Is only one man responsible for India's current problems? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Is only one man responsible for India's current problems? 

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In this issue:
» India, China have high labour productivity
» Silver could create more records this year
» US Fed trapped in an endless cycle of QEs
» In PPP terms, China is the biggest economy
» ...and more!!


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00:00
 
When Manmohan Singh was re-elected to the post of the Prime Minister two years ago, the nation's response was euphoric. Stock markets on that day zoomed. And with the Congress party getting such a thumping majority, Indians were relieved. The hope was that with more stability at the centre and less pandering to coalition parties, the Congress would be able to get down to some serious business and undertake the much needed reforms.

Sadly, so far that has not been the case. Rather than tough reforms, what we have been witness to is a slew of corruption and scandals, rising food prices and inflation, bloated government deficits and ever increasing subsidies. Not much seems to have been done on the oldest ills afflicting India either; notably its crumbling infrastructure and crippling poverty.

Part of the blame has been laid on Manmohan Singh's inability to get the government cracking. The Prime Minister is highly respected for his credentials and impeccable integrity. But his indecision on various important matters could prove to be his undoing in the future. This is despite the weak opposition which is beset by its own set of problems. Decisions on issues such as raising caps on foreign investment in pension and insurance sectors to paring down food, energy and fertiliser subsidies, remain as unsolved as ever. The Prime Minister's major cabinet reshuffle this week does not seem to have enthused anyone either. In fact, it has only displayed his unwillingness to let some nonperforming ministers go.

There is one thing that Manmohan Singh can bank on. That is of the Indian economy growing at a brisk pace inspite of the government's ineffectual policies. What the Prime Minister needs to do is step on the gas and rework some of his magic that had led to India's liberalization in the early 1990s. Of course, that is easier said than done. But a firm leadership and serious reforms will go a long way in improving India's economic health in the future.

Do you think one should blame only the PM for the problems India is currently facing? Let us know or post comments on our Facebook page.

01:25  Chart of the day
 
Today's chart of the day shows that China and India lead the pack when it comes to labour productivity. With their economies growing at a strong pace, job opportunities have also been plentiful which in turn have contributed to productivity. Not surprisingly, the developed nations have not had much to show for during the 5-year period as GDP in those regions have contracted and high unemployment has shown no signs of easing off.

*GDP per person employed
Data Source: The Economist

02:01
 
Jan 3, 2011. This was the day when silver prices rose to a 31-year high of more than US$ 31 an ounce. However, hold your thought if you think that the precious metal has risen too soon, too fast. This is because it is still way below its all time high levels of around US$ 50 per ounce. And mind you, we are not even considering the inflation adjusted returns here. Thus, do not be surprised if the so called poor man's gold goes on to create more records in the current year. As Reuters points out, the fundamentals too seem to be in favour of further price rise for silver. One source for higher demand could be the expanding Chinese electronics industry. Growing silver appetite of the Indian jewellery market and rising demand from inflation wary investors could all combine together to make a strong investment case for silver in the current year and in the longer term as well.

As far as we are concerned, we find silver's price movements a little hard to decipher. This is because silver acts as both an investment as well as an industrial metal. Hence, for us, gold is an easier nut to crack. Anyways, we don't profess either of these metals to be more than 10%-15% of one's portfolio. Equities are what we are most comfortable with.

02:46
 
Are you aware of the 'commitment and consistency' principle that influences us humans? Noted psychology writer Robert Cialdini explains it as follows. "If people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as being congruent with their self image. Even if the original incentive or motivation is removed after they have already agreed, they will continue to honor the agreement."

What this simply means is that if people have made a commitment to do something, they will ensure that even if their decision turns out to be incorrect, they will remain consistent with their original stand. This is what is being seen in the US central banking as of now. The Fed has publicly stated its belief that quantitative easing (QE) or in simple terms - creating money out of thin air - works in favour of the US economy. Now even if we have proof against this belief, the Fed is not willing to listen. And this is likely to trap it in an endless cycle of QEs.

The Fed is already sold on the QE argument. Now, despite the danger that such easing can wreak havoc with the US economy in the future, the Fed won't go out and say, "We were foolish, let's stop printing money!" Simply ironical!

03:32
 
Big bonuses are back on Wall Street. The banks that were once on the brink of bailout in 2008 have managed to post a huge turnaround in profits in 2010. Thanks to several rounds of monetary easing, these entities have seen the profits in their trade books swell in the year gone by. And bonuses to the employees are therefore in order.

However, it would be unfair to assume that the bankers have learnt nothing from the crisis of 2008. In fact, even before the bonuses are doled out, the banks are keen to clarify their stand. Big bonuses will continue to remain the norm in Wall Street. However, not all of it will get credited the same year. As per Financial Times, Morgan Stanley has decided to defer 60% of the bonuses. The bankers will earn the rest of their bonuses over a period of 3 to 5 years. This is to ensure performance that is in the long term interest of the company and its clients. An underperformance in the subsequent years could also mean claw backs in the bonus amount. Also, it will help the bank retain cash for a longer period. We believe that the move is apt and could go a long way to avert yet another crises fuelled by bonus hungry bankers.

04:06
 
Albert Einstein once said "Not everything that counts is counted". This seems to be coming true with the generally accepted way in which a country's GDP is computed. It ignores the differences in prices and levels of development in countries. Therefore, perhaps computing GDP on the basis of purchasing power parity (PPP) is a much better method. So if GDP is computed on the basis of PPP, then China is already the biggest economy in the world.

The University of Pennsylvania has recomputed the GDP of different countries based on the PPP method. This brings to light an astonishing result; that China emerges to be the largest economy in the world, overtaking the US. The adjustment increases China's GDP by a whopping 47%. The 13% impact on India's numbers is not as significant as this. This makes India the fourth largest economy after China, US and Japan. In any way that the number is computed, it is a known fact that the dragon nation has occupied the global stage - up, front and centre. We would love to see the day when India occupies the same place. But for now, that seems to be a very distant dream.

04:41
 
In the meanwhile, the Indian markets were hovering around the dotted line during the post noon trading session. India's benchmark index, the BSE-Sensex was trading lower by about 5 points at the time of writing. Stocks from the oil & gas, banking and power sectors managed to find some favour today, while heavyweights from the IT and metal spaces were amongst the top underperformers. As for rest of Asia, markets ended on a weak note with Japan and Hong Kong ending lower by 1.5% and 0.5% respectively.

04:54  Todays' investing mantra
"Spend at least as much time researching a stock as you would choosing a refrigerator." - Peter Lynch
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87 Responses to "Is only one man responsible for India's current problems?"

Valerian Menezes

Jul 9, 2011

The media and some political parties are depicting Mr. Man Mohan Singh as a failure. In fact he is not a failure. It is his grand policy of 90's which has lifted India from economic doldrums. It is he who liberated India from nuclear aparthiedness in UPA I tenure even risking his own government. However he is now made to answer for some of the continuing ills of the nation. All know that corruption was prevalent in India since several decades. The black money in Swiss Banks was always there. Nobody spoke about it when NDA was in power - when United Front Government ruled India. Man Mohan's government is now subjected to the strictest and most stringent scrutiny, perhaps more for political reasons than with a real love for the country. But saying this does not mean that all the policies of Mr.Man Mohan Singh are flawless. Over the years the policies of 90's have gathered some blemishes - like marginalizing the poor, widening the income gap of rich and poor. The economic policy of "inclusive growth" is not working. We have to think seriously about these things and help Mr. Man Mohan come round this malady. Nobody should think of pulling his government down. Things will improve with constructive opposition which is lacking now.

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Aloysius

Jun 8, 2011

Does India need a federal setup. How long one has to wait for the GST to come up. A system so willfully inefficient and corrupt, should one man to be blamed. Think this is the limit of democracy. Should we blame one person for the what is not happening or should we blame the bureaucracy for not allowing their comfort zone to be spoiled or the fractured politics and self centered, caste divided politicians who do not allow anyone to perform.

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Asis Kumar Das

Feb 10, 2011

I was very proud when Dr.Manmohan Singhji became our P.M. He was very successful as the Finance Minister in PV Narsimha Rao government and the pioneer of economic reforms in India. He taught us as well as many politicians that increasing the Tax rate slab is not the only solution in increasing government revenue. His impeccable track record of integrity and honesty was highly emulative in this jungle of nasty politicians who are worse than thieves and gangsters.His career was brilliant and his effectiveness was infectious.

But after a few years all those observations are now shattered. Degradation will be a very mild word for Dr. Singh who has gradually transformed himself from a successful administrator and planner to a politician who is in cahoots with inefficient and corrupt politicians, scamsters, dealers of black money and a totally inefficient Prime Minister who dances with the tunes of brokers in the corridor of power in Delhi. Being the P.M. of one of the most corrupt country in the world, he freely accommodates scamsters like Raja as his Telecom Minister, Kalmadi as CWG organising committee Chairman, allows the S-band spectrum to be doled out to private firms without any bidding, tolerates the inefficiency of his Agriculture Minister who is more interested in Cricket rather than in the woes of the farmers community, trusts the Finance Minister like Pranab Mukherjee who is more busy in solving political dramas than in checking the spiralling prices of daily necessities. His government almost daily meekly fumbles before the strictures of the apex judiciary, unable to take bold decisions against hoarders, black marketeers, Hawala dealers and corrupt political allies. Is this the man we trusted to take this glorious country ahead in this new century which will lead the world with China? No, certainly not, actually he is taking us nowhere like a senile guardian oozing with every sign of moral bankruptcy.

TO HELL WITH THIS NOTORIOUS GOVERNMENT AND ITS GODAMN LEADER!

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Manohar Kantak

Feb 4, 2011

Dr. Manmohan Singh is good as Finance Minister, but not as Prime Minister. We cannot expect a Doctor to do the job of an engineer, that too in a country of the size of India. P. Chidambaran was a better choice as Prime Minister but due to non co operation from the North Block the Nation opted for an inappropriate selection. The latter can take decisions boldly, despite non co operation. Now the Government has lost control over the full Nation.Every passing day will be worse than its previous day.We have to be prepared for the same.

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krishna murthy

Feb 2, 2011

Lets not forget the good things DR Manmohan Singh did when he was finance Minister during MR Narasimha Rao regime. he has become prime minister as he is man known for his integrity and honesty. let us support him in his endouver to make INDIA one of the strongest super power and contribute to the world and also make india self sufficent let us strive to make and educate all indians so that hunger and poverty can be abolished , let us support DR MANMOHAN SINGH IN THIS JAI HIND.

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rk77

Jan 31, 2011

No economist in the world has ever been a successful leader. Economists only have theories to explain what has happened in the past. None of their business models are closes to reality.

To expect Man Mohan Singh to be successul as PM is not fair. He has lived like Dhritrashtra - blind to the evil doings of his sons (read partymen and fellow ministers and coalition partners), unable to raise his voice against corruption, unable to assert himself in any situation. After all he has no mass base and has been put in this position only because of the wish of Mrs Sonia Gandhi. He is contended with his good life style and trapped in a position he would have never dreamt to be in. May God Help him.

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nln

Jan 31, 2011

No. He is not alone. He has a full team of inefficient & corrupt people to ensure that India continues to have the problems.

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VRathore

Jan 29, 2011

Just Read this small story n tat will tell you the whole thing

Once there lived an old and pious man, renowned for his honesty. One day his neighbor, a rich merchant comes to him with a request. The merchant was leaving on a voyage and wants the old man to safeguard his wealth, until his return. The old man agrees and with God as witness promises to protect and safeguard the merchantís wealth.

The old man then entrusts the safe keep of the merchantís wealth to his son, from whom he takes an oath of propriety and honesty. Slowly the son starts dipping into the merchantís wealth; people notice this and warn the old man of the sonís misdeeds. The old man calls his son asks him to explain, he also reminds him of his oath on following the right path. The son rubbishes the accusations as rumors and the idle gossip of jealous people, who could bear to see his prosperity. The old man accepts the sonís explanation and things go on as before.

The merchant returns and demands his wealth. The old man calls his son, who hands over a quarter of the merchantís wealth saying that is all there was. The merchant realizing that he has been cheated approaches the King. The King listens to the merchantís complaint and summons the old man. The old man comes to the court with his son and handing him over to the King says ďyour majesty, the merchant is right. My son has confessed to the crime. Please punish him.Ē

The king has the son flogged and imprisoned. He then praises the old mans honesty and dismisses the case. But the merchant demands punishment for the old man saying, ďI have still not received justice. I had entrusted my wealth to the old man which he swore by God to safeguard. The old manís integrity is intact, but what of me, I have been robbed of my lifeís savings, and made a pauper. It was the old manís decision to entrust my wealth the son for safe keeping. As far as I am concerned the old man is the culprit, and should be punished.

The king is astounded by this demand. The old man, was neither a party to the theft nor did he benefit from it. In fact, he had sent his son to jail. Yet, the merchant was asking for the old manís punishment.

ďWhat should be the Kings decision?Ē

ďThough the old man is innocent of the actual theft, he is guilty of dereliction of duty. The sonís crime was a straight forward one, the old manís was a graver crime. He did nothing to protect the merchantís wealth. Far from being vigilant he failed to take action even when he was warned of his sonís misdeeds. Because of his laxity the merchant is condemned to a life of penury. He should be punished.Ē

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xyz

Jan 28, 2011

Absolutely No.

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NARENDRA SINGH

Jan 24, 2011

Is only one man responsible for India's current problems ? I think that one man is not responsible for creating current problem. There are hundred or thousands of factors or men are responsible for creating such problems or environment in our beloved country. We can take it with effect from our Independence to till date. The following are held responsible for creating current problems in India. 1. Our First Prime Minister. 2. English Language 3. Our whole system which are copied from Britisher. 4. Congress Party is fully responsible. 5. Poverty. 6. Our Politicians. 7. Illiteracy. 8. Un-employment. 9. Black Money which is looted by our great Politicians and deposited in 140 various countries like Switzerland. 10. Multi National company which are established by our government those in power. 11. Last But not The Least "People Of India"
These factors are held responsible for creating current problems in India. If you want to know in details.

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