Is India an 'anarchy'? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Is India an 'anarchy'? 

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In this issue:
» Will higher duty deter Indians from buying gold?
»  Excise duty on engines for SUVs to go up?
» SEBI tweaks rules for FIIs in infra funds
» Should the world get ready for US default?
» and more....


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00:00
 
If you are an avid fan of Bollywood movies then you would understand the 'Mumbai dream'. The protagonist comes to the city to try and make a better living. And it certainly was and probably is the land of opportunities for many. But when you enter the city now, the lack of infrastructure in the form of potholed roads, inadequate civic supplies, etc hits you in the face. This is unfortunately the tale for most of the major cities in the country. A probable exception to this would be Delhi which is the centre for political power. But let us concentrate on the larger picture for now.

The country's state of infrastructure is pathetic. There are expressways in some places. But no roads at all in other. There are skyscrapers that are perpetually glittering with lights but no electricity at all in most parts of the country. Clean water. Sanitation. Medical benefits. These things are not even heard of in a large part of the country. Despite all this the country has had a rocking economic growth till recent times. Even with the slowdown, it is still amongst the fastest growing economies in the world. This has led a leading daily to question if India is a functioning anarchy?

For those who may not understand, anarchy is defined as the absence of the government and absolute freedom of the individual. If we look at the state of affairs in the country, things that are managed or controlled by the government are the ones that usually do not function. Or if they do function then the pace is abysmally slow. On the other hand the private counterparts have done very well. They have expanded operations, gone beyond the boundaries of the country. In short, steered the growth for India. Though the government has done something in terms of reforms but it has been grossly inadequate. Most of the times the government policies take years to get implemented. By the time they do get implemented the need has grown multifold requiring much more than what is being delivered.

And this is the story of how things have been in the country. The government takes the backseat and watches how things progress. Most of its agenda is focused on pleasing the masses so that they can secure their political seats during the next elections. Whenever there is a social stirring like the stuff we have been seeing in recent times, it wakes up from its inertia and does execute something. However most of it is inadequate. With citizens constantly getting deprived of good governance and losing faith in the political system there is a need to save India from 'anarchy'. And that would be to have more educated, professionally experienced, ethical and motivated individuals take onus of India's political leadership. The people of the country have done their job and are continuing to do so. Now the political leaders have to wake up and do theirs. Otherwise India will become nothing but a 'functioning anarchy'.

Do you think that India is a functioning anarchy? Share your comments or post them on our Facebook page / Google+ page

01:15  Chart of the day
 
Recently the government decided to hike diesel prices in a phased manner. The news was well received by the stock markets. The stocks of the oil marketing companies (OMCs) shot up. And rightly so. Investors have every reason to believe that such hikes would help in reducing the under recoveries that have been plaguing the financials of the OMCs. But for those investors who are looking for a stark improvement in the current financial year, there may be very little to cheer about. As per Business Standard, the recent move will reduce the under recovery for OMCs by just Rs 27 bn. The under recovery expected this financial year (before the recent price hike) was slated to be around Rs 1.6 trillion. In comparison the saving of Rs 27 bn seems to be quite paltry. As shown in the chart, the total losses on account of the under recovery are still higher than what they were last year. Hopefully with the recent announcements on fuel prices in the country, the figure next year would not be this bad.

Source: Business Standard
* Estimate


01:35
 
The Indian government spells yet another 'Sectumsempra' on gold, its old nemesis! You may be wondering what 'Sectumsempra' means, right? Well, do not be intimidated by the term. It is a dark magical curse of the Harry Potter series used to attack the enemy.

Coming back to the real world, the government has raised import duty on gold from 4% to 6%. That's a whopping 200 basis point hike! This has been done in order to rein over gold imports which the government partially blames for the high current account deficit and rupee depreciation. The problem is that India mostly relies on imports to meet its gold demand, making it the largest importer of the yellow metal. And this in turn weighs down on India's current account. With the hike in import duty, policymakers hope to restrain the bulging demand. But isn't expecting a demand drop of about 20-25% in a quarter's time too optimistic to be true?

But dealers and jewellers expect gold demand to be affected only partially. In fact, it is feared that such duty hikes will only boost up illegal trading in gold. The fundamental reasons for buying gold as an inflation hedge still hold true. Even more so in a world where the value of paper money is heading towards doom! Will the government be able to outsmart traditional Indian wisdom? We're doubtful.

02:35
 
After announcing a steady increase in diesel prices aimed towards reducing under recoveries over the long term, the government now seems to be toying with the idea of increasing excise duty on sports utility vehicles (SUVs) during the upcoming budget. This idea is part of the government's way to curb the subsidies in the midterm. In fact, the government has been trying to devise a plan towards taxing diesel car buyers for a while now. It has been doing so given its belief that diesel vehicle owners have an undue advantage due to the wide price difference between the two auto fuels. However, the focus is on SUVs this time - considering their tendency to guzzle more fuel. Nevertheless, it seems though that the government is out to extract all that it can from the automobile industry. Or as Mr Anand Mahindra puts it "The auto industry should not be treated as a golden goose which can be taxed."

03:15
 
That India's infrastructure is in need of a major overhaul is a fact well known. That is why the government has set a target of US$ 1 trillion in the next 5 years to make this happen. Hence, getting funding for the same has also become important. In this regard, Securities and Exchange Board of India (SEBI) in its latest move has tweaked rules to induce fund flows into infrastructure. Essentially, the regulatory body has widened the definition of strategic investors. This now includes foreign institutional investors (FIIs) and non banking financial companies (NBFCs). Foreign institutional investors (FIIs) have been major participants in India's equity markets. Thus, this is obviously something that SEBI wants to capitalise on. This means that FIIs can now put in money into infrastructure development funds (IDFs). This move is also expected to improve the marketability and saleability of the latter. That said, FIIs have also been notorious for huge capital outflows during times of a global downturn. The outbreak of the global financial crisis is a testimony to the fact. Thus, whether these investors would choose to put in money from a much longer term perspective remains to be seen.

04:00
 
It happened once way back in 1979. Even then the US lawmakers dilly dallied before raising the debt ceiling. But things are very different now. And the unthinkable 'debt default' by the US in 2013 could have far bigger repercussion than 3 decades back. For one, there is far greater foreign ownership of US Treasury bills. China can vouch for that. Secondly, the US economy is far more vulnerable to recession. This makes the risk of a creditor exodus more real and is damaging prospect for global economy. Most importantly, the US is carrying a much larger debt burden today than it ever did. It is struggling to refinance more than US$ 4.6 trillion worth of debt that becomes due for repayment within two years. Thus envisaging a debt default by the US is not as easy as it sounds in academic terms. A default of such proportion could trigger a wider paralysis in the global financial system. Hence for this to materialize, investors need to be prepared for a financial crisis like the one seen in 2008.

04:40
 
In the meanwhile after opening the day on a flat note, Indian equity markets are now trading in the positive zone. At the time of writing, the Sensex was up by 32 points (0.2%). The major Asian markets closed on the day on a mixed note with Korea and Japan closing in the green while Malaysia and Indonesia closed in the red.

04:56  Today's investing mantra
"If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction." -Seth Klarman
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14 Responses to "Is India an 'anarchy'?"

Albert

Jan 24, 2013

It is only a pseudo or semi anarchy, with poor governance, yet no freedom for the individual, making it the worst of both worlds. The govt wants to collect all its taxes (as mandated by laws made by the same jokers who govern), without fulfillings its own end of the bargain. This is like you being forced to buy something at a particular store but the goods are never delivered -- a total lose-lose situation for the buyer or taxpayer. Go figure...

Like 

DHAWAL AMAR SINGH

Jan 24, 2013

Yes, at present India is below anarchy, in anarchy there is ultimate upward communication from subjects to the rulers by beat of drum or by bell of
Sorrow. In Indian Parliamentary democracy there are no means for upward communication of sorrow by an individual. What a State of proud the
Politicians can claim?

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Shalin Mehta

Jan 23, 2013

An elected govt ususally gets pulled in opp directions by prudent policies which are in long term intrest of nation and society (but may be painful to start with) on one hand and populist policies which earn them votes in next election but are not in long term interest of nation and society on a 10 to 25 year horizon. Since the focus is slways on forseable future, they tend to swing the populist way unless something forces them to do otherwise. Moreover, the benifits of prudence of Govt of today will go to the next or next to next govt. and todau's govt will only earn popular wrath, which no one wants.
Hence what we need at the moment is focus on good governance and quick decisions. That will produce results which will outweigh other electoral considerations including some unpolular decisions still and return same the govt to power in successive elections. Such govt will be able to take difficult decisions more confidently. Gujarat in an example of this.

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Shrinivas

Jan 23, 2013

Widespread Poverty/illiteracy are root cause of corruption. India and south Indian nations are no different than many of the poor African countries. Good people joining politics may take long time as the whole system is cornered by the evil politicians already and they will not let go the control. The other option is to take more and more things out of political influence and manual discretion thru ACT accountability, computerization, transparency. Let the day to day governance of public services be out of politicians control and be driven by metrics, audit and compliance. Also, it's very important to people not to think their duty is done by voting, but rather they need to be active in questioning and putting pressure on the local elected reps. I am still very hopeful of things falling in place, give it time.

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c

Jan 23, 2013

YES.

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STHITHAPRAGNJA

Jan 23, 2013



On the question posed “Is India a functioning ANARCHY ?? “”
I am prompted to observe as under:

There is an apt adage that comes to mind :
THE DRUM GETS BEATEN black & blue ON BOTH SIDES;
THE DRUMMER GETS ALL THE PAYMENT “”
Likewise, the Great elite who shed crocodile’s tears for /and on behalf of the great (poor) masses, enjoy royal privileges/unending perquisites at the crucial cost of the latter who are already heavily burdened(bending like a hunchback ?? !!
In almost all other countries of the world, the law is uniformly applied and implemented/enforced. Whereas in our Great Democracy(**) it is very much like ;"" YOU SHOW ME THE PERSON AND THEN I CAN TELL YOU THE RULE/LAW APPLICABLE TO HIM “”

I HASTEN TO CONCLUDE WITH THE DEFINITION ( AS ENUNCIATED BY A GREAT political Thinker : Not an Indian )thus::

(**) “” DEMOCRACY IS THE COLLECTIVE WISDOM OF INDIVIDUAL IGNORANCE “”

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Gopi Venugopal

Jan 22, 2013

The oppostion only does what is convenient to it. They have a vested interest in everything. Otherwise how do you explain the behaviour of the opposition when they come to power. I am sorry to say this, but both the government and the oppostion are 'sons of the same soil' and behave alike ( correct me if I am wrong ). So who do the citizens vote for ?

Like 

Prakash Basrur

Jan 22, 2013

65 years after the independence what we see is , as they say , " rolling stone gathering moss " state of our country ! With the mess of corruption , spate of rapes , sycophancy in ruling party and in-fighting in the main opposition party the future of this country is not at all bright ! The way UPA ( read Congress-run ) government acts on crucial governance issues such as corruption and Law & order many of us must be saying in despair that "it would be better to call the British back to govern us ! At least they will ensure law & order if not improve the lot of people !" After 65 years all that one can say is "Mera Bharat Mahan par Jaye To Jaye Kahan ?"

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PT Cherian

Jan 22, 2013

It was Galbraith(several years ago, when he was the American Ambassador in India} who first described India as a functioning anarchy. That description still holds.

Like 

AML

Jan 22, 2013

Absolutely right sir,India is an Anarchy.No other proper word to narrate the situation . The common man is suffering from inflation, bribery,lawlessness etc.etc. What else is different than -Anarchy ? Hope we will not go by way of Egypt or Somalia.

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