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Investing in India - Straight from the Hip by J Mulraj
For whom is the country being run? A  A  A

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14 APRIL 2012

Indian political leaders would do well to recall Abraham Lincoln's quote that democracy is of the people, by the people and for the people. Standards and ethics of public governance have fallen drastically since we got independence and it now seems as if they think democracy is only for them. One can illustrate with several examples.

At the root is the cancer of corruption, and how to invest the gains made from it. The Government has offers of help from tax havens, to which a big chunk of it has fled, which it is not accepting. Other countries, like the UK, have signed agreements with tax havens like Switzerland via which, although the Swiss honour the anonymity of their bank account holders, they collect and pay to the UK, tax on the income generated on funds parked there. Even this the Government is unwilling to do.

Another big chunk of the corruption moolah would be shown as 'agricultural income', conveniently exempt from tax. This is what allows politicians to show phenomenal increases in wealth, which go univestigated. They must be the world's best farmers to derive such increases in agricultural income year after year. If the political class was ruling for the people, it would long ago have taxed agricultural income, with very generous exemption limits for the genuine farmers not to be penalised, and would have set the CBI to investigate those whose incomes suddenly bloat under this head.

---------------------------- Yet Another Bailout... Speak out before it's too late! ---------------------------

When millions don't even have food to eat, our government is busy bailing out companies...

And this time, again, it's Air India.

This PSU gets a Rs 4,000 crore equity infusion... funded by the taxes we pay.

Not to mention the huge debt restructuring is basically a bailout in a different garb. And this runs into tens of thousands of crores.

Is this government really made up of our representatives or is it on the payroll of those corporate giants?

We at Equitymaster feel strongly about this cause, and thus have started an Urgent Poll where you can read all about this and cast your vote to make your voice be heard!

We strongly recommend every Indian, who wants to make a change, to take a look at this.

Click Here to read more and cast your Vote... Before it's too late!


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The agricultural produce is then guaranteed an offtake through the procurement process, which is ostensibly with the dual purpose of assuring a pre-announced procurement price to the farmer, so as to reduce his risk, and to build a buffer stock for the needy and in case of crop failure. In a month's time, after procurement in the current season is over, India will have a stock of 75 million tonnes which is far in excess of the stock needed, by its own estimates, as a buffer. India has covered storage for 45 m. tonnes and another 18 m. storage capacity in the open, under plastic sheets, and exposed to weather and to rats. So a lot of the foodgrain will rot or be eaten by rodents. But the corrupt would have, on paper, a huge gain from tax exempt agricultural income.

There is a proposal by the Agricultural and Rural Development Ministries to use a part of this excess stock of foodgrains as part payment, in lieu of cash, of wages under the NREGA scheme. That would be a good option.

Real estate is another place where a chunk of the money is invested. Urban real estate as well as farm land. This pushes up prices to unaffordable levels for a mass of the people. Land records are deliberately difficult to obtain, witness the scams in societies such as Adarsh.

If the country is governed for the benefit of the political class and not of the people, it will have several negative impacts on the economy. Inflation is a very manifest consequence. That, in turn, impacts monetary policy. The Reserve Bank of India (RBI) has been loath to reduce interest rates, and high interest rates has stalled capital investment, required for the future. Lower capital investment will, in turn, reduce GDP growth.

The telecom spectrum allotment scam occurred because of the same reason, viz. that the country was governed for the political class and not for the people. All parties of a coalition government were allocated portfolios, with the tacit understanding to permit the coalition partners to preside over their fiefdoms. The civil aviation ministry, under another partner, similarly exploited the asset under its command, viz Air India and Indian Airlines, to burden them with a fleet acquisition programme that was unnecessary and unaffordable. The airlines were later merged in a bid to camouflage the rot, but to no avail. Air India is a perpetual drain on the budget. The latest package is for Rs 30,000 crores, till 2020-21.

The simple question is, why does not the Government sell the airline which keeps losing money? The simple answer is because officials use the airline without always paying for it, can demand aircraft (never mind the disruption it causes fare paying passengers) and can divert them. Even now, the Government should find a buyer for the airline instead of wasting good money. Its outlay on NREGA is around Rs 30,000 crores, the same amount eaten up by an insatiably hungry and poorly performing business.

The incarceration of a professor of Jadhavpur University, for simply forwarding a cartoon, is another example of what democracy means in India. It is reported that the real reason for the arrest was because the professor had denied access to TMC men in a housing society he was an assistant secretary of.

In corporate news, results of Infosys Technologies, which gave a guidance of 8-10% revenue growth for 2012-13, versus the 11-14% expected, disappointed the market, which fell sharply on Friday.

The BSE-Sensex lost 391 points over the week, to close at 17094, and the NSE-Nifty fell 115 to end at 5207.

In other corporate news of interest, the Petroleum Ministry may agree to a survey conducted by Reliance Industries, for the entire D6 block, to determine the size of oil and gas reserves. RIL would be reimbursed the cost of the survey, which is significant, only if there are adequate reserves. The company has surrendered 3 oil blocks in East Timor, writing off $ 177 m.

Coal India has plans to invest Rs 75,000 crores, including Rs 40,000 crores for developing infrastructure in its domestic mines and Rs 35,000 crores to be invested in new mines abroad. It is also, under pressure from the Government, likely to sign fuel supply agreements with power producers, to guarantee coal supply, with a penalty clause if it fails to deliver 80% of the assured supply. The company is being pressured by The Children's Investment Fund, which owns 2% of it, to raise coal prices. Given that the recent earthquake in Indonesia, a major coal supplier, could disrupt supplies, one could expect coal, and therefore, power, prices, to be increased.

Investors are subject to vagaries of sudden bureaucratic decisions. tariff by 63% and its compression charges by 59%, both of which would, analyst predict, cause an 80% fall in profits. The stock fell 33% in a day.

India has huge potential, with a huge domestic market, a young population which, given employment, would drive the economy for decades to come, and an enterprising class of entrepreneurs.

If we got good governance, who worked for the people instead of for themselves, it would be a fairy land. Until the Government demonstrates its ability to govern well, the market will slide.

J Mulraj is a stockmarket columnist and observer of long standing. His weekly column on stockmarkets has run for over 25 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is now India Representative for Institutional Investor. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stockmarkets yet being a reader of his columns. His other interests include reading, both fiction and non fiction, bridge, snooker and chess.

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16 Responses to "For whom is the country being run?"
Amol
Apr 26, 2012
Only blaming politicians does not make sense for me. end of the day they have been somebody from us as society and refelect the character of the society. corruption has seeped deep into the character of the people and so the output is currupt parliamentarians, bereaucrats and professionals. forget about politicians and administrators, are the people of the country working in their own interest as society and country? Like 
RAZA
Apr 25, 2012
The rot is deep. Today not only does the politician take bribes but every individual in any capacity to give business are taking bribes. Whether it is the procurement guy in a TATA, BIRLA or RELIANCE. Whether it is the promoter of any company who has a large order value (why blame the Army and MOD alone). Whether it is an officer deciding on a small order in small office, the list is endless. Each and every one of us also pay the bribe, we want our business to grow, we want our documents fast, we cannot have our license/passport etc stuck. Corruption has earned legitimacy. The reason nobody protests is because all of us are part of it, giving or taking. It has been growing over the years, it has not happened overnight. Its just that now it has started to hurt. Till we do not have stringent punishments for both giver and taker of Bribes (n times the bribe amount) we will not be able to reverse this rot.

The likely scenario will be a complete shutdown and degrowth of teh Indian economy before we are able to implement such stringent laws. So hold on tight for the roller coaster ride.
Like 
kgv
Apr 24, 2012
Why everyone is upset with the political class. The entire political class of today is made of each and every individual perception of running the country. Are we as an individual not corrupt in every manner. Every individual has to change and resist for corruption, unlawful transaction and respect every other individual without any force from the law. This is the country where do not respect the other individual and public property Majority of indians are greedy and wants to settle down in the life very quickly at any cost. This has slowly grown to what we have today. Nothing has happend on one day. A biggest theory, the humans evolve over the period of time. The life that we have today in india is evolved over a period. It has been nurtured by each and every individual.. Lets change and it is me first. Like 
v p singh
Apr 21, 2012
mr j mulraj country is not run for industrialist. do you know subsidy for industries is 4.5 lac crore and petroleum for higher income people is 2.3 lac crore and for the poor is 1.2 lac crore. stop befooling others for the sake of business coomunity. people know what they have to do and this will not help in any way to you too. let country give susidy to the needy and poor and not to rich, else it may create a stong divide and no one will be benefited. Like 
Nikhil H. Shah
Apr 17, 2012
I had said in my last comment "East India Company was far more better than this Loot India Company"

What do you say??

Like 
B. Kamlakar
Apr 17, 2012
I agree with you, if our politians really work for people, then INDIA will be fairy land, however this is nothing but day dream. Lets pray the GOD to awake the ordinary people for sake of INDIA. Like 
R S Sarma
Apr 16, 2012
Sorry, I am back! Leadership is basically in the hands of political entities like the head of a family. If the Head is disciplined, determined and dedicated, so shall the children be. Husband is the political leader and the wife is the bureaucrat in simple terms. The majority are ruled by the elected minority who have necessarily to be disciplined, determined and dedicated. Like you cannot go outside the head in a family, so in a country, you stop at the political leadership for guidance and governance sans corruption in money and mind. If Manmohan Singh, as PM and head of govt. at the centre, means business, he can deliver like Narendra Modi in Gujarat or Nitish Kumar in Bihar, in engineering punishing the corrupt guilty. Political Leadership is everything. Anna Hazares and Baba Ramdevs are individuals without executing power and so ultimately powerless even in enacting a strong Lokpal Bill. It is the minority of534 MPs who can represent 1100 million and enact laws and implement in the interest of the majority who put them in power to govern for them! It is elementary, my dear Watson, but who can bell the 534 MPs and around 3000(?) legislators. Like 
R S Sarma
Apr 15, 2012
Democracy in India is a sham. As rightly said by Mulraj, the political class have their own agenda of loot once elected. i have maintained stemming the rot is in the hands of only political leaders and leaders in and out of power. Congress party and its coalition partners are steeped in corruption with scams galore. BJP does no better and so all the other regional parties. The solution lies only the political class making sense out of democracy. Political leaders should be infested with service priciple and living within the boundary of need as a model. The bureacracy will fall in line. How to get this off is the biggest challenge that even Anna Hazare and Baba Ramdev have failed to seriously address with the kind of opposition to them.The fence eating the crop is a sisastrous syndrome and so democracy is as of noa a sham in India. Like 
kuldeep
Apr 14, 2012
very good writing Like 
krishnan
Apr 14, 2012
You have asked the simplest of questions. The The country is run by the corrupt ,is of the corrupt and of course for the corrupt.Looks like the rot has reached the Supreme Court also.It seems it has started running the weak govt by proxy.Look at its judgement on "natural resources".Is auction a feasible method ?.It may be right in some cases but not in all.RTE is fine but 25% reservation for poor?Does it also mean private schools should provide uniforms ,books ,take the children on excursions and many other such expenses?why cant the govt run schools provide better education.My feeling is that the last bastion that was Supreme Court is also cracking up ! Like 
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