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The Economy Is Paying the 'Price' Of the Vote...

May 16, 2016

In this issue:
» Manufacturing sector after two years of Modi government...
» Has Warren Buffett taken a U-turn on technology stocks?
» ...and more!
0:00
Richa Agarwal, Research analyst

I was on a vacation last month. To escape the scorching heat of Mumbai, I decided to take shelter in Nilgiris...and booked a ticket to Coimbatore. My final destination was Ooty and Coonor. As the journey date came closer, I was excited to take a break from local train travel in Mumbai and hop on a toy train amidst mountains and lush greenery instead.

Don't worry - I'm not about to go into a travel account and make you look at my pictures. The reason I'm telling you this has to do with the seizure of Rs 570 crore on May 14 in Tamil Nadu state...funds suspected to lure voters.

On the way from Coimbatore to Ooty, the police stopped our cab twice. They asked us how much cash we were carrying. Our answer did not satisfy them. So they checked our bags, and only then we were allowed to carry on.

This was obviously strange for us, so we quizzed our local driver who suggested it was because of the upcoming elections. The week before, a vehicle was seized with Rs 12 crore in cash...going in the direction of a small village to woo voters and buy votes.

It's one thing to read about this in newspapers, but experiencing it firsthand was saddening.

As per Mr Rajan, it is estimated that Rs 500-600 billion in cash would increase with public in the poll bound states. Several hours after the Rs 5.7 billion was seized the other day, the SBI claimed it was an official transfer. Few believe it. And rightly so.

Over the years, despite rising awareness and social media activity, the political parties seem to have gotten even more brazen in their bribes for votes.

Their manifestos are full of freebies rather than policy. 'Gareebee Hataao', education for all, employment for all...are things of the past.

Modern manifestos assure mobile phones to all ration card holders...100 free units of power (with no need to pay electricity bills) ...free lap tops for students of Classes XI and XII...double gold for mangalsutra from the existing 4 grams...Rs 500 coupons for people to buy handloom clothes from state-run Co-optex during Pongal...new farm loans...waiver of farm loans...vehicle subsidies......housing schemes, resolutions to prohibit shale gas projects ...the list goes on.

I'm not sure about the economy, but politicians have indeed 'progressed' and seem to be quite 'upwardly mobile'.

And when it comes to double standards, these parties put anyone to shame. You see, prohibition is another point of focus in the Tamil Nadu election manifesto, to woo women's votes. Interestingly, Tamil Nadu State Marketing Corporation, or TASMAC, a state-owned company that has 29,000 employees and annual revenues of Rs 262 billion, enjoys a monopoly on the sale of liquor. Not to mention TASMAC has been one of the tools to subsidise the freebies by the state political parties.

It's not just Tamil Nadu. Corruption and dole politics is not a one-state phenomenon. Cash has been squandered to purchase votes - at times causing stampedes - across states. Even the central party is not immune to it...though they're approach might be more refined.

A case in point is the popular unemployment allowance scheme, MGNREGA. Almost a decade old now, Mr Modi called the scheme a 'living monument of the Congress party's failure'. However, after two years in power, the Modi government has a different view on it.

Finance Minister Mr Jaitley recently allocated Rs 370 billion, the highest ever budgetary support, to the scheme and promised more. The government is not ready to give up subsidy politics for a growth-led model yet.

This indicates that the government is skeptical about the employment situation in India and the prospect of natural growth in the Indian economy. Those betting on macro tailwinds have reasons to be cautious. Investors should rather do some second-level thinking and bet on something tangible.

Economic growth will be a mirage as long as parties count on subsidies and dole politics instead of real development and empowering citizens. No wonder the public sector banks and PSUs are in dire straits...

Meanwhile crony capitalism and black money go unabated, funding the ambitions of the political parties. When political parties are so brazen, crooks like Vijay Mallya are bound to flourish. Unless the loopholes in the system are plugged, India's fight against corruption, black money, and slow growth will remain a lost cause.

What are your views on the murky vote bank politics in India? Let us know your comments or share your opinions in the Equitymaster Club.


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3:00 Chart of the day

On May 16, 2014, Narendra Modi-led BJP emerged victorious in the general elections. It's been exactly two years since that day. So, one may rightfully ask: Where is the Indian economy headed? Has Modi's economic agenda worked for the economy?

Of course, one cannot have a binary 'yes' or 'no' answer to such a question. But there has be some parameter to judge the business landscape.

The RBI recently published its 32nd round of Quarterly Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for quarter ended December 2015. OBICUS captures actual data from the companies in the manufacturing sector. In all, 1,058 manufacturing sector companies responded in this round of the survey.

Among other factors, one key factor that gives us a good picture about how the demand scenario is shaping up is to see the trend in capacity utilisation rates.

The chart of the day shows the trend in capacity utilization rates across nine quarters from Oct-Dec 2013 to Oct-Dec 2015. It is worth noting that the utilisation rates may not be comparable sequentially as the demand may be affected by seasonal factors. So, a year-on-year comparison may be more appropriate. If you consider the utilisation rate of 72.5% in 3QFY16 (Oct-Dec 2015), it is an improvement from 71.7% a year ago. But it is still lower than the utilisation rates recorded in 3QFY14 (Oct-Dec 2013) when the UPA-II was in power at the Centre.

This reflects that the manufacturing sector is not out of the woods yet despite oil prices being advantageous. While the Modi government may like to revel in the theory that India is a 'bright spot' in a gloomy world, we stand by RBI Governor Raghuram Rajan's realism: In the land of the blind, the one-eyed man is king.

Indian Economy After Two Years of Modi Govt

Indian Economy After Two Years of Modi Govt


4:00

There have been some reports recently that state that Warren Buffett is backing a consortium to acquire Yahoo Inc's core assets, the American multinational technology company.

Some may be baffled at the idea of Buffett bidding for Yahoo. The Oracle of Omaha has often been vocal about his discomfort with technology companies. He kept away from two internet booms. He never invested a single dollar in close pal Bill Gates' Microsoft.

Is Buffett's IBM investment and now Yahoo's acquisition bid his late entry to the technology sector?

We believe one should not jump to conclusions until the deal structure is revealed. Buffett is known to be an ace deal maker. In several deals in recent years, he made sure he profited even without a surge in stock prices.

An article in Bloomberg aptly states that this time too Buffett may not be betting on the stock's performance, but rather on its continued existence. What more, the assets for sales - including finance, sports, and video sites - are essentially media businesses. And Buffett has had a long history of investments in the media and advertising industry. That's his circle of competence.

4:25

After trending lower during most part of the trading session, the Indians stock market pared losses and were trading near Friday's closing level. The BSE Sensex was trading higher by 37 points (0.15%) at the time of writing. Information technology, FMCG and realty sector stocks were the leading gainers. However, banking and telecom stocks were leading the losses. Mid cap and small cap indices were trading marginally in positive territory, each higher by 0.13% and 0.04% respectively.

4:40 Today's investing Mantra

"Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based o-n change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Richa Agarwal (Research Analyst) and Ankit Shah (Research Analyst).

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11 Responses to "The Economy Is Paying the 'Price' Of the Vote..."

Sriraman MV

May 17, 2016

I believe this MGNREGA is a good social scheme and needs to be continued for decades to come. In the absence of this scheme, unemployed & under employed people below the poverty line would have resorted to sending their kids to work as well. With this employment guarantee scheme, today their kids are attending school and will grow up to be semi-skilled & skilled in the future economy. We need to bear this burden for uplifting our fellow Indians from poverty. My take....

So, inspite of all politics, our policy makers (which includes top politicians) are strategic and I am happy about it. Somewhere I read about public policy - We need to ensure 4Cs are satisfied - Coverage, Continuity, Consistency and Cost. Today's cost of the MGNREGA is nothing compared to the future cost of supporting kids growing uneducated and unskilled.

Like 

AB Pereira

May 17, 2016

On the one hand you guys (plus the media) cribs about the lure of money and freebies offered by corrupt political parties, on the other hand you guys (read, the media) hesitate to support newer, cleaner political outfits trying to fight elections without any crony-capitalists money, but fighting with paltry donations from common men and women and then when they form a govt, as is in Delhi, implementing people-centric policies covering education, healthcare, clean governance, transparency in spending (finishing govt projects at lower costs), reduced power/water tariffs through reduced corruption in water/power generating, distributing companies. First, cleanse the media and take all the bias out, other things will fall in place automatically. If the media were to highlight wrongdoings of these corrupt parties without a bias (and without a bribe too), then we can expect much better times for Mother India (something that RRR of RBI also so lovingly desires!).

Like 

SRINIVASAN CHANDRASEKHARAN, BAHRAIN

May 17, 2016

Richa Agarwal has excellently presented her point with her wonderful flow of words and a touch of gentle humor too, aptly at the right places. Overall, every word was meaningful and could give the Readers a good clarity on the topic. Hats off to her for her lucid style of presentation. I do fully endorse her view points. It is a fact that economic growth will be a mirage so far things are what they are now. The recent seizure of Rs. 570 crore in Tamil Nadu State......funds suspected to lure voters. Is it the tip of the ice berg? Where is the solution?

Like 

SJ

May 17, 2016

We are in a country where if any one person wants to do things right, there will be be hundreds to bring him down. When you are amidst people who are always tying to block your way or prevent you from doing things by indirectly raising other issues , causing disruptions, how easy is it to get things implemented in a fast lane?

I am no Modi fan, infact I am the first to point issues whenever something new is introduced by Modi or his Govt. You can call me politically agnostic. I could reply to you saying you are against Modi. Sorry no offense :)
But this doesn't lead us anywhere.

Let's be open about it. We Indians are fed up of the politics that political parties have been playing in India for years. Since Independence, how many years of rule did we have by a party other than Congress? The fraction of time that Congress or its allies have been in power has been humongous as compared to any other party. So which party is basically responsible for the state of affairs? What is done over a longer period of time has more impact compared to flashes in the pan. Why was the Gujarat model the voice of the BJP campaign? That was because there Modi ruled for a long long time and the results showed.


What a new person/Govt does lays the foundation of what happens in the years to come. Ok, I go by the opinion, I don't caste a vote for the BJP, so now going by the choices I have, I will either have to forcibly opt for Congress or the newly formed AAP which again is struggling to prove its mettle. It's not about being pro or against a party or an individual. Just that if a party or a person is wanting to bring about change, it is to acknowledege the effort in the right spirit.

How does this sound: Bring in Obama. We might be US in the next 5 years. How feasible is that? Given the way things are tangled in the political and social landscape of India, sudden change is impossible. But if we judge a political party's two years of report card with 45 years of report card of another party, how fair is your opinion?

Everybody is open to his views. You, me, Miss Richa. We can have a political debate spanning hours, but is this the forum for that is what I am asking.

Great listening to your views Mr. Ramux :)

And as I stated above, one correction in your opinion, I am no Modi fan :)

Like 

Penugonda Prabhakar

May 17, 2016

Iam penugonda Prabhakar how to toke 570 crore in banks RBI in take action. psu banks in take action.

this is cheating . take action. next time dont take others.

yours Lovely
Penugonda Prabhakar

Like 

SJ

May 17, 2016

Dear Madam,

Excellent speech on patriotism. Few of my cents:

The economy is not paying the 'price' of the vote. The economy is paying the 'price' for not having voted Congress out of power earlier. When you have years and years of corruption infesting a country the size of India, corruption cannot go away in a couple of years. Running a country is not like waving a magic wand. It is impossible to reach out to every person and remind him of deshbhakti and service that students are taught in school.

By the way, your Govt related views are always biased. Remember your opinions on the budget where instead of an analysis you happily went on with your summary and anti BJP views.

Once again, but feel the need to mention, instead of publishing just about any thing , please could you stick to investing and wealth building opinions? Or it is a way of advertising your reporting, literary and journalist skills using a platform that has a wider reach than a personal blog?

Corruption is just not in politics, it's everywhere. Both the rich and the poor indulge in it. Moral corruption has become the order of the day. You see corruption in every small and big thing.

On a different note, I was going through the Page Industries recommendation that is being touted as a find by you. The first recommendation came out in Jan 2009 by Equitymaster. If I remember clearly, your reports and recommendations started coming out in the later part of 2009. Probably you joined the Hidden treasure team or Equitymaster later. The page industries find was Equitymaster joint effort or a find just by you? If it is a team effort, applause to the team, otherwise I might need to consider about your sophisticated and refined approach to corruption, maybe politics too.

Like (2)

Dr. K. S. Ananda Kumar

May 16, 2016

Today on 16th voting has been over. The results are expected soon. The chances of AIADMK appear to be different in different news services.NDA and BJP have not shown any appreciable chance of more than 4 or 5 seats. It is impossible to change the mind-set of Tamilians. Naturally, this scum spreads to all parts of India. Let our honest and great leaders come forward and rectify the situation. Something should be done to curb this menace. Please wait and see. As the normal monsson is also expected soon, the sensex may shoot up. But, it is only for a limited period. I am not happy for these developments. Howcan we educate the people and also the politicians at the same time?
God only knows.

Like (2)

Chandrasekhar

May 16, 2016

Dear Richa,
Well written article and excellent analysis. Regarding corruption in vote bank politics and money for votes, I guess the
Indian Janta has long realized that this country's destiny is to be ruled by
Dons, /scamsters/ oppurtunists and lastly loyal pets, and so if one party gives them freebies. More than the other it is better than getting nothing.Hence Hum Bhi Khus and,Tum Bhi Khus policy.

Like (2)

SJ

May 16, 2016

And corruption is just not in politics, it's everywhere. Both the rich and the poor indulge in it. Moral corruption has become the order of the day. You see corruption in every small and big thing.

On a different note, I was going through the Page Industries recommendation that is being touted as a find by you. The first recommendation came out in Jan 2009 by Equitymaster. If I remember clearly, your reports and recommendations started coming out in the later part of 2009. Probably you joined the Hidden treasure team or Equitymaster later. The page industries find was Equitymaster joint effort or a find just by you? If it is a team effort, applaud to the team, otherwise I might need to consider about your sophisticated and refined approach to corruption.

Like (2)

S ganesan

May 16, 2016

That is not all. Sbi claim came after 18 hrs. The vehicles did not stop for check and allegation is a private money is camouflaged as that of sbi.

Like (2)
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