Let me tell you a cute little story.
This is a futuristic story from Panchatantra....I remembered this story after I listened to Sekhar Gupta explaining the latest developments in Rafale Deal. To understand the story better, you must start off by watching the video. You can watch the video here.
Once upon a time in Aranyaka Forests there lived a Fox named Jagadamba.
Jagadamba wanted to buy a few items for the forest. Security items to prevent enemies from attacking Aranyaka Forest. So he signed a contract with Uditatma, a Zebra that lived in the nearby Triambaka Forest. Jagadamba signed a contract with Uditatma for 1000 rupees with an offset contract of 50%. This meant that Uditatma had to purchase 500 rupee worth of produces from Aranyaka Forests
Uditatma was to deliver the goods to Jagadamba only in 2022. However Jagadamba paid Uditatma 1000 rupees upfront in 2014. In modern terminology this is called 'Front loading of payments'. Uditatma could enjoy the interest benefit on 1000 rupees for seven years while Jagadamba waited for the material to be delivered to Aranyaka Forests.
However, the offset will come into place only 7 years later.
This means the offset contract was back loaded.
This was terrifically advantageous to Uditatma and bad for Aranyaka Forests. This is where Aranyaka Forests got cheated once.
The story is not over yet.
50% of 1000 is 500 in today's value. With an interest of 10% per year, the value would be about 1000 after 7 years.
By corollary, if Uditatma was paying Jagadamba 500 after 7 years, it is worth only 250 in today's value.
So that is where Aranyaka forests got cheated the second time. He thought he was getting 50% offset, but was actually getting only 25%.(assuming 10% interest rate, of course)
There is more.
In Aranyaka forests, there was a horse named Ashwagandha who had extensive experience in delivering such offset contracts. However Jagadamba ignored Ashwagandha and asked his friend Ajanachakya to apply for offset contract with Uditatma. Ashwagandha protested, but Jagadamba and his cronies branded him as 'Old and dilapidated horse'
Ajanachakya did not even know the business, he did not have technology, durukta (Sanskrit for 'bollocks', this is Panchatantra story, remember? ) he did not even have a company, but just with 12 days for offset contracts to set in he registered a company in Aranyaka Forest and Uditatma entered into an offset contract with the new company floated by Ajanachakya.
Ajanachakya did not know anything about the business. He did not know the 'Ah' to 'Ahm' (Sanskrit for A to Z) of Forest Security.
Uditatma did not stop there. For Ajanachakya, he modified the offset contract and made it front loaded.
Assuming Ajanachakya gets 10% of offset amount, he gets 50 rupees in today's terms, which is 20% of the Net present value of 250 rupees. So all the other offset contractors, instead of getting 90% of the offset amount will end up getting only 80%
In summary,
Payment to Uditatma has been front loaded
Offset to Ajanachakya has been front loaded.
Offset to all other contractors has been back loaded
In even simpler terms,
Jagadamba has already paid 1000 rupees to Uditatma
Jagadamba's friend Ajanachakya has already got 50 rupees of offset money even before a single unit is delivered..
Aranyaka Forests will get the first unit of old technology in 2022.
It looks to me (Acharya told the princes) It is like an elaborate scheme of Jagadamba for transferring money that belonged to Aranyaka Forest to Ajanachakya through Uditatma.
Why will Jagadamba let this happen? Will other denizens of Aranyaka forest understand that they have been taken for a ride?
Will they vote out Jagadamba in the ongoing Aranyaka Forest elections ?
My guess is as good as yours.
This is a futuristic story from Panchatantra....I remembered this story after I listened to Sekhar Gupta explaining the latest developments in Rafale Deal. To understand the story better, you must start off by watching the video. You can watch the video here.
Once upon a time in Aranyaka Forests there lived a Fox named Jagadamba.
Jagadamba wanted to buy a few items for the forest. Security items to prevent enemies from attacking Aranyaka Forest. So he signed a contract with Uditatma, a Zebra that lived in the nearby Triambaka Forest. Jagadamba signed a contract with Uditatma for 1000 rupees with an offset contract of 50%. This meant that Uditatma had to purchase 500 rupee worth of produces from Aranyaka Forests
Uditatma was to deliver the goods to Jagadamba only in 2022. However Jagadamba paid Uditatma 1000 rupees upfront in 2014. In modern terminology this is called 'Front loading of payments'. Uditatma could enjoy the interest benefit on 1000 rupees for seven years while Jagadamba waited for the material to be delivered to Aranyaka Forests.
However, the offset will come into place only 7 years later.
This means the offset contract was back loaded.
This was terrifically advantageous to Uditatma and bad for Aranyaka Forests. This is where Aranyaka Forests got cheated once.
The story is not over yet.
50% of 1000 is 500 in today's value. With an interest of 10% per year, the value would be about 1000 after 7 years.
By corollary, if Uditatma was paying Jagadamba 500 after 7 years, it is worth only 250 in today's value.
So that is where Aranyaka forests got cheated the second time. He thought he was getting 50% offset, but was actually getting only 25%.(assuming 10% interest rate, of course)
There is more.
In Aranyaka forests, there was a horse named Ashwagandha who had extensive experience in delivering such offset contracts. However Jagadamba ignored Ashwagandha and asked his friend Ajanachakya to apply for offset contract with Uditatma. Ashwagandha protested, but Jagadamba and his cronies branded him as 'Old and dilapidated horse'
Ajanachakya did not even know the business, he did not have technology, durukta (Sanskrit for 'bollocks', this is Panchatantra story, remember? ) he did not even have a company, but just with 12 days for offset contracts to set in he registered a company in Aranyaka Forest and Uditatma entered into an offset contract with the new company floated by Ajanachakya.
Ajanachakya did not know anything about the business. He did not know the 'Ah' to 'Ahm' (Sanskrit for A to Z) of Forest Security.
Uditatma did not stop there. For Ajanachakya, he modified the offset contract and made it front loaded.
Assuming Ajanachakya gets 10% of offset amount, he gets 50 rupees in today's terms, which is 20% of the Net present value of 250 rupees. So all the other offset contractors, instead of getting 90% of the offset amount will end up getting only 80%
In summary,
Payment to Uditatma has been front loaded
Offset to Ajanachakya has been front loaded.
Offset to all other contractors has been back loaded
In even simpler terms,
Jagadamba has already paid 1000 rupees to Uditatma
Jagadamba's friend Ajanachakya has already got 50 rupees of offset money even before a single unit is delivered..
Aranyaka Forests will get the first unit of old technology in 2022.
It looks to me (Acharya told the princes) It is like an elaborate scheme of Jagadamba for transferring money that belonged to Aranyaka Forest to Ajanachakya through Uditatma.
Why will Jagadamba let this happen? Will other denizens of Aranyaka forest understand that they have been taken for a ride?
Will they vote out Jagadamba in the ongoing Aranyaka Forest elections ?
My guess is as good as yours.
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