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Investing in India - Honest Truth by Ajit Dayal
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31 MARCH 2012


"A visionary", said the philosopher Goethe, "lies to himself. A liar only to others."

For all their lying to themselves, it is the visionary who can bring about change. Who can bring about social or economic revolutions which impact the lives of millions for generations to come.

The Mahatma was a visionary. He dreamt of a day when every South African, irrespective of their colour, would be able to move around freely. He extended that dream to see India gain independence - a movement that inspired Martin Luther King to fight for the rights of the blacks in the US.

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So, Elaben Bhatt started SEWA with a view to give women more opportunity and control over their economic lives.

Shaheen Mistri started Aakanksha to ensure that every child on the streets and slums of India had a better opportunity to be someone in life.

A visionary has to reach out for the impossible. And, in that sense, he needs to lie to himself - or herself.

A visionary knows that the end objective may not be fully realised. But they have to set the vision; they have to paint the picture that needs to be shown to all. They need to share their "lie" with others. And, maybe over time, the lie tends to become an accepted reality.

A Dalit writes the Constitution of India - and other Dalits reach high levels of power and position.There has to be a fire in the belly: a strong inward belief to carry on.

A black becomes the President of the US.

But the visionary does not always win.

The Dalai Lama is still waiting to return to Tibet and preach Buddhism.

Despite 65 years of freedom from the British, millions of Indians still live in bondage. The Mahatma and the other visionaries must be sorely disappointed.

C. B. Bhave, as Chairman of Securities and Exchange Board of India (SEBI), set about the task of ensuring that all financial intermediaries focus on what is good for their customers, their investors. He gets zero support from the so-called "captains" of Indian industry and none from the Ministry of Finance. Lobbied by the powerful, the high command quietly let Mr. Bhave go.

Railway Minister Dinesh Trivedi stood up and shared with us his vision of a railway system which has more money to improve the safety and experience of millions of Indians trudging along in discomfort. "I am doing this for India", he said. On a Sunday evening, Mr. Trivedi was given a quiet burial. As was India's rapidly diminishing faith in its political leadership. Mr. Trivedi's Railway Budget was hijacked by the politics of numbers. His dream of what an Indian Railway should look like will stay with us.

Those with jelly in their belly

And then there are other individuals who spin a lie.

They bring us slogans.

Garibi hatao.

Roti Kapda aur makaan.


We will work for the aam aadmi.

Ram Rajya
and Hindutva.

We get enamoured by what we think is a vision. It takes us a while to understand that they are liars, not visionaries. Or that some of the visions do not belong in civilised societies.

The present government led by Prime Minister Manmohan Singh has mastered the art of inaction. Many of us hoped that UPA 2 would start to reform and help cleanse India or corruption and petty politics. But a series of recent inactions - or wrong actions - has exposed the government for what they truly are: people masquerading as visionaries but with no spine, no moral character to stand up for what is right. No strength to carry through what they had promised.

They are busy reporting to two madams. And if you speak against them, they censure the protestors for allegedly undermining an institution. We are branded as terrorists. I recall hearing a Home Minister telling an audience of urban folks that the Naxalites are terrorists and need to be eradicated. After his speech, a gentleman in the audience who happens to be working in the tribal areas told me: When the police and forest department officers come to the village, the tribals there say, "Here come the terrorists - they have come to steal our land and our resources.

Do the politicians and the captains of industry even know that? Or are they so busy making deals that the only vision they have is what makes it to their bank accounts? And they wear the white of The Mahatma.

Dumping that misguided 8% vision!

Given the lack of men with vision and the conviction to see what needs to be done in India - or even the willingness to back others with their vision of India - I have never been a believer in a long term sustainable real rate of growth of 8%, 9%, or 10% for the Indian economy.

The western press may have bought that BRIC story and is now busy unwinding its blind support. From Jim O'Neil of Goldman fame (who expresses disappointment) to the Economist magazine (which has a cover story of an Indian rope trick with the rope crashing to the ground), the disillusionment with India is growing.

We saw the hollowness of the recent BRICS meeting in New Delhi. These leaders are chasing numbers, not visions. Each of their economies, each of their societies haschallenges. I cannot comment on whether the leaders of Brazil, Russia, China, and South Africa are doing enough to correct whatever is wrong in their societies. But there is little doubt that India is failing and has missed yet another opportunity.

Chart 1: Real rate of growth in GDP across 9 governments has been 6.2% p.a. over the past 31 years - 7% is a good assumption for the next decade
Real rate of growth in GDP across 9 governments
Note: 9 governments of which 6 were coalition governments | Source: Quantum Advisors Private Limited, RBI data

Having noted the disappointment at the macro, policy-making level, I still believe that the Indian economy will see a rate of growth of ranging from 6.5% to 7% each year, on average, for the next decade. Not all businesses need government help to make them grow. Sure, government help could make their life easier. But jellies don't help. They wiggle, they squiggle, and they leave us to do our work.

We are in a difficult global economic and political environment. Much as the Finance Minister hates the fact that Indians are "wasting" USD 50 billion every year importing gold he needs to recognise that governments globally - particularly the US and Europe - have printed too much money due to their fiscal indiscipline and bail-out packages. That surge in money supply will fuel inflation. And gold is a hedge against inflation in the long term. Gold is a currency because it maintains the value of what it can buy over time.

I am maintaining my suggestion that individuals in general must have a continuous allocation to gold - and to Indian stocks. Yes, there will be volatility and share prices may jump around a lot on a daily or weekly or monthly basis. So will gold. But both have an underlying story that makes them worth of investment: gold is underpinned by fiscal imprudence and share prices by the growing Indian economy.

The good news is that foreign investment flows are still strong with some USD 9 billion of flows coming in since the start of the year. The bad news is that locals have been sellers of USD 1 billion over that same time period.

And the sad news is that we have no visionaries where we need them, we have wobbly jellies masquerading as great leaders.

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Why you
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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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Equitymaster requests your view! Post a comment on "All water in this jelly". Click here!
6 Responses to "All water in this jelly"
Raj Deshmukh
Apr 8, 2012
Good Say,
I think this article has to be forwarded to UPA government especially PM, FM, and madam.
Thanks sir for writing such a wonderful article.
We should try publishing such articles on the front page of top news paper in india.
Jai Hindi.
Like 
Vyas
Apr 2, 2012
Good view. My two bits.

Till we can very effectively control our population growth, if fact reduce it (not possible though) we can have visions and good visionaries failing. Same goes for corruption. Just imagine (or conjure up a vision) if you must.

If our population were to suddenly be 50% come tomorrow morning, with the reduction coming from all strata of society (uber rich to ultra poor, below Rs 22 per day types), what could be the effect?

Demand for everything will go down and with it corruption, hunger, inequality, subjugation, disguised unemployment, need for PDS, caste based reservation, subsidy etc. So no exploitation, definitely higher wages for the lowest levels, higher percentage of population employed and availability of adequate food. More of the revenue can be diverted towards development and productive investment.

We need a vision and a visionary who can see this through, someone with iron fist and ruthlessness to match. Alas all we have is "All water in this jelly" called India!
Like 
taffazull
Apr 2, 2012
The charge that UPA govt has mastered the art of inaction is perhaps not fully justified. NREGS and Wiping off the debt of farmers are landmark acheivements which can not be ignored.The future generations might not judge the UPA as harshly as our generation and if the States are vigilant their attempts to weaken the Federal Structure of the Union would also get neutralized. Blaming the govt for our own inaction is not the right attitude. Like 
g r chari
Apr 1, 2012
An excellent read which hits the reality of today's India on your face. I think Indian masses are slowly awakening to the dis-trust of the politicians and are moving away from electing and/or following leaders with just a name tag attached to them. They are demanding good governance and rightly so. The author has said that "the disillusionment with India is growing". I would like to add it is also growing is also growing within India. I hope, the sooner it dis-appears the better for the future of the country. Like 
Thirumurthy.R
Apr 1, 2012
Written with a lot of passion; abrasively frank. Perhaps you may follow this up with a wish list of things that are doable by the powers that be for improving India's position in the world. Or knock up a small group of people who could write/speak in mainstream media. Your passion is your fuel in doing your bit to bring focus among the ruling elite. I have a feeling you are destined for a larger role than your present one in our country's future. Godspeed and goodluck. Like 
Kumar
Apr 1, 2012
You are unhappy with the Government because they could do so much more. I am happy with the Government because they could do so much more. You think about the positive things they can do and haven't done. I think about the negative things they can do and are trying but have failed - so far.

The world seems to be moving towards totalitarian states (read DoD Act, USA or UK Govt.monitoring and others) and a Government which is immobilised is the best defence against it. PAN, Aadhar, UIN, MIN - all steps to reduce people to numbers and control them. They want copies of ALL emails anybody sends ever anywhere (this is the Indian Govt.I'm talking about). For controlling terrorism?!!?? Terrorism isn't half the problem that no food, infant mortality, bad / no water, poor roads, road accidents and rail accidents are.

We have no unified vision - and as our population grows, it becomes more important every day; no every second. India wants power - taking source to consumption which is the cleanest, which the most efficient, which the most affordable? For power, what land is to be sacrificed? You want water - taking from state A and giving state B does not solve it. And our needs are increasing daily. What are the plans for water conservation, recycling, new sources (process sea water?) You want food - is dependence on Argentinian wheat going to solve everything? What is the plan for India's total food needs - pulses, cereals, vegetables; and the land requirements vis a vis dairy farming or goat raising?

Do I expect the Government to think about these broad, these GREAT issues? No. I see no politician, political party or political leader who can tackle these matters which need to be tackled. So, in the alternative, the best Government is NO Government - or an immobilised Government.

The more they tax us, the more they fritter away on luxuries for themselves and in corruption. Let tax evasion run rampant. Good for India. We'll be self-reliant because we have no other choice at the individual level. Example: Only the poorest African nations match us in individual gensets numbers because there is no dependable power supply; not to speak of inverters / UPSs. I wonder whether we lead the world in the production of candles as well.
Example: There is no reliable water supply, so every house (today in Bangalore, tomorrow elsewhere) construction starts with an individual borewell. Who wants Government water connections?
This is becoming a rant, so I'll stop here.
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