Is this the biggest land scam of India? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Is this the biggest land scam of India? 

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In this issue:
» India exports coal despite shortage for own use
» Why Buffett keeps adding this stock to his portfolio?
» Japanese culture to be blamed for nuclear crisis
» Online trading is gaining momentum in India
» ...and more!

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Just recently the CBI charge sheeted former Maharashtra chief minister Ashok Chavan, besides 12 others, in the multi-crore Adarsh Housing Society scam. But this would be peanuts compared to another alleged scam in another part of Mumbai.

If the allegations stated in an article in Moneylife are true, the Hiranandani township in Powai, which is famous for its luxurious and lavish architecture, could be the biggest land scam of India. The report states that back in 1977, the Powai Area Development Scheme was approved to develop 344 acres of land. As per the law then, the acquired land could only be used for mass housing. The article points out that Mr Niranjan Hiranandani, the founder of Hirco and co-founder of the Hiranandani Group, acquired 341 acres of land at just Re 1 per hectare. In other words, free of cost.

But that was just one part of the story. The article further reported that out of the government-sanctioned land, the developer utilised only a part of it. On the remaining portion of land, he built luxurious flats and sold them at premium prices. Activist Santosh Daundkar, the complainant in this case, has alleged that "the developer cheated the state government by using government land for his own benefit." As per former IPS officer and lawyer YP Singh who argued the case before the court on behalf of the complainant, "several politicians and bureaucrats were bribed as this fraud and game of corruption went on openly in the last 20 years. It is suspected that hundreds of flats were doled out as bribes to many politicians and bureaucrats to facilitate the fraud. Time will indeed unravel the truth if the investigation goes on honestly, efficiently and on the desired lines." As reported in the article, he estimates the size of the scam to be more than Rs 450 bn based on current rates.

This is yet another shocking exposure of how deeply the corruption gene is ingrained in India. But that is not all. This also shows the meekness of laws pertaining to land rights and ownership, as well as the flaws in the executive machinery. In a previous article, we had discussed how the crucial Land Titling Bill has been in a state of limbo for a quarter century. Unfortunately, we may have to wait another decade before seeing some meaningful land reforms.

As far as corruption by corporates is concerned, we have maintained, time and again, that investors must pay utmost attention to the quality and integrity of a company's management before making their investment decisions. This is the reason why companies that are honest and shareholder-friendly tend to command a premium over their peers.

According to you, which is the most trustworthy corporate group in India? Cast your vote now!

01:30  Chart of the day
Power companies in India have been unable to meet the domestic electricity demand on account of inadequate coal supplies from Coal India Ltd (CIL). The state-run mining giant has been unable to meet its production targets and the demand-supply gap has been widening. So much so that India's total import of coal jumped from 20 million tonnes (mt) in FY03 to 90 mt in FY12. What comes as an unpleasant surprise is that despite the shortage for domestic consumption, India has been exporting coal to several neighbouring countries. As per an article in Business Standard, in FY10 and FY11, coal exports shot up by 50% and 83% respectively. Today's chart of the day shows the value of coal exported to China, Bangalesh, Japan, Nepal and Bhutan. A certain government official has reportedly said that central government has no control over the usage of mineral reserves in Meghalaya and Nagaland, where the coal is rich in quality. Most of the coal exports are said to be occurring through Meghalaya.

Data source: Business Standard

Do you know what is Warren Buffett's largest holding? It is none other than Coca-Cola with a total current investment value of close to US$ 16 bn. Now, what would be his second largest holding? This would be tough, isn't it? Well, the investment answers to the name of Wells Fargo. This is not all. So enamored the Oracle of Omaha is with Wells Fargo that starting in 2005, he has kept on building his stake in the bank every single year. We believe there could possibly be two major reasons behind this move. First, the continued attractiveness of the business model and second, attractive valuations.

Indeed. If there is one bank that has managed to side step the financial crisis in a big way, it has to be Wells Faro according to us. Secondly, even as its peers were jumping headlong into investment banking, it stayed true to its core philosophy and remained focused on banking. Little wonder, it has emerged as a favourite with Buffett. The Oracle's affinity towards Wells Fargo also teaches one very important lesson we believe. And it is to focus one's investments. If you have surplus funds, why put it in your second best and third best investments. The road to faster wealth generation is to adequately concentrate your investments in your best possible bets.

In March 2011, the entire world watched in horror as a devastating tsunami swept into Japan. In the days that followed the new horror that struck the world was the leakage in Tepco's nuclear power plant. The leakage and its subsequent damage led many countries across the world to rethink their nuclear power strategies. Many voted in favor of shutting down nuclear power plants while many are still waiting to take a decision. But in all possibilities it looked like nuclear energy had lost its appeal as a source of power.

To all those critics it would come as a surprise that most of Tepco's problems were not related to the tsunami but to the Japanese culture. As described by a report of the investigation team it was the ingrained Japanese culture of never questioning authority. Their devotion to sticking with programme and their groupism and insularity led the disaster to take the form it did. This is why no one questioned the regulators colluding with utilities to reduce safety measures. Or question the government's inadequate emergency planning. Or Tepco's poor communication and decision making which led to the deaths of so many. Hopefully the horrible incident has led to a wakeup call for the authorities and they would never ever let history repeat itself.

"When you owe the bank a bit of money and cannot repay, you are in trouble - but when you owe the bank a lot of money and cannot repay, the bank is in trouble." This old saying has been proven right time and again since the subprime crisis of 2008. But it seems the system of shadow banking in China is yet to realize its folly. As per Business Insider more than 600 companies in China have been impacted by the Credit Guarantee scheme. How it works is that company A acts as a guarantor of company B's loans. In turn, some subsidiary of company B acts as a guarantor for company A. If either of the company went bust, banks would end up calling loans for every company in the chain. Since these companies too might have guaranteed loans for others, more companies get into trouble. This therefore ends up becoming a viscous cycle of loan defaults. That property bubble in China backed by bank lending has become a huge worry is known. However, it seems that corporate loans, too, require a lot of cleaning up. The health of Chinese banks and the credit worthiness of Chinese companies therefore deserve a thorough review.

The rapidly advancing technology, particularly the Internet, has drastically changed the social and economic landscapes and every aspect of our daily lives. In the equity market, the Internet has eased on-line trading, changing the way the market works, as well as the way the investors access the share market. India, too, has emerged as a front runner in the space of on-line trading in the global securities markets. Data sourced from the NSE and the BSE also tell the same story. Over the last year, on the NSE, internet trading is up by about 18% YoY. This number is only set to increase. Retail investors already account for 25% of the NSE's stock trading, a 20% rise from 2007. Coupled with the 30% annual growth in the internet and mobile user base, online trading is set to expand further.

In the meanwhile, the Indian equity markets have been trading in the negative today on global cues. At the time of writing, BSE Sensex was down by 40 points (0.2%). Red marks were seen across all sectoral indices except FMCG stocks. Barring China and Malaysia, all Asian stock markets too were trading weak.

04:50  Today's investing mantra
"Buy low and sell high. It's pretty simple. The problem is knowing what's low and what's high." - Jim Rogers
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1 Responses to "Is this the biggest land scam of India?"

JK Verma

Jul 6, 2012

My comment is on "Coal Export" from India. When it comes to reforms we want less regulation and more Free market economy. Are indian entities restricted for coal import , No. Why rue the coal export from India then ?
Second comment is for choosing most trusted / free of corruption corporate Group. That is Godrej in my opinion , but the choice list does not have this name.

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