Investing in India - 5 Minute WrapUp by Equitymaster
PRINTER FRIENDLY | ARCHIVES

India: Motherland or Mafia land? 

A  A  A
In this issue:
» Infosys faces a crisis across the 'board'
» Power shortage threatens India's growth
» Food prices push millions below extreme poverty line
» Indian banks tighten lending
» ...and more!


----------------------------- Get FREE: The Guide to Gold -----------------------------

Will the gold prices keep rising in the future too?

Is it better to invest in gold or stocks? ...

'Gold Bug' Bill Bonner, answers these questions for you in the exclusive publication - The Guide to Gold

Quick! Sign up for our FREE newsletter, The Daily Reckoning and get this Guide FREE!

----------------------------------------------------------------------------------

00:00
 
The poor pace of infrastructure development in India is a well-known fact. When you look at the scorching pace at which the Chinese economy has developed its infrastructure, you are forced to ask this question: Is it so difficult to build roads, ports, power plants and sewerages? To start with, funds are really not a problem. There is a long line of investors waiting to pour money into India. We have the advantage of a huge unutilised labour force. And we also have the necessary technical know-how and managerial capability. What is lacking then?

Leading economist, Raghuram Rajan has very pertinently nailed the real issue plaguing our country: the murkiness of land rights. We must all agree that in a vast country like India, land availability should not be a problem really. Then what makes the land market so inaccessible and illiquid? For starters, land rights in India are poorly defined. Especially, in the poorest states, land and revenue records are badly maintained. In many cases, it is very unclear who has the formal title to a piece of land. A number of communities, especially the tribal populations spread throughout India, do not have formal title to land but have been customary users of it over centuries.

You may be wondering why the government has not hastened land reforms. Unfortunately, powerful interests who thrive on such murkiness of land rights never want any reforms to see the light of day. This group of powerful 'insiders' includes corrupt politicians, well-connected industrialists, developers and the mafia. They control much of the lucrative land market and make enormous monopolistic gains. As a result, land acquisition for outsiders becomes extremely slow and difficult. This, in turn, slows the pace of infrastructure development.

Now, do you realise the reason for the poor inflow of FDI in India? Do you also understand why only a few insiders grab all the large-scale infrastructure and industrial projects?

So we need some serious "land reforms" to smoothen and speed up the process of land acquisition necessary for creating infrastructure and industries. We need reforms that clarify ownership of land. We need reforms that will bring transparency and liquidity in land transactions. Farmers and tribals should be given their rightful land titles. This will not only make land transactions fair and easy, but will also protect these poor natives from getting exploited.

Actually, the reforms are not technically difficult. What is really needed is political will. And to tell you the truth, we have some classic examples in our own country that prove the point. We'll discuss them in detail in our next issue.

Do you think India seriously needs land reforms to pace up infrastructure development? Share your comments with us or post your views on our facebook page.

01:17  Chart of the day
 
According to an annual wealth report, China has almost a million millionaires. About 960,000 individuals have personal wealth of US$ 1.5 m or more. The chart of the day shows who these wealthy individuals are. What is interesting is that 20% of China's millionaires are property speculators. China has been bearing the brunt of high inflation for quite some time. Commodity and food prices are rising at an alarming rate. The Chinese government has also been trying to curb the growing bubble in China's real estate market. It has raised the minimum down payments on second home purchases and also hiked property taxes in some major cities. There are clear signs that the inflation is getting very much out of control.

Data source: The China Daily


01:43
 
IT major Infosys kick-started the result season for the Indian IT industry on a dull note. The company reported a meagre 2% QoQ growth in their sales as well as in net income. The lacklustre performance was mainly due to the decline in volumes. Clients have shortened the tenure of the contracts which has largely led to this decline. However, the company did see its billing rates go up during the quarter. Results have also been negatively impacted by the movement of the rupee against the US dollar. The management maintains its cautious outlook for the future.

On another note, the top management of the company saw an upheaval as its HR director Mr Mohandas Pai has resigned from the Board of Directors. The resignation of another key member would come as a severe blow to the company, which is already trying to look out for a replacement for its Chairman, Mr Narayan Murthy. With Mr. Pai's resignation, the company which was known for its army of industry recognized leaders unfortunately stands at the brink of leadership problems.

02:21
 
In India, power shortage is something that most industries and residential premises are grappling with. Even the metro cities are not spared from occasional power cuts. In fact, the shortage of power is destined to be the biggest drag on the country's GDP growth. That too, despite having the highest allocation of investments during the 5 year plans. Downward revision of power capacity addition targets is something that the Power Ministry has gotten accustomed to. Execution delays have ensured that just half of the targeted capacities are actually commissioned. But it seems that coal shortages are set to make the sector's future even gloomier. As per the Ministry's latest reports, coal shortages will force the newly commissioned power plants to operate at just 40% capacity. It is important to note that power plants otherwise operate at a capacity utilisation rate of 80%.

In FY11, just 60% of the targeted capacities were put up. But with the coal crisis mounting in the coming fiscal, the FY12 capacity additions may have to be reduced further. As much as the policy makers would want to make 9% + GDP growth projections believable, these facts make the scenario very blurred.

03:04
 
The seeds of the recent Middle East crisis were sown by the shortage of food and an increase in its prices. But this problem is not restricted to Middle East alone. It is a crisis that is being felt everywhere. What is more, since crops in many parts of the world were damaged by bad weather most notably in Russia and China, procuring food has become an issue. So much so that the World Bank has painted a grim picture by stating that the surge in global food prices has already driven 44 m people below the extreme poverty line. These are the ones who are living on just US$ 1.25 a day.

That is not all. An additional 10% increase in food prices would cause another 10 m people to fall below the poverty line, while a 30% spike would lead to 34 m more poor. Rising oil prices have also contributed to the surge in food prices since producing and transporting agricultural goods has become more expensive.

Further, the linkages between food and oil have become tighter with many countries resorting to using crops for producing biofuels. All this has put pressure on basic food production and could result in more uprisings and crises if not dealt with by governments across the world soon.

03:47
 
Easy access to credit at reasonable rate is a must-have for institutions in a growing economy. But unfortunately companies in India are neither having it easy nor cheap when it comes to loans. On one hand, the RBI (Reserve Bank of India) has ensured that higher interest rates deter borrowers from taking too much credit. On the other, banks themselves have been wary of lending to risky sectors, prime amongst them being real estate.

Corruption and poor quality of loans in the sector has almost prohibited banks from lending to realty players in the last few months. Sectors like aviation and micro finance too have been black listed by the banking entities for their poor fundamentals. But could that mean being conservative at the cost of growth? Even if so, we believe that banking sector is doing no wrong. Instead of being obsessed with high growth rates like China, Indian banks would be better off ensuring a more sustainable growth rate.

04:30
 
In the meanwhile, the Indian stock markets are trading in the negative zone, after starting the day on a weak note. IT stocks led the decline, with Software major Infosys declaring lacklustre results today. Auto and consumer durables stocks remained flat. At the time of writing, India's benchmark index, the BSE-Sensex was trading lower by about 258 points or 1.3%. Most other Asian indices were also in the red.

04:50  Today's investing mantra
"Understanding how to be a good investor makes you a better business manager and vice versa." - Charlie Munger
The 5 Minute WrapUp Premium is now Live!
A brand new initiative of Equitymaster, this is the Premium version of our daily e-newsletter The 5 Minute WrapUp.

Join us in this journey to uncover the sensible way of managing money and identifying investment opportunities across various asset classes including Stocks, Gold, Fixed Deposits... that over time can help you realize your life's goals...

Latest EditionGet Access
Recent Articles:
Can there ever be an end to zero interest rates?
April 17, 2014
To get out of the rut of low interest rates, the developed world once again needs to focus on innovation and capital spending
Things you should know before taking cue from FII activity!
April 16, 2014
Equitymaster discusses why aping FII in stock markets does not make sense.
Are these signs of the stock market heating up?
April 15, 2014
These indicators seem to show that the time for one to revisit their portfolios and allocations is near.
Mistakes that long term investors should avoid
April 14, 2014
The financial crisis of 2008 offered some key lessons that can help investors avoid cardinal mistakes.
 
 
Equitymaster requests your view! Post a comment on "India: Motherland or Mafia land?". Click here!
14 Responses to "India: Motherland or Mafia land?"
uday pasricha
Dec 21, 2011
Almost all analyses of Indias problems points to the same culprit - the politician who now controls the economy of the land based on their increasing money and muscle. Every solution also seeks and yearns that the same culprit be changed. If their special interest insures no reform then we need comments and your articles to focus on ONE solution. No idealistic comments of of wanting everyone to be Like Anna Hazare. SO do we have a solution direction? Or we just wait to become bankrupt?? A huge crash in property value may just be the short term correction. Like 
nanda gopal
Jun 11, 2011
Dear Readers,
It is wise to pay the farmers the value for their land. The payment should be at least three times the guidance value as given by the govt. The farmer would be more than happy to sell the land and the company buying the land for a purpose will also gain as the land will e available immediately and the cost of delay is reduced.
It is a win win situation and all should go for this scheme adopted by the Govt. of Malaysia.
Like 
Anil Mehta
Apr 30, 2011
Yes, India needs radical land reforms. If we want poverty eradication, we need to grow @ 8-10% for next 10 years or so and for that growth, infrastrcuture development is the key. For infrastructure development, land availability is the biggest impediments. Old age draconian land laws are skrewed towards industrialist and against farmers and land owners. Land mafia with the help of Government agencies (read politicians and bureauracrats), result is protest and politics and delays. Just have a look at Gujarat. With far reaching land reform and amicable laws allowing industrialists to buy land from farmers directly at market determined rates have worked wonders. Govt is not required to interfere in the process. Even government agencies like Gujarat Industrial Development Corporation is purchases land for its industrial estates from farmers at market rate. This has make land acquisition and infrastructure development possible. Also land reforms in Gujarat has ensured that every land owner has title to his land and their no way anyone can deal with his land without his consent. This became possible by will power of Govt of Gujarat. Same things need to be done by Central Govt and All other states Like 
Abhishek Goyal
Apr 23, 2011
The problem in india is corruption that is if there is no corruption there would be no problem

We people are the problem aren't we the ones who given chance will wipe out all the money, yes even i am also corrupt

The corruption deters the growth of country, why we make ourselves honest and sow the seeds of honesty in our children.

Today There is need of honesty, private sector in india is honest, why not public sector

Private sector corruption cannot be counted as it is private money, But hard earned public money govt. gets by way of taxes,is govt. not mature enough how to spend it.

Congress and all parties have not done anything any other than playing party politics, avenues are there road infrasture, power sector infra etc.

see china we are nowhere near to china in 1950's we were more rich than china, look now

Shanghai and Beijing even 2 tier cities like guanzhou which people have not visited, are more developed than delhi and mumbai.

Shame on politicians and beaureucrats
Like 
Anil Dogra
Apr 18, 2011
I Fully agree with you for change in laws,what i have seen is when a new project starts it goes on for ages for its completion. Unless and until there are some stringent laws there is no possiability and laws cant be changed because of the circus going on at the top.A real revolution is required
for the change.
Like 
Suresh Gokhale
Apr 18, 2011
Post independence , we made good progress in technology & economy but unfortunately we also created “Uncrowned kings” in the areas of Sugar Mfg., Education ,Land. Etc. who have ruled this country as per their own laws. Land is a most important ant asset of our country & these land mafias along with ruling govt. took undue advantage to create wealth for themselves. Govt. shall make law to acquire all open land in the cities & make stringent rules for giving NA certificate. Like 
Anil Seth
Apr 18, 2011
Aggregating land under the current land ceiling laws is not a science but an art.There is ample land in our country. Less than 5 % of the land is currently occupied by cities,towns, villages & industry. Why the crisis of acquiring land? The problem starts when the entities intending to set up their projects request the State Governments to give them the land. The State Government policy requires that a uniform rate be compensated for the entire land proposed to be acquired, which more often than not meets with strong resistance from individual land owners. This is where the 'ART' of aggregating land comes into play. Developers regularly aggregate lands without the assistance from the State Govt. and they have little or no resistance from the land owners as they are paid what each individual land owner wants for their piece of land. Land being a State subject leaves little scope for the central Government to effectively aggregate the land.
The Govt. should consider asking experts to aggregate the required land and then pass on the land at a fair market price to the intending user. QED
Like 
dpm
Apr 17, 2011
While the substance of your report is absolutely correct, I find
it hard to subscribe to your bias when you call people who make
money in property as 'speculators' whereas those who do so from
Stocks as 'experts'. Why this holier than though attitude? There
are investors/speculators/experts in all fields and there are
equal number of black-sheep in 'stocks' business as much as in
any other.
Infact the common man in the street is dead-sure that 'stock
experts' are a big cheat and outright greedy and after other
peoples hard earned money.
Like 
madhav ranade
Apr 16, 2011
unless we have thousands of ADARSH like cases ... and ruthless demolition of the same ..... the nexus between politicians and babus with builders will not end ......

but virtually every babu and politician corrupted and every builder running after them .... the moot point is who will bell the cat .....
Like 
Sundaravaradan
Apr 16, 2011
Anna Hazare!

(Slightly out-of-context).

The entire educated Indians rallied behind Anna Hazare, towards a common goal: Fight Corruption at all levels!
-- A thought occurred to me that we will be able to find ONE Anna Hazare, One Gandhi, One Obama, one revolutionary Flower Vendor of Tunisia etc.

It is near immpossible for all of us to elect 543 Honest Politicians (MPs), in a Democratic way, in a short time??!!(Indian Election System).

May be India will be able to rally behind ONE honest Leader (President) by revolution.

We should go for presidential form of Govt. ????

Like 
   Next>>
Equitymaster requests your view! Post a comment on "India: Motherland or Mafia land?". Click here!
 

MOST POPULAR | ARCHIVES | TELL YOUR FRIENDS ABOUT THE 5 MINUTE WRAPUP | WRITE TO US

© Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Our investment recommendations are general in nature and available electronically to all kind of investors irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any investment decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: 91-22-6143 4055