Despite a slowing world economy, India’s exports are booming. After growing 38% in 2010-11 , they are growing even faster this year – by 46.4% in June, 81 % in July and 44% in August. This beats even China hollow . Cynics say this is too good to be true. Earlier, crooked businessmen took black money abroad by under-invoicing exports. Could they be bringing back their black money as over-invoiced exports? Does this explain the export boom?

Very possibly, according to a new report from three researchers at Kotak Securities. They looked at export data from company reports of the BSE 500 (the top 500 companies of the Bombay Stock Exchange) and compared these with official data for 2010-11 . For engineering exports, official data showed a huge increase of $30 billion, but engineering companies of the BSE 500 showed an export increase of only $1.38 billion . Who accounted for the balance of over $28 billion? Minor companies? Ghost companies ? Large private companies owned by big businessmen but not listed on the stock exchanges?
The researchers found that exports of metals and metal products increased from $13 billion to $29 billion, according to official data. But the companies in the BSE 500 increased such exports by less than a billion dollars. Official data say exports of copper articles more than quadrupled to Rs 36,700 crore. The big new buyer was China, not normally a buyer of brassware handicrafts . Opposition parties are suddenly interested in the matter since one of the bestknown exporters of brassware is Robert Vadra. Possibly copper articles other than brassware are now being exported by large companies. We require a detailed export breakdown. The Kotak Securities researchers also found anomalies in inflows from foreign institutional investors. Official inflows last year were $22 billion, but the data of EPFR Global, an international authority on global flows, show inflows of only $4.5 billion, leaving a gap of $17.5 billion compared with official data.

The researchers are cautious in interpreting their findings. They do not make any categorical accusations, but mention the possibility of illicit inflows and roundtripping by Indian crooks. Part of the data gap they have uncovered may be explained by differences in methodology and data sources. In any event, we need a thorough examination by the Indian authorities.
Many people have jumped to the conclusion that the export boom represents overinvoiced exports to bring back black money. They argue that economic conditions are bleak in the US and Europe, and Indian economic prospects look better. Besides, Indians with black money abroad may feel threatened by US pressure on tax havens like Switzerland to end bank secrecy, and such Indians may be bringing back their money.

However, this theory has major weaknesses . When crooks under-invoiced exports in the past, the concealed sum was invisible to and untaxed by the government. But if crooks want to bring back this black money, it makes no sense to do so through over-invoiced exports–the inflated export value would be fully taxable.

In the old days, export profits were partly or wholly tax-free . In those days, over-invoiced exports could indeed be used as a way of bring money back to India tax-free . But not today. One simple way of bringing back black money is through the hawala market. But while hawala operators can handle large sums, they might not be able to handle thousands of crores.
The most popular way of bringing back black money has been to route it through financial institutions based in tax havens like Mauritius. This launders the black money lily-white , and remains tax-free . It has none of the hassles and risks of over-invoicing . Black money can also be brought back safely as NRI bank deposits. This again will be white money, hassle-free and tax-free . Thirty million Indians abroad send home $55 billion a year as cash remittances and tens of billions more as NRI bank deposits. Black money returnees should easily escape notice as a small part of this huge flood.

Finally, the worsening global economic situation has led foreign investors to pull billions of dollars out of India. This is not the climate in which black money operators would suddenly bring home enormous sums. Nor do we have imminent big elections requiring massive black money.

So, the export boom remains a puzzle. We need an urgent, detailed investigation of Kotak Securities’ research findings by the tax authorities, RBI and the commerce ministry . Even if they come up with a perfectly innocent explanation – which sounds a stretch – we need the details to improve our understanding of what’s driving exports.

Between June 2009 and May 2010, governments in 117 economies—including 10 economies from the Arab world— implemented 216 business regulation reforms. These reforms made it easier to start and operate a business, improved transparency, strengthened property rights, and helped streamline commercial dispute resolution and bankruptcy procedures.

Bahrain built a modern new port, improved its electronic data interchange system, and introduced risk-based inspections. Similarly, Tunisia upgraded its electronic data interchange system for imports and exports, speeding up the assembly of import documents. In Egypt, modern customs centers are being established at major ports and new information technology systems are being implemented. In particular, electronic submission of export and import documents was introduced at Alexandria Port. hese new systems are being rolled out to other custom posts around the country. The United Arab Emirates streamlined document preparation and reduced the time to trade with the launch of Dubai Customs’ comprehensive new customs system, “Mirsal 2.” Saudi Arabia reduced the time to import by launching a new container terminal at the Jeddah Islamic Port. In West Bank and Gaza, more eficient processes at Palestinian customs made trading easier.

In 2005, only 2 economies in the region—Kuwait and Saudi Arabia—had private credit bureaus; today 6 do. Arab economies continue to improve their credit information systems in 2009/10. Jordan has set up a regulatory framework for establishing a private credit bureau as well as lowering the threshold for loans to be reported to the public credit registry. Lebanon allowed banks online access to the public credit registry’s reports. Syria eliminated the minimum threshold for loans included in the credit bureau database. This move expanded the database’s coverage of individuals and irms to 2.8% of the adult population. The United Arab Emirates enhanced access to credit by setting up a legal framework for the operation of a private credit bureau and requiring that inancial institutions share credit information. hrough indicators benchmarking 183 economies.

In 2008/09, Kuwait implemented rescue statutes enabling companies in inancial diiculties on the verge .of insolvency to reorganize themselves, restructure their debt, and apply other measures to regain inancial health and restore proitability. he plan aims to protect companies from creditors if they ile a viable business plan.

Women in Business

Encouraging women in businessWomen make up more than 50% of the world’s population but less than 30% of the labor force in some economies. This represents untapped potential.  Take credit bureaus. With the advent of microinance institutions in the 1970s, poor women in some parts of the world were able to access credit for the first time. By 2006 more than 3,330 micro finance institutions had reached 133 million clients. Among these clients, 93 million had been in the poorest groups when they took their irst loans, and 85% of the poorest were women. But only 42 of 128 credit bureaus in the world cover micro finance institutions, limiting the ability of their borrowers to build a credit history. A new World Bank Group project, Women, Business and the Law, looks into discrepancies such as these as well as regulations that explicitly diferentiate on the basis of gender.

1A recent analysis of existing literature concludes that aspects of the business regulatory environment are estimated to disproportionately affect women in their decision to become an entrepreneur and their performance in running a formal business. Barriers to women’s access to inance might drive their concentration in low-capital-intensive industries, which require less funding but also have less potential for growth and development. One possible barrier is that women may have less physical and “reputational” collateral than men.

2Women can beneit from laws facilitating the use of movable assets such as equipment or accounts receivable as security for loans. While women oten lack legal title to land or buildings that could serve as collateral, they are more likely to have movable assets. In Sri Lanka women commonly hold wealth in the form of gold jewelry. hankfully, this is accepted by banks as security for loans.

3Women oten resort to informal credit, which involves high transactions costs. A recent study in Ghana reports that women, to ensure access to credit, invest considerable time in maintaining complex networks of informal credit providers.

4Improving irms’ access to formal inance has been shown to pay of, by promoting entrepreneurship, innovation, better asset allocation and irm growth.

5 Everyone should be able to beneit, regardless of gender.1.

http://wbl.worldbank.org/.

2. Klapper and Parker (2010).

3. Pal (1997).

4. Schindler (2010).

5. World Bank (2008).

Starting a Business

In the Arab world, entrepreneurs go through 9 procedures, on average, to start a business. his process takes an average time of 22 days—making the Arab world the third fastest place to start a business among regions. he fastest is OECD high-income economies, where it takes just 14 days, on average, and second is Eastern Europe and Central Asia,where it takes 17 days. Yet there is great variation within the Arab world. Starting a business takes as many as 49 days in West Bank and Gaza and as few as 5 days in Saudi Arabia. he average cost in the region remains fairly high—46.2% of income per capita. But in Bahrain the cost is less than 1% of income per capita. In 3 other economies, start-up costs exceed 100% of income per capita—including Comoros, most expensive in the region, where costs come to 177% of income per capita. Fourteen out of 20 Arab economies require entrepreneurs to put up a set amount of capital before starting registration formalities (the paid-in minimum capital requirement).

The average paid-in minimum capital requirement in the region dropped from a prohibitive 815.9% of income per capita in 2005 to 126.5% of income per capita in 2010.



Four indicators are constructed:

Number of procedures to start a business

Time to start a business (in calendar days)

Official costs to start a business (as a percentage of income per capita)r

Paid-in minimum capital requirement (as a percentage of income per capita).

Last Friday, while en route from Phoenix to Sacramento, a five-foot hole that appeared in the fuselage a Southwest Airlines-operated Boeing 737 jet forced the pilot to make an emergency landing. Since then, the Federal Aviation Administration ordered mandatory inspections of nearly two hundred 737s worldwide.

The plane whose fuselage ripped open was 15 years old and had taken nearly 40,000 flights. And the concern that other old models may have similar vulnerabilities proved warranted whenSouthwest found five other jets with fuselage cracks. Scary stuff really.

But much like the ongoing confusion and misinformation surrounding nuclear radiation risks, few people understand the actual risk of a mid-flight tear in a plane’s cabin. And when I say few people actually understand either of these things, I certainly include myself in that classification.

Fortunately, someone much smarter than I is here to explain.

Brain Palmer of Slate explains why no passengers were sucked off of Southwest Flight 812.

How risky might the latest incident have been for passengers? The pressure differential between the cabin and the outside was approximately 7.5 pounds per square inch, and the hole measured 720 square inches. That means the maximum force applied would have been around 5,400 pounds—more than enough to blow an unrestrained person out of the plane. But a passenger would only feel that much force if he were literally plugging the hole with his body.

Keep in mind that the hole was not right next to any passengers or beneath their legs. It was in the ceiling of the cabin, which would have been at least two to three feet away from the heads of anyone sitting inside. At that distance, the force of an explosive decompression would be greatly dissipated. Air-flow patterns are complicated, and it’s impossible to quantify this effect for any given passenger. But as a simple way to visualize the effect of distance, we might imagine the force spreading itself out across the surface of an expanding hemisphere centered on the hole. Using the formula for spherical surface area, we see that at a distance of three feet, the 5,400 pounds of force would be spread across an area of 8,143 square inches. Four feet from the hole, it would cover 14,476 square inches, and so on. As the force gets more and more stretched out, the proportion of it that would be working to push a body out of the plane diminishes. On top of that, the air would be free to flow around the passengers in their seats, which would make its impact still weaker. Since the hole was in the ceiling of the plane, any decompressive force would have had to act against the full body weight of any passengers, lifting them up and out of their seats before it could eject them in a gust of air.

Here’s an experiment that illustrates the principle: Plug your sink drain with a rubber stopper, fill the sink with water, and then slowly remove the stopper. You’ll notice that the stopper is much harder to budge when it’s close to the hole and perfectly aligned with it. But tilt the plug slightly, or pull it out a little bit, and the force becomes barely noticeable. That’s more or less analogous to what happens when a hole opens in a Boeing 737 at cruising altitude.

I’ve coined two terms that describe how people view failure: the type 1 mindset, and the type 2 mindset.

The type 1 mindset is fearful of making mistakes. It characterizes most individuals, managers, and corporations today. In this mindset, to fail is shameful and painful. Because the brain becomes very risk averse under this line of thinking, innovation is generally nothing more than incremental. You don’t get off-the-charts results.
The type 2 mindset is fearful of losing out on opportunities. Places like Silicon Valley and the Stanford Graduate School of Business are full of type 2s. What is shameful to these people is sitting on the sidelines while someone else runs away with a great idea. Failure is not bad; it can actually be exciting. From so-called “failures” emerge those valuable gold nuggets — the “aha!” moments of insight that guide you toward your next innovation.

We generally start out with the type 2 adventurous spirit as children. But then somewhere along the line, often in school, we are squelched. Failure is not allowed. We become type 1s.

So how do you get people and corporations to shift from 1 to 2?

One approach is to engage them in rapid prototyping — the process whereby they brainstorm wild new ideas, and then quickly develop a physical model or mock-up of a solution. This allows people to move quickly from the abstract to the concrete, and lets them visualize the outcome of their ideas. It gives the brain richer inputs.

Because not all prototypes end up as the best or final solution, rapid prototyping also teaches that failure is actually a necessary part of the process. You may chuck an idea and say, “Let’s try something else,” but you keep moving in a positive way. This whips the brain into associating “failure” with pleasure.

Another way to shift people into type 2 thinking is, paradoxically, to instill in them a sense of “desperation.” This is done by cutting resources so that they are forced to devise new solutions. As we know, necessity is the mother of invention.

In India, where we have known lack for centuries, the practice of “jugad” is part of the management lexicon. It refers to the inventive approach people must take to manage the scarcity that is so often a part of the landscape.

Anheuser-Busch InBev stimulates a kind of “jugad” mentality each year by decreasing the advertising team’s budget while demanding increased performance. Following a period of desperation, the team is spurred to look at new, less expensive ways of communicating its message.

Many corporations try to use the opposite of desperation — inspiration — as a means of stimulating innovation. It sounds good, but sometimes it doesn’t work. Often, fostering “inspiration” means putting a pool of type 2s into a closed environment where they are given license to prototype away. But then they end up presenting their ideas to whom? Type 1s. And such fearful managers shoot them down every time.

To make inspiration work as a motivator, take a look at Cisco Systems. There, type 2s are given the space and support to prototype, but they must have someone from senior management on their team. By getting such managers involved in the process, innovators have a champion who can navigate the political system and sell the idea better.

Another good example of using inspiration is TSYS Acquiring Solutions, a company that for a small fee carries out the first credit/debit card transaction at any counter by transmitting the data to the networks and banks. To diversify their business, they developed an ingenious way to reward innovation in the corporate culture. Each employee is given “TSYS dollars” to “invest” in creative solutions posed by internal teams on the company intranet. The most heavily invested idea is actually implemented. By turning innovators into company icons, they encourage others to submit new solutions.

Business schools are now teaching rapid prototyping as a way to instill type 2 thinking. In my Frinky Science of the Human Mind course at the Stanford Graduate School of Business, students used this technique to apply the principles of human brain functioning toward figuring out how customers can be made to feel comfortable with their buying experience and thereby choose one product over another. In our executive program, senior managers have developed prototype solutions for how airlines might better handle delays with customers.

The bottom line: Failure is not bad. The sooner companies realize this, the sooner they will be on the road to breakthrough thinking.

For a man whose view of the world has slowly faded to black over 30 years, a device that allows him to see flashes of light has enkindled his hope of one day gazing upon his grandson’s face.

The device is similar to the cochlear implants that have allowed hundreds of thousands of deaf people to hear again, and is part of a growing field known as neuromodulation, or the science that helps people regain lost abilities such as sight, hearing and movement by stimulating the brain, spinal cord or nerves.

Ear implants work by picking up sound through a tiny microphone, then converting those signals into electrical impulses and sending them to an electrode array implanted in the patient. The electrodes gather the impulses and ship them to the auditory nerve, which hears them as sounds.

The retinal prosthesis follows a similar process. A tiny video camera on the glasses captures images and converts them into electrical signals that are fed to an electrode array that is surgically implanted in the patient’s eye.

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Elias Konstantopoulus puts on his bionic eye glasses at his home in Glen Burnie, Maryland. Konstantopoulus suffers from retinosa pigmentosa, a genetic eye condition that leads to incurable blindness, yet working with Johns Hopkins University he has been implanted with a microchip and the glasses that enable him to distinguish light and dark.

The visual signals are sent to the optic nerve and then to the brain, and the patient sees them as flashes of light and blurry shapes.

“It is still a very crude level of vision but it is the beginning of an improvement,” said Gislin Dagnelie, an ophthalmologist who is working with Konstantopoulos and other blind patients at Johns Hopkins University in Baltimore. “We have to learn how to talk to the retina, basically.”

The implant is unnoticeable. The surgery took about three hours and caused hardly any pain, said Konstantopoulos.

According to Second Sight vice president of business development Brian Mech, the latest generation of the technology has 60 electrodes, compared to an earlier version that had 16.

“Surgery is much shorter and requires only one specialist (Argus I required 3),” Mech said.

In all, 14 devices are being used in the United States and 16 in Europe. The Argus II costs about 100,000 dollars.

The company plans to apply soon for a humanitarian device exemption with the Food and Drug Administration, and hopes for approval in 2012.

In the meantime, Konstantopoulos practices with the device one day a week in the lab with Dagnelie. At each session, Konstantopoulos traces objects he sees on a computer screen. Sometimes they walk arm in arm around the medical complex trying to spot certain objects.

He is gradually improving in his ability to interpret the light flashes and identify them as lines and shapes, the doctor said.

But among other patients, the response “varies quite a bit.”

“People who have been blind for a long time probably don’t have as much benefit,” Dagnelie said.

As time goes on, doctors hope that the device could extend to people who suffer from macular degeneration, the primary cause of vision loss among people over 60.

“We hope that 10-15 years from now we’ll have something that is quite useful, clinically,” said the Dutch-born doctor.

Konstantopoulos still manages to do plenty of work around the house. He recently retiled the bathroom floor and showed visitors how he can still operate his table saw in the garage, pausing a few times to ask if his 18-month-old grandson, Anthony, was underfoot.

“He does everything. He is such a proud man,” said his wife, Dina.

Back in the living room, Konstantopoulos sat in his recliner and scooped up the chubby-cheeked little boy who calls him “Papou.”

“That has been my biggest complaint. I have never seen his face,” he said, cradling the boy on his lap.

“I cannot see his face. Yet.”

Could electronic components made from human blood be the key to creating cyborg interfaces? Circuitry that links human tissues and nerve cells directly to an electronic device, such as a robotic limb or artificial eye might one day be possible thanks to the development of biological components.

Writing in the International Journal of Medical Engineering and Informatics, a team in India describes how a “memristor” can be made using human blood. Memristors were a theoretical electronic component first suggested in 1971 by Berkeley electrical engineer Leon Chua and finally developed in the laboratory by scientists at Hewlett Packard using titanium dioxide in 2008. A memristor is a passive device, like a resistor, with two terminals but rather than having a fixed electrical resistance, its ability to carry a current changes depending on the voltage applied previously; it retains a memory of the current, in other words.

There are countless patents linking the development of memristors to applications in programmable logic circuits, as components of future transistors, in signal processing and in neural networks. S.P. Kosta of the Education Campus Changa in Gujarat and colleagues have now explored the possibility of creating a liquid memristor from human blood. In parallel work they are investigating diodes and capacitors composed of liquid human tissues.

They constructed the laboratory-based biological memristor using a 10 ml test tube filled with human blood held at 37 Celsius into which two electrodes are inserted; appropriate measuring instrumentation was attached. The experimental memristor shows that resistance varies with applied voltage polarity and magnitude and this memory effect is sustained for at least five minutes in the device.

Having demonstrated memristor behavior in blood, the next step was to test that the same behavior would be observed in a device through which blood is flowing. This step was also successful. The next stage will be to develop a micro-channel version of the flow memristor device and to integrate several to carry out particular logic functions. This research is still a long way from an electronic to biological interface, but bodes well for the development of such devices in the future.

More information: “Human blood liquid memristor” in Int. J. Medical Engineering and Informatics, 2011, 3, 16-29

Tata Power, subsidiary, of Indian giant Tata Group, has announced a partnership with Sunengy, an Australian company that specializes in Liquid Solar Array (LSA) technology, to build a floating solar array power plant in an as yet to be announced location somewhere in India.

The power plant is comprised of a rectangular grid upon which sit rows and columns of movable lightweight plastic lenses that focus incoming sunlight onto a small panel of photovoltaic cells. The lenses can be programmed to follow the sun in tandem as it moves across the sky, thus taking full advantage of available sunlight. They lenses can also be made to slide beneath the waves when bad weather threatens, thus preventing damage from high winds or hail. The grid is in essence a floating raft that can be anchored in place wherever there is available water.

Phil Connor, Executive Director and Chief Technology Officer of Sunengy, and also the inventor of the LSA, has said that he believes India is the best possible proving ground for his LSA technology and feels that his floatingpower plants might best be suited to placement just behind hydro-electric dams, where he suggests they might serve as “giant batteries,” effectively doubling capacity at a site while taking up no additional land space.

In addition to the benefit of not having to give up land to provide space for the LSA, its installation and maintenance costs are expected to be far lower than for traditional power plants, including land based solar farms. This is due to the absence of high strength structures to support the solar arrays, and to the reduced amount of materials in each component, i.e. less silicone because the cells can be water cooled on a continuous basis. The initial plant project in India is expected to cost in the neighborhood of $1 million, with a projected start date of August of 2011.

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The only dark cloud on this otherwise bright project is the possibility of damage due to cyclones if water levels rise to the extent that an entire plant could be ripped from its moorings; though Sunengy claims their components are cyclone proof; as yet, that claim has not been tested.

After having been a tech executive for many years, I needed to take a break, and I wanted to give back to society. Duke University engineering dean Kristina Johnson gave me a great spiel about how the school’s Masters of Engineering Management program churns out great engineers, and how engineers solve the world’s problems. She said that I could make a big impact by teaching engineering students about the real world and encouraging them to become entrepreneurs. I felt so excited that I joined the university without even asking for a proper salary. That was in 2005.

I was shocked—and upset—when the majority of my students became investment bankers or management consultants after they graduated.  Hardly any became engineers. Why would they, when they had huge student loans, and Goldman Sachs was offering them twice as much as engineering companies did?

So when the investment banks tanked in 2008, I cheered because engineering had become sexy again for engineering grads (read my BusinessWeek column).

But thanks to the hundred-billion-dollar taxpayer bailouts, investment banks recovered and went back to their old, greedy ways.  And they began offering even more money to engineering grads (and themselves).

Kauffman Foundation’s Paul Kedrosky and Dane Stangler have just published a report that analyses the damage this has done to our economy.

They note that the finance sector today produces a greater percentage of GDP than at any time in history. In the mid-nineteenth century, its contribution was between 1 percent and 2.5 percent of GDP. It peaked at around six percent of GDP at the beginning of the Great Depression, and then fell sharply. Since 1945 it has been steadily increasing, to 8.4 percent over the last two years.

Historians will tell you that empires collapse when they become too dependent on finance, but I’m not so pessimistic. I do, though, share the concern that Kedrosky and Stangler expressed in their paper:

Fewer people are being added to industry employment, but they are coming from new and narrower places. The financial services industry used to consider it a point of pride to hire hungry and eager young high school and college graduates, planning to train them on the job in sales, trading, research, and investment banking. While that practice continues, even if in smaller numbers, the difference now is that most of the industry’s profits come from the creation, sales, and trading of complex products, like the collateralized debt obligations (CDOs) that played a central role in the recent financial crisis. These new products require significant financial engineering, often entailing the recruitment of master’s- and doctoral-level new graduates of science, engineering, math, and physics programs. Their talents have made them well-suited to the design of these complex instruments, in return for which they often make starting salaries five times or more what their salaries would have been had they stayed in their own fields and pursued employment with more tangible societal benefits.

An analysis of MIT’s graduate-employment data shows that the financial sector increased its hiring from 18 percent of its graduates in 2003 to 25 percent in 2006. So not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs; they are using our best engineering graduates to help them do it. This is the talent that our country has invested so much resource in producing.

When most sectors of the economy grow, new companies are created. The authors found, however, that the finance sector is not driving firm formation; it is cannibalizing entrepreneurship in the U.S. economy by offering wage and skill premiums to individuals who might otherwise have started companies. It is also causing far greater volatility among publicly traded firms and a reduction in the quality of businesses started.

The report concludes that a shrinking finance sector will likely lead to a higher entrepreneurship rate and the creation of companies with greater social value, and still provide the financial intermediation services that are most important to young companies. So that’s what we need in order to save this empire: to tame this beast.

Paul Kedrosky says that the virus that infects scientists and engineers and causes them to go to Wall Street rather than create something of societal value is “economic Ebola”. He wants to be an “economic virus hunter”. Let’s all help him. Let’s save the world by keeping our engineers out of finance. We need them to, instead, develop new types of medical devices, renewable energy sources,and  ways for sustaining the environment and purifying water, and to start companies that help America keep its innovative edge.

Editor’s note: Vivek Wadhwa is an entrepreneur turned academic. He is a Visiting Scholar at UC-Berkeley, Senior Research Associate at Harvard Law School, Director of Research at the Center for Entrepreneurship and Research Commercialization at Duke University, and Distinguished Visiting Scholar at The Halle Institute for Global Learning at Emory University. You can follow him on Twitter at @vwadhwa and find his research at www.wadhwa.com.