This crucial Bill may take 10 more years to pass! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

This crucial Bill may take 10 more years to pass! 

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In this issue:
» Indian cities will be important global growth drivers
» SEBI makes e-voting mandatory for top 500 listed firms
» Why the world should worry about Italy?
» India surpasses China as Dubai's top trading partner
» ...and more!

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Most nations follow, more or less, a standard economic path of progress. The initial economic development is mainly due to agricultural productivity. The key driver of productivity is land ownership. It is plain logic that ownership incentivizes farmers to work efficiently. An article in Firstpost very aptly points out that those countries, where ownership rights are best protected, have developed first. Though with reluctance, even China partially accepted this in the 1970s. It was only then that its growth trajectory took off.

In India, on the other hand, the laws pertaining to land rights and ownership continue to remain very meek. The ownership of significant portions of the country has remained under dispute since independence. Even in cases where the land is properly titled, ownership is limited to what the government doesn't lay claim on. This makes land transactions political in nature, rather than commercial. Most Indians take the murkiness in land transactions as a normal state of affairs. While India may be a rising economic powerhouse on the global map, its land titling and ownership laws are akin to poor countries.

Minister for Rural Development Mr Jairam Ramesh recently said that the Land Titling Bill has been in the making for 25 long years. But the shocking aspect is that its legislation is likely to take another 10 years, as per him.

This has several far-reaching consequences for India. For one, agricultural productivity in India is likely to be on the decline. This makes it difficult to root out poverty, even when the economy is growing. Why has the government been so lousy with such a vital legislation as land rights? The probable answer is that it would require some very bold steps which would pose a huge threat to its own existence. It is the same old story- sacrifice economics for politics.

According to you, why is the government not hastening the legislation on land rights? Share your comments comments with us or post your views on our Facebook page / Google+ page.

01:15  Chart of the day
Last month, the Facebook IPO (initial public offering) hit the US markets. It was considered one of the biggest in the history. Back home in India, the primary market continues to be very dry. As today's chart of the day shows, the funds raised in the first half of calendar year 2012 (1HCY12) stood at a mere Rs 13.1 bn, 61% lower than the corresponding period of last year. This is the lowest since 2009 when the share market was in a severe bear phase. There were only 8 IPOs in the last six months. Moreover, all issues have been less than Rs 1.5 bn in size, barring only Multi Commodity Exchange of India Ltd (MCX).

Data source: Business Standard

Newspapers these days are no longer meant for the weak hearted. Every page tends to highlight some economic catastrophe or the other. Spiraling inflation, burning oil prices, crash of the rupee along with equity markets and ballooning deficits are to name a few. No reprieve yet for those looking for some hint of positive news from the Indian economy. In fact there is so much negativity all around that there are chances of suffering from depression. But rest assured that these are all problems for the near term. Those looking for longer term trends do have reasons to cheer. Especially, if they reside in Indian cities!

As per consulting firm Mc Kinsey, Indian cities will have quite a role to play in global growth. Here they are referring to global GDP (Gross Domestic Product) growth between 2010 and 2025. 440 emerging market cities are expected to contribute 47% of incremental growth during this period. Of these, 36 cities will be Indian. China does lead the urbanization trend in emerging markets. However, India is not far behind. And there is no denying that Indian cities will be important cogs in the wheel of global growth. However, the pace of growth in urban infrastructure in India does not seem to take cognizance of this.

Do you want to be more of an active investor, and concern yourself with the executive decisions of your stock investment? Do you want to veto the purchase of a corporate jet, which the management may be contemplating? Well, you may now have the chance to do so. Securities and Exchange Board of India (SEBI) has now made it mandatory for the top 500 listed companies to facilitate e-voting. This will make it easier for shareholders to participate in key decisions without being physically present in the meetings. Well, this is a positive move for minority shareholders. But, as to how it will be taken forward is another question altogether.

That the Eurozone is under a severe crisis is a fact well known. But just how serious is it? Noted economist Nouriel Roubini is of the view that Europe will be lucky even if it faces Japan-like stagnation. That points to just how bad things are in Europe. Indeed, once the asset bubble burst in Japan in the 1990s, Japan went into a recession from which it was never really able to recover. Thus, Japan lost nearly a decade of growth. Europe is also deep in recession. However, there has been one fundamental difference between the two. Although Japan was stagnating, it did not have a sovereign debt crisis because it was a net creditor country. Europe, in stark contrast, is bogged down with massive debt. Almost all nations notably Greece, Ireland, Portugal, Italy and Spain have accumulated debt of alarming proportions. Thus, the region faces the double whammy of debt coupled with depression. Obviously, stimulus packages are not really helping matters much either. This means that Europe will have to come out with an entirely new strategy of dealing with the crisis.

'PIIGS'. This was the name coined for Portugal, Italy, Ireland, Greece and Spain. These were the countries in the Euro zone that posed to be a serious threat to the existence of the zone itself. Greece has an unstable economy. Spain has insufficiently capitalized banks. Ireland has huge deficits. But Italy the other 'I' in the equation has none of this. Yet its borrowing costs are one of the highest. So one wonders as to why this is the case. The big reason behind this is its erratic political leadership of the past. The former leader of the country had pushed its finances and deficits in the same direction as that of the other three struggling countries. Fortunately for Italy, the leadership changed this year. But even now, Italy is close to the brink of a disaster. A lot rests on the new leader. If he is able to sort things out, the country would be able to come out of this relatively unharmed. But if he follows his predecessor's footsteps, then Italy is headed the Ireland, Greece and Spain way. Unfortunately considering Italy's size, it would be too big for the Eurozone to bail out. So as Peter Spiegel of Financial Times rightly suggests- 'The really big show in Europe is actually Italy.'

India has surpassed China as Dubai's top trading partner. India clocked total trade turnover of US$10 bn with Dubai during the quarter ended March. It exported goods worth US$ 5.7 bn. And imported goods worth US$5.1 bn. Gold, jewellery and diamonds were the main items that were imported from Dubai. Overcoming China as Dubai's top trading partner signifies increased demand for Indian goods in the Dubai market. Thus, the China supremacy is gradually phasing out. Also, as stated gold is major item exported from Dubai. Thus, a rising trade turnover with Dubai depicts that the demand for gold from India has increased. Going forward, maintaining the current status (top trading partner) with Dubai depends on two factors. One is the demand for gold and second is the competitiveness of Indian exports vis-a-vis China.

In the meanwhile, the Indian equity markets have been trading firm today. At the time of writing, BSE Sensex was up by 41 points (0.2%). Sectoral indices were trading mixed. Power and FMCG stocks witnessed buying interest while auto and banking stocks were on the losing end. Asian stock markets were a mixed bag with Japan being the top performer (up by 1.7%).

04:45  Today's investing mantra
"Everybody has got a different circle of competence. The important thing is not how big the circle is, the important thing is the size of the circle; the important thing is staying inside the circle. And if that circle only has 30 companies in it out of 1000s on the big board, as long as you know which 30 they are, you will be OK. And you should know those businesses well enough so you don't need to read lots of work." - Warren Buffett

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    4 Responses to "This crucial Bill may take 10 more years to pass!"


    Jun 30, 2012

    It is sacrifice of Economics for politics. Most MP's and MLA's are landowners, mine owners and multimillionaires so there is distant hope for any reforms to be pushed in the land titling direction. It is sad, we are allowing the problem to remain a problem just to protect interests of few individuals. MERA BHARAT MAHAN

    Like (1)

    A. Pat

    Jun 29, 2012

    India's increased foreign trade with Dubai does not mean much, since most of it is achieved through over-invoicing of exports (to gain tax exemption) and moving of black money from Swiss accounts through Gold. Gold is an excellent route to achieve this, since a lot of pure gold is certified and sold in Switzerland and how easy it is to move the black money stashed by Indians there? Settlement from the Swiss bank accounts for the import into India through Dubai!
    One needs to read this information along with the government's delay in moving on the black money issue in Swiss accounts (and its reluctance to act against culprits, most of whom must be politicians and VIPs) and the reduction in Indians' black money accounts in the Switzerland in the last 1 year (recent report) and at the same time, significant revival of Dubai's business environment of late. All know how notorious is Dubai in terms of not bothering about the source of money for its own benefits (& not bothering about the FATF's anti money laundering rules) - Dubai is on its way to take over from Switzerland as the secret money capital of the world.

    Like (1)

    A. Pat

    Jun 28, 2012

    The same shoddy and shameless political reasons that are preventing an effective Lokpal bill (since Constitution came into existence), or the misuse by government of autonomous institutions like CBI or CVC, or the decision to exempt agricultural income tax from say some rich (politically strong) farmers.. In everything, there is vested interest by the politicians, so the rule is for the politicians benefit, not for peoples'.

    Like (1)


    Jun 28, 2012

    Bureaucrates and politicians do not want to make clear and concise rules for anything the land laws included. In case the laws are clear they will loose all power of showing favour to the selected and thus no one will come forward to grease their palm. The best example is urban ceiling laws. Even after repeal of the act there are number of cases which are being fought in the high courts and supreme court as the repeal act left clauses to be interpreted depending upon the whims and fancies of bureaucratese who are entrusted the implementation of law of the land. Rent control act is one such act. What we need today is to borrow the best acts from the developed world without consideration of self be it pay commission or common law for general public.

    Like (1)
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