Should growth come at the cost of corruption?

Oct 17, 2013

In this issue:
» India, home to half of world's slaves.
» Will India's growth pick up in second half of current year?
» Buffett questions the concept of debt ceiling.
» What is the biggest risk for the Euro?
» and more....

The drama relating to Kumar Mangalam Birla being included in the latest FIR continues to unfold. Sides have been taken; with major business houses backing the industrialist - praising his legitimate way of going about things - on one side, and Central Bureau of Investigation, standing alone on the other.

The CBI has received a lot of flak the past few days. According to media sources - defending the agency, CBI chief pointed out that in simple words that they are not fools to file such a case without having some documentary evidence.

What will be the outcome of the case obviously cannot be gauged at the moment. But we hope it is not an action that is being done to cover up the real but considered to be influential, wrongdoers that have been named in the entire coalgate scam. Because if this is the case, then it is simply worsening India's already tainted image as a business destination for both locals as well as foreigners.

And given that one of the most respected business leaders has been involved in a major national level scam, the consequences could possibly be substantial.

In the past, the government has been blamed for not having friendly laws to get foreign investors to come and invest in the country. But this act could probably impact the sentiments of Indian businesses houses as well.

What could possibly make matters worse would be the repercussions that could take place on the already prolonged policy paralysis state that the country is in. As pointed out by former cabinet secretary TSR Subramanian in the Economic Times, the involvement of ex-coal secretary PC Parakh in the scam would lead other government officers to fear being jailed and involved/charged in scams that could occur on account of project files being forwarded for clearing. As per him, this would only lead to further delays in clearances; as responsibilities related to decision making would be passed on to higher authorities.

While Mr. Subramanian's stance seems towards keeping the overall economic growth engine moving, we believe that be it a time of slowdown or strong growth, action must be taken against wrongdoers! And considering that honest government officials would go about doing work in a legitimate and proper manner, there would be essentially nothing for them to fear.

The bottom line is that perpetrators of a scam or wrongdoing must be punished for any case that involves corruption. Irrespective of whether the fault lies with government officials or industrialists. But it is equally important to figure out who is to be blamed. Also, threatening that such events could deter government officials from approving projects, would not be the right way to go about things as well. It is no secret that crony capitalism is deep rooted in India. But till now, government officials have largely gotten their way. And this is what led to the loss in governance in the first place.

There is an urgent need to improve governance standards in the country. And for that, measures have to be put in place that deters formation of nexus between industrialists and government officials to gain favors.

Do you believe the involvement of Hindalco in the case can lead to further policy inaction? Let us know your comments or post them on our Facebook page / Google+ page

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 Chart of the day
Malnutrition, corruption, poverty, human development - these parameters are lists that India has either ranked first in terms of being the worst performing nations or has been amongst the worst on a global scale. Now a new parameter is added to the list. That of having the highest number of modern day slaves in the world. It is believed that India is home to about 46% of the world's population that is termed as slaves.

What makes things seem even worse is that the second spot is very far away. India is estimated to have about 14 million modern day slaves. The country that ranks second is China. But in absolute terms the number of such slaves is lower by 80%.

The Global Slavery Index, a report compiled by Walk Free Foundation ranked 162 countries based on three factors - estimated prevalence of modern slavery by population, a measure of child marriage, and a measure of humans trafficked in and out of a country.

Highest number of modern day slaves reside in India
Data source: Mint

One may argue that in relation to its massive population, India ranks better than other countries. While that may be true, a key problem that leads to a massive population being termed as slaves is the prevalence of orthodox cultural values in the country. And it would not be wrong in saying that this system is pretty much engraved in the minds of large section of the society. Effective steps towards changing the mindsets are a must to help India rank better for all its key socially related problem areas.

The debate has started all over again. The topic is what would be India's economic growth this year. The chief of Reserve Bank of India (RBI) thinks that the economic growth will pick up in the latter half of the year. His optimism is based on the expected approvals of stalled projects. And of course the benefits from the healthy monsoons that India has seen this year. Though he has not put a number to the growth, he does expect things to become better. In a recent presentation at Harvard, he stated that raising interest rates would not necessarily hurt consumption. This is because of the huge rural population which is not connected directly to the financial system. Therefore he does not expect the higher interest rates to dampen the growth this fiscal.

On the other side of the debate is the World Bank, which has slashed India's growth expectations from 6.2% to 4.7%. This is because it does not expect investment activity to pick up even in the second half of the year. The Bank had earlier expected India's growth to accelerate in the second half of the year as well. This expectation was based on a pickup in domestic activity. Unfortunately this pick up is not visible as of now.

The question that concerns investors is who is right in this argument? Is it the outsider, the World Bank? Or is it the insider, Dr Rajan? Like any debate, both have merits and have provided these in their arguments. But who will be proven right and who will be proven wrong? Like all else, the answer will depend on the actions that the government takes over the next few months. If it is able to clear up stalled projects and remove the structural roadblocks that are plaguing the economy, then it is likely that India's growth would be good. However, if it instead chooses to concentrate on getting itself reelected and defers its decisions to another date, then we could probably see a sub 5% growth this year.

The US government has managed to defer the worries over fiscal cliff once again. This time after a good 16-day closure. One which brought the possibility of debt default closer to reality than ever before. For skeptics wondering whether the so called 'deal' puts an end to the need for safe haven assets, the answer is a clear no! The deal does nothing to assuage concerns over the impossibility of US to service its gargantuan debt in the long term by even quarter of a percentage. All it does is give the global markets some false hope that yet another Lehman like crisis is sometime away. Meanwhile, the US Federal Reserve has resolved to keep the money printing machines working overtime. So given that the US adds about US$ 2 bn to its outstanding debt every day, the fiscal cliff is only set to get bigger and more dangerous. We believe that the debt deal in the US is no reason for investors to cheer. Nor is it any reason for investors in safe haven assets like gold to panic. For whether or not there is any safe haven, the debt deal makes the need for it only bigger.

We love Warren Buffett as an investor. We simply love him. There's hardly anyone who's taught the tricks of the trade with such skill and with such generosity. However, the moment Buffett crosses over and starts commenting about things like debt ceiling and macroeconomics, we don't find ourselves on the same page as him.

Take his recent statement about the entire controversy over the US debt deal. He believes that the US remains a AAA creditor in his mind. And this despite the downgrade in recent years and the humungous debt it has piled up for itself. What more, the sage of Omaha wonders whether it makes sense for the US to have a debt ceiling at all.

Well, it is hard to believe that a man of as strong a temperament as Buffett fall for emotions over logic. However, we do believe that when it comes to commenting on the US economy, his love for all things American does blind him to the dangers lurking ahead. Why else would a man who runs away at the mere mention of leveraged companies when deciding on his own investments would support limitless debt for the US economy? Isn't there some consistency of thoughts to be had? We don't quite know. What we do know is that we would respectfully agree to disagree with Buffett on such matters.

What impact can the increase in US debt ceiling have on Indian equities? We know it is questions like these that concern you these days. And your trusted source for views and opinions, The 5 Minute WrapUp, too has unfortunately not helped by staying silent on such questions. We understand that, in addition to broad views on global stock markets, you might also be looking forward to our views on few unexpected movement in stocks. And that is why we are taking steps to make The 5 Minute WrapUp more relevant to you. Watch this space for more details in the coming weeks!

The Eurozone and its common currency have been under pressure for quite some time now. But the biggest risk for the Euro collapsing is a political crisis in the region. At least that is what Jens Nordvig, head of currency strategy at Nomura believes. He opines that essentially the thread running through the Eurozone is political cooperation. And if that breaks down, then the collapse of the Euro would be imminent.

Indeed, many of the Eurozone countries are saddled with massive debt. Their economies have slowed down and unemployment has considerably risen. This is bound to play a significant role in politics. Thus, if the differences between countries widen, the fate of the Euro is sure to hang in the balance. Nordvig expects that the fall is most likely to be a gradual affair rather than a sudden collapse. So far, the Euro has belied this possibility and has risen against the dollar. But that does not mean that troubles for the currency are over.

In the meanwhile, Indian stock markets were trading on a flat note. At the time of writing, the benchmark BSE-Sensex was marginally up by 6 points (0.03%). Sectoral indices were trading mixed with oil and gas and FMCG stocks being the biggest winners, while IT and capital goods stocks were leading the losses. Barring China and Hong Kong, all other Asian stock markets were trading on a firm note led by Japan and Singapore. Most European markets opened on a negative note.

 Today's investing mantra
"The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete." - Charlie Munger

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13 Responses to "Should growth come at the cost of corruption?"

Ajay Gupta

Oct 19, 2013

Absolutely corruption cannot be condoned against any one. It is like a Black Hole in the economy. People should think first before doing such acts.



Oct 18, 2013

T r subram is correct such incidence r going to lead to more indecision..honest have nothing to fear is naive and remark of ignorant...any officer even remotely accused is immediately media convicted. ..why shd anyone decide anything in this age of gross mistrust and


R N Gandhi

Oct 18, 2013

Money hungry Politicians and bureaucrats play havoc through power to sanction permits and the Industrialists and big business houses have to bow down if they wish to accomplish their work. The absolute power corrupts absolutely. This has become the practice of the day. And this starts from ordinary panchayat, Nagar Palika to Parliament level.This could be uprooted from the top and not from the bottom. We talk about moral. But practicing morality is next to impossible in present day rule.

Like (1)

R N Gandhi

Oct 18, 2013

The root cause of corruption is the Power. Politicians and bureaucrats play power game to sanction the permits at a cost. The industrialist have to bow down if they want to carry out their plan. Culprits are the money hungry politicians and bureaucrats and no body else.

Like (1)

R N Gandhi

Oct 18, 2013

The root cause of corruption is the Power. Politicians and bureaucrats play power game to sanction the permits at a cost. The industrialist have to bow down if they want to carry out their plan. Culprits are the money hungry politicians and bureaucrats and no body else.

Like (1)

Subba Bangera

Oct 18, 2013

The growth with corruption is nothing but banana republic. Stringent punishment to the beneficiaries from industry, politics and governance must be executed on fast track to stop the rot. We are all aware when fear of getting caught spread during emergency and how people behaved and how black money eliminated. I am not asking for emergency, but a fear of being jailed and humiliated of the rich cronies must start

Like (1)


Oct 18, 2013


Like (1)

Yogesh Kanakia

Oct 18, 2013

Absolutely not, never because that will ultimately lead our economy to "Black Hole" where there will be no return.

Like (1)


Oct 17, 2013

People who have accepted corruption as a way of life, people who indulge in it routinely, people who rationalise it or justify it in any number of ways may find this question irritating. But they are not in tune with the youth of India to whom the future belongs; rather, the present itself belongs to the youth of this country, in my humble opinion. The answer to the question above by the youth of this country will be an emphatic no. The activism and the readiness of the youth to pour out into the streets and bring about sorely needed changes in non-violent ways has already been clearly seen both in the 'August kranthi' of 2011 of Anna Hazare and in the Nirbhaya case in December-January 11-12. Sane and sober heads are the need of the hour to avoid serious mass eruptions that may spin out of control, especially in a democracy like India. Therefore, in dealing with cases of corruption in high places politicians, business leaders, bureaucrats, the media and other groups of people need to see things in this larger perspective which places social order and the rule of law above everything else. When people see the rule of law taking its course, when people see clear evidence of transparent action being taken against cases of corruption or sleaze or other crimes in high places, then the slow process of building up of trust in the rule of law and social order will gain ground. Admittedly this trust stood at its lowest ebb till recently. Individual crusaders like Dr.Subrmanaiam Swamy, Anna Hazare, Kiran Bedi, Arvind Kejriwal, among many others; the courts of this country; some intrepid and unknown government servants; and the top investigating agencies, have all done and are still doing their bit in rebuilding this trust. Let us not whittle down this process by prophesying that businessmen will lose interest in doing business in India, that bureaucrats will drag their feet in taking decisions, or, that investors from abroad will avoid India. These things may happen as short term reactions to the process of changing the status quo ante which rested on crony capitalism, on enormous profit making by a few because of their unfair access to resources and infrastructure free or at no cost, and on bending of rules by bureaucrats bought, blackmailed or cowed down by superiors.
No changes to existing order has come about easily. But change will happen willy-nilly and India will emerge clean and strong and courageous. There is no question about it. The only question is how much can each one of us contribute to this change positively. If leaders in various spheres of public life address this question positively and in a mission mode, they will be on the right side of history. If not they will be on the wrong side. Let each one choose wisely and choose bravely.

Like (1)

Chalapathi .K.V.

Oct 17, 2013

Excellent presentation, and a real eye opener to number of investors.Today number of educated investors are also going blindly into the stock market, without observing the market and economical trends nationally, and internationally.Now you made a simple and crystal clear Indian economic front and its loosing stigma .Since long time the impact of "CRONY CAPITALISM" , was warned by number of economists. Now it was came out with full of colours, and rupee sliding is also one of its rotten fruits .

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