Has a new chapter in Indian democracy unfolded? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Has a new chapter in Indian democracy unfolded? 

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In this issue:
» Why's a leading US bank building more warehouses for goods?
» The huge achievement of the 20th century economics
» US Fed President's actions totally different from his words
» Carlyle's MD is bullish on China in the long term
» ...and more!

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Let's face it. The past couple of years have been rather tumultuous for India. Scam after scam kept tumbling out of the ruling Government's closet. And reputation was not the only thing that came in the firing line. India's economy and business sentiments also got singed quite badly we should say. So much so that people were left wondering whether India's democracy and its institutions were really the aces in the pack in its race with China or more an albatross round its neck. An historic verdict by the Honourable Supreme Court today could perhaps help put some of that speculation to rest we believe. At least for now it does appear that Indian democracy and its institutions are pretty much alive and kicking.

We are referring to the famous 2G scam case whose verdict was being awaited with bated breath. The verdict is out and we believe that full justice has been done. The apex court quashed the 122 licences granted by former telecom minister A Raja, holding the view that the 2008 sale of 2G licences were done in an irregular manner. Thus, fresh norms will have to be decided for issuing licences within the next four months.

Game changing as this verdict is, we are of the view that another equally historic ruling was made by the apex court yesterday when it took the Government to task on corruption prevention. It made mandatory for Government to decide on prosecution of public servants within three months. Thus, it will no longer take ages that it took in the current 2G scam for a minister to be prosecuted. Goes without saying that this would act as a huge deterrent for ministers trying to skim billions off the taxpayers' money. And it would also send a strong signal to corporates to play it fair and hard and not try and game the system. So what if Lokpal is yet to see the light of the day. As Subramanian Swamy, the petitioner in the 2G case said, this verdict is a major step forward in war against corruption. It certainly is we believe.

Do you think the 2G scam judgement has strengthened your belief in Indian democracy and its institutions and will have a positive impact on long term India growth story? Share your views with us or you can also comment on our Facebook page / Google+ page.

01:15  Chart of the day
Facebook, the social networking giant has already left hundreds of millions of its subscribers spellbound. Will it have the same effect on his shareholders? We will have to wait and see. As today's chart of the day shows, Facebook will surely go down in history as the biggest tech IPO of all time till the time of its debut. With the firm being such a hot property, there is no question that the demand for its shares will be sky high. But will it prove value accretive in the long term? Well, it is over to time to get an answer to this all important question.

Source: Bloomberg news

Both US and Europe are saddled with debt problems while emerging markets are facing significant capital outflows amidst flight for safety. In short, structural problems in the West and liquidity issues in emerging markets have blurred the future prospects of the global economy. While pessimism is at its peak with no signs of recovery evident in the near future we would like to highlight one interesting anecdote we just came across that could re-instil your faith in the global economy.

If one were to breakdown the percentage of economic output, adjusted for inflation, over the last two thousand years by century basis, it would be surprising to know that 55% of the world output was produced in the 20th century itself! Further, 23% of the output is already amassed in the 21st century while we are just in the 12th year. While the trend indicates global economy has grown exponentially in the last 2 centuries it would be unfair to extrapolate the growth figures into the future as well. We know that 20th century was an era of liberalization which enabled free movement of capital and goods across countries. This in turn increased the world economic output. However, sustaining growth momentum in the post liberalization era would be a true challenge. And it remains to be seen whether the growth lives up to the challenge.

Bill Gross, the man who runs the iconic bond firm PIMCO has a very interesting analogy to share. Gross likens the US Fed's quantitative easing (QE) measures to letting your pet dog wander in the woods. While it may do great to boost its animal spirit, the dog might return infested with insects. Fed Chairman Ben Bernanke has done something similar with his monetary policies. He has kept interest rates very close to zero. All this in the name of stimulating the economy. But such zero interest rate policy has far-reaching consequences for several stakeholders of an economy such as savers, pension funds, insurance firms and other finance-based institutions.

Giving the excuse of the 'greater good', the Fed has sacrificed the interests of many such stakeholders. But what is worse is that the monetary stimuli have failed to prop up the economy. What is more, it has even failed to lure investors into stocks and real estate because they are more worried about return of money, meaning capital protection, than return on money. Not just the US, but several other developed economies that have indulged in leverage are now de-leveraging. It is quite likely that these economies will see a lot more austerity measures in the coming times and this in turn will keep the global economic growth muted.

Economists the world over have begun to be quite vary of the China growth story. On one hand, there are hopes that the dragon nation will play an important role in rebalancing the growth of the global economy. But that seems unlikely given that China has its own set of problems to deal with. The chief of which are indiscriminate lending to the real estate sector and formation of bubbles thereof, not to mention too much focus on growth led by investments with hardly any meaningful contribution from domestic consumption.

David Rubenstein, MD of the Carlyle Group is more optimistic. He opines that although China faces various headwinds in the near term, for a long term investor the country still presents strong opportunities. And he is a big believer of the Chinese consumption story given that the consumer base is growing, middle class is expanding and the government is encouraging private equity investments. On the Chinese property market, he is of the view that Chinese real estate investment was a good thing, as long as investors were not over-leveraged and they didn't need to move in and out quickly. The key here is again long term and although there are obvious bubbles in some areas, if one considers a timeline of around 10-15 years, real estate prices are not likely to fall by a significant amount. We believe that Rubenstein probably has a case if one takes a 10-15 year view on the dragon nation, but the scenario over the next couple of years could look gloomy if the developed world fails to recover and bubbles are allowed to form in various Chinese assets.

J.P. Morgan is a large investment bank, so what is it doing building up its warehousing capacity? The bank is bulking up its metal warehousing facilities in Rotterdam and Chicago. This move to enlarge its storage areas and stockpile key commodities demonstrates the growing global scramble for resources. Parties having access to these resources are able to create artificial abundance and scarcity to help influence prices. Going long or short accordingly, these privileged parties are able to nicely line their pockets.

But is such profiteering from hoarding scare resources legal? Well, long-term deals, with metal locked up for years earning warehouses consistent rent, are well in place. The US Fed recently pledged to keep rates at zero until 2014. Thus there is no disincentive to keep money locked up in long term contracts. Holders of metals can store surpluses for years at a time. They can easily cover costs of financing and rent as low interest rates cheapen the cost of money while prices eventually rise. Thus by keeping rates at low levels, the Fed is stoking commodity prices all over the world. Now you know why inflation levels continue to remain high despite Reserve Bank of India's valiant efforts.

Meanwhile, indices in the Indian stock market continued with their impressive form today with the Sensex trading higher by around 170 points at the time of writing. Heavyweights like Bharti Airtel and ICICI Bank were seen driving most of the gains. Markets across Asia closed strong today with Europe too trading in the green currently.

04:52  Today's Investing Mantra
"In my early days as a manager I, too, dated a few toads. They were cheap dates - I've never been much of a sport - but my results matched those of acquirers who courted higher-price toads. I kissed and they croaked" - Warren Buffett
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33 Responses to "Has a new chapter in Indian democracy unfolded?"


Feb 3, 2012

It is definitely an excellent judgement from Supreme Court. This gives us hope that there is still light at the end of the tunnel for a corruption free India. I just do not understand how this shameless government is still cling to the power even after this verdict. My sincere thanks and regards to Dr. Subramanian Swamy to save 1 lakh crore to the exchequer.


Sarika Shah

Feb 3, 2012

YES.....totally a new chapter in Indian democracy has unfolded.The judgement of the SC has been historic......!122 licenses cancelled plus a fine of 5 crores.It means something.Democracy is finally alive.The way things were these days it seemed as if Indian democracy was dead.It was like a jungle raaj.....corruption all over spilling like spurious liqour.How can some people take the reins in their hands in a democracy.Have THE people forgotten the meaning of democracy.Now PEOPLE will be scared to do wrong things.WRONG has to be punished which is happening now.Down with corruption and the CORRUPT.



Feb 3, 2012

Prosecution of public servants within 3 months is a very welcome and long overdue step to contain corruption . Politicians number a few thousand , but the bureucrats number lakhs - perhaps crores . These two set of people are eating away the vital innards of India , and very often escape justice only because the process drags on for too long .This legislation must be implemented immediately .



Feb 3, 2012

Yes. Remarkably. But funding of Political Parties should be made transparent and the names of donors published. Also Political Parties should publish their balance Sheets duly audited.


rajesh guliani

Feb 3, 2012

This judgement is historic. Yes it has opened a new chapter in the Indian Democracy.
But the politicians and beaurocrats are so clever to find the new ways to befool the poeple and cough up the taxpayers money. Every one should be accountable for the action taken by him.
Lets hope for the best.


Commodore Suresh Bhandoola, Indian Navy

Feb 3, 2012

Fantastic!!! but for how long? What happens when threats go out to the supreme court judges OR even actual physical attacks take place on the judges and their families. Absolutely immediate and adequate protection must be provided to all judges likely to be so threatened and it must be provided right now or it will be too late.


Shashikant Nishant Sharma

Feb 2, 2012

Yes, I feel that a new chapter in Indian Democracy has got unfolded in recent times due to various initiatives of government, NGOs and civil society activist. The devolution of powers and financial resources to third tier of administration i.e., local level in both urban as well as rural areas. The strengthening of local bodies through various measures like social auditing by Gram Sabha, plan preparation by urban local bodies and monitoring of development by RWAs, Panchats etc is showing result. The NREGA has also empowered the rural people and panchayats are playing a crucial role in implementing the schemes at grassroots level. The active participation of people in campaign against corruption initiated and led by Anna Hazare is a good example of active role of civil society. In many slums of Mumbai NGOs are very active in creating a more democratic vies in people. The 50% reservation for women in Bihar has empowered the village women and the system of sub- reservation within reservation has ensured full benefits to the disadvantaged groups of the society. The Right to Services and Citizens charters granted by many states like Bihar, Utrakhand, Delhi etc has not only made the officials accountable but also people more assured of services and this measure will surely curb the widespread corruption at grassroots level in bureaucracy.
On the whole, we can say that a new chapter in Indian Democracy has got unfolded and we hope that it will get sustained over time.

Shashikant Nishant Sharma

New Delhi


saby chacko

Feb 2, 2012

Bravo! This verdict by the supreme court judges have brought hope into people's mind that at least the judiciary is there to stop the looting of our country by our politicians.Also,should be grateful that last chief justice has retired before this came up or else god knows what would have happened to our judiciary system!



Feb 2, 2012

yes. but all the polititians are best partners of 'corruption inc' and will find loopholes to protect
the corrupt.


sunilkumar tejwani

Feb 2, 2012

to somewhat extent, the supreme court ruling in 2G scam case has restored our faith in judiciary. But what the supreme court is yet to do is to punish the guilty.
But the recent judgement in case of Vodafone vs the Government, the judgement has not gone down well us.

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