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Investing in India - Straight from the Hip by J Mulraj
You can't drive looking at a rearview mirror! A  A  A

PRINTER FRIENDLY | ARCHIVES
28 APRIL 2012

It is impossible to drive a car merely looking at the rearview mirror and not through the windscreen. Driving a country that way is lunacy. Yet Indian politicians revel in spending time, money and effort in flogging dead horses, living in the past, instead of planning for the future. Little wonder, then, that Standard & Poor lowered its outlook on India, a precursor to a lowering of rating, a step that will raise borrowing costs for Indian companies.

The Bofors horse, which had been politically flogged to death, was resurrected last week by a statement by the whistleblower Swedish police chief that although there was no proof that Rajiv Gandhi took any money, the Italian middleman, Quattrochi, did. That was enough for the opposition BJP party to flog the Bofors horse again, in Parliament, and to demand a judicial probe (yet another one!).

A day later, Bangaru Laxman, former BJP President, was found to have been guilty of accepting a bribe of the princely sum of Rs 1 lac, the taking of which had been caught on camera, telecast, and yet took years to decide upon!

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So it is quite evident that all political parties have files of wrongdoings by other political parties, with enough evidence to convict. The evidence is not proceeded upon legally, but is kept locked up in filing cabinets, to be produced later, as a weapon to counterattack, when attacked.

Driving by looking at the rearview mirror instead of the windscreen cannot work in planning for the future.

In agriculture, for example, our policies are dictated by two things. One is to keep discretionary power in a few hands. The other is our experience of past famines. So, even though our granaries are overflowing, compelling the Government to store a lot of the grain in the open, where it either rots due to the weather or is eaten by rats, we place severe restrictions on exports. We look through the rearview mirror of past famines, instead of the windscreen of future planning for a good harvest.

The monsoon is expected to be normal this year, and foodgrain stocks are likely to touch 74 million tonnes, far more than the covered storage capacity and far more than the 30 m. tonnes or so required to be kept as a buffer stock to avoid famines.

Though all political parties mouth their concern for the farmer, the agricultural policies are skewed against them. All farm produce must be sold through 'mandis', or marketplaces. The sale is governed by Agriculture Produce Marketing Committees (APMCs) which give monopoly to some traders to buy crops. The market for farm produce in a land of 1.2 billion people is thus artificially restricted, and so are exports, thereby affecting their sale price. As a result, agriculture, which supports 60% of the population, has a 15% share of income, indicating terms of trade that are perversely anti-farmer.

A Government that drove looking through the windscreen would change the APMC, would allow farmers to sell anywhere, would invest in water management, better seeds and other productivity improving techniques. Our Government stunts farmer's income potential, then, in a bid to salve its conscience, passes a food security bill.

The Planning Commission now estimates that the food subsidy of Rs 75,000 crores is underprovided, and that it would be Rs 100,000 crores, because of the food security bill. This indicates that the fiscal deficit figures are fudged.

But this could even be seen to be the result of a difference in estimation. How about the stupid waste of resources by Ministries of Textiles, which, under Dayanidhi Maran, spent a whopping amount of Rs 8200 crores in a single day, March 31, which amounted to 63% of the funds allocated to his ministry, merely so that the money would not need to be returned to the Finance Ministry as being unspent

The Department of Heavy Industries, under Vilasrao Deshmukh, similarly blew up 60% of its annual budget on March 31, to avoid returning the money.

And then the Finance Minister tells the citizens to bear with him, because the fiscal situation is out of control!

This is a farce of governance! This is a blasphemy of democracy! In the development of a domestic debt market, too, we drive looking at the rearview mirror. We need a vibrant domestic debt market to provide debt funds for various projects, especially infrastructure projects. But we are still looking through the rearview mirror of the Harshad Mehta scandal and keeping the market for Government bonds restricted.

The uncertainty of taxation liability created by GAAR rules has resulted in one firm, Macquerie, deciding to stop trading derivatives in India. It is now shifting its base to Singapore, from where it will trade Indian derivatives! This means that our rules have driven away business from our exchanges to the Singapore exchange, and have driven away lucrative jobs from Mumbai to Singapore.

In telecom our Government has the SADIM touch, which is the opposite of Midas touch, and has turned this golden sector into lead. The Government has actually financially benefitted from the wrongdoing of its own Minister. It is not refunding the money paid by telcos for the 122 licences cancelled by the Supreme Court, and is auctioning the spectrum again! The fees for spectrum have been substantially hiked and, were the Government to get the higher fees, it would raise Rs 54,000 crores in 2012-13 and Rs 7 lac crores ($ 140 b.) over ten years.

Who will pay for that? Why the consumer, silly!

Telecom companies will have to raise tariffs to pay for higher spectrum cost. Whilst TRAI says the increase will be barely Rs 0.02 per minute, the telcos say it will be 30%. But the Government will be financially rewarded for wrongdoing and failing to nip a scandal in the bud!

During the past week the BSE-Sensex lost 239 points to end at 17134, and the NSE-Nifty dropped 100 to close at 5190.

The 17,000 level on the sensex is a crucial support level. If this support does not hold, and the sensex goes below the mark by at least 3%, then we could be in for a further fall. What factors could cause that?

In domestic factors the Budget session of Parliament would probably be wasted in flogging the dead horse of Bofors (interestingly, an anagram of bofors is sob for), and it is doubtful whether any meaningful reform bill can be passed. The Government hopes to introduce the pension reform bill (which would be good for the market, if passed) and perhaps another. It also needs to bite the bullet on diesel pricing; it has obfuscated on this far too long for no good reason. This, however, would push up prices, and spur inflation. Which, in turn, would mean that the Reserve Bank of India (RBI) would stop reducing interest rates (maybe the Governor went for an aggressive cut of 0.5%, twice expected, because he knew he couldn't cut later).

In external factors, Spain remains the worry (see here). The banks have lent heavily against property and property prices have not fallen far enough; when they do, banks will be in trouble. There is only enough money left in the EU kitty for one bailout, unlike in the case of Greece, a far smaller economy. A Spanish sovereign crisis seems imminent.

Growth in the US has also slowed down.

All in all, it may be time to be cautiously pessimistic about the short term.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. 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 stock markets 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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10 Responses to "You can't drive looking at a rearview mirror!"
srinivas
May 1, 2012
No need to sympathise with the telecom companies. The big corporates of the so called democratic super power (USA) are interested in making big profits, not doing anything to the Jobless Americans.
So why sympathise with the corporate in India. They are interested in their profits, they are not really worried about the country or its citizens.
Mulraj is probably paid b ythese very corporates. Days have changed, people are not ready to listen whatever crap you write.
Like (5)
Albert
Apr 30, 2012
Who says the govt is driving? If they are, it must be in reverse gear. There's no other explanation for the UPA lunacy we are witnessing lately. Like (4)
shabbir., Toronto
Apr 29, 2012
Instead of writing and critizing the goverment, be the leader and do something. If egypt and middle east countries can change with the help of social media, how come a country like india which has democarcy with 1.2 billions people cannot come on the street and change the politician. Things can happen but people in india just like to complain as this author does every week, they do not have balls to go out on the street. Like (2)
Ganesh Pai
Apr 29, 2012
Dear Sir,
An excellent eye opener - not only complaining or lamenting,but also providing the right direction.
Only if our Planners,politicians & beurocrats can read, assimilate and do some effort in right direction.

Sabko sanmati de Bhagavan!!

Thanks for your writings.

Best Regards,
Ganesh
Like (2)
ajit potnis
Apr 29, 2012
I wonder which mirror the author is looking through? It appears that he is looking through a cracked mirror therefore sees such distorted picture of evrything that this govt does. Why symphathise with telecos whose licences were cancelled. They were willing partners in the whole scam and are screaming blue murder when the whole thing has back fired Like (6)
Mithun
Apr 28, 2012
It is generally perceived that the African nations are "Banana Republics".Now hear this:Sunil Mittal of Bharti Airtel says that in the 17 countries of Africa where his company does business, he was NEVER asked for a bribe!!How about that?
In reality, it is our nation that is THE GREAT BANANA REPUBLIC OF INDIA.
Like (6)
raju
Apr 28, 2012
I fully agree that some thing is wrong with our agri policy. Agri produce are the only products for which the producer can't fix the price profitably and have to sell even at lose!
Thank you.
Like (2)
R R Bhutra
Apr 28, 2012
True you can't drive from rear-view mirror,but we forget that when same set of people are driving what could be expected.You have to change drivers but we are feudalistic.
We need a legal system in which any case has to be decided in max two years.But we have so many brilliant advocates that they have replies for each wrong.
Like (3)
madhavankutty
Apr 28, 2012
However you mentioned about Bangaru Lakshmanan, He is a white Elephant He made lot during BJP regime in many way
for exam.. Ex Ind Minister Kanshi Ram was Carrying Big Bundles of Cloths from Surat TO Delhi By Ragadhani and Augest Kranti Exp in free of cost as a Min.. and supplying to BL at dli and from where he was carrieng without charged to Madras can you imafine how much Rly loosed for transpotation no one dare to chafge them.
Like (3)
Sainath
Apr 28, 2012
Nicely written and so true. Like (2)
  
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