publication:Journal of Financial Management & Analysis
Date:Jan 1, 2018
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