Why this Rs 200 bn gift for the MPs? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Why this Rs 200 bn gift for the MPs? 

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» Can we plug the tax avoidance hole through this?
» 9% growth is not possible: Montek Singh
» MNCs find India 3rd-best FDI destination
» UK central bank on money printing spree
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The government has come under a lot of flak for its inefficiencies. At the same time news headlines of rampant corruption have tainted whatever little image that it had. At times like these when the Chief Minister of Uttar Pradesh announced a scheme to give Rs 20 lakhs to MLAs to buy cars, it was not received with any enthusiasm. Needless to say his 'benevolence' to the MLAs was termed as just another form of the politicians' self serving attitudes. But why is it that no one has ever questioned the Central government's scheme of gifting Rs 5 cores to MPs every year?

The Central government has a MP Local Area Development Scheme or MPLADS. Under this scheme, the government gives Rs 5 crore to the MPs which can be used by them to implement select works in his own constituency. The choice of project is entirely the MP's decision. Though the idea behind the scheme is good and to some extent noble but its execution leaves a lot to be desired. As reported by Firstpost, this scheme has received more bad reviews than good. More often than not the scheme has been misused by the MP to serve his own interests. Projects are usually allotted to their own contractors. This helps the MPs in not just doing good work in their constituencies thereby improving their public image. But it also helps them in profiting from the project itself. Most of the MPs view these funds as a way of improving their political image so that they can get themselves re-elected. Very little amount, if any, is spent towards improving the constituencies.

Unfortunately the amount channeled to the scheme has just been going up. What started off as a Rs 10 m per MP allocation when MPLADS started, the amount was increased to Rs 50 m in 2011. This amounts to nearly Rs 40 bn a year or Rs 200 bn during the tenure of the MP. And where does this amount come from? Naturally from the funds collected through taxes. That is, our hard earned money. So we are essentially paying the MPs to get themselves re-elected and make a profit while doing so. If this isn't corruption of the highest form then what is?

Do you think the MPLADS scheme should be discontinued in the interest of controlling corruption? You can also share your comments with us or post your views on our Facebook page / Google+ page.

01:15  Chart of the day
With banks offering such high interest rates on fixed deposits, it is natural to assume that the latter would be a popular choice of investment. This would mean that the last year (FY12) should ideally have seen a large part of investor money flowing into the fixed deposits. But as per a recent report of the Reserve Bank of India (RBI), the rate of growth of fixed deposits actually declined in FY12. After showing stellar growth rates till FY11, the year on year growth during FY12 was just 11.5%. This was even lower than the slowdown seen in FY10 where the growth rate had declined to 12.5%. A big reason for this decline in rate of growth has been the high inflation rates. As inflation has continued to eat away into the incomes of the people, quantum of funds being directed towards deposits has declined.

Source: Hindustan Times

A tiny island nation of Mauritius has been nervous the past few months. And understandably so. The source of nervousness happens to be the General Anti-Avoidance Rules (GAAR) announced earlier this year. The rules, if rolled out, will spell doom for Indian foreign investments pouring into tax havens like Mauritius. Desperate to not let its pot of gold slip away like this, Mauritius has put forward a rather tantalizing proposal. It has offered India two of its islands in exchange for a rather satisfactory outcome of the treaty between the two countries.

Although the gesture is quite good, the net positive value of this bargain is likely to be hugely negative for India. Furthermore, given the kind of fiscal mess we are in, GAAR will be a reality sooner or later. However, there is a way for India to not only rollout GAAR but also get hold of the islands. This can be done by pumping in investments in Mauritius and help the African nation grow its manufacturing and services. After all, both countries have deep rooted ethnic connections and what better way to fortify the same, especially after the bad blood created by GAAR.

India's five year economic planning is nothing to write home about. Successive five year plans have been a lofty account of the incumbent's government's ambitions. Barring the initial few, of course. The 10th and 11th 5-year plans especially invited loads of investor interest. Not just from Indian but also foreign investors. This is because, for once, they concentrated on building infrastructure with public and private funds. Also executing the plans to the tee would mean a whole host of policy reforms. These gave investors the hope that the government would get its act together and put reforms on the fast track. But neither India's infrastructure story nor the 5 year plans lived up to their glory over the past 10 years. The 12th 5-year plan period (2012-17) is unlikely to prove itself different. In fact the man at the helm of affairs has even admitted muted expectations from the 12th plan. Mr Montek Singh Ahluwalia has clearly denied the possibility of 9% average GDP growth in the next 5 years. What is upsetting, however, is not that India needs to keep its double digit growth dreams in the back burner. But that investors consider the Planning Commission's more realistic estimates to be the outcome of lack of vision. We, however, believe that good execution coupled with realistic planning could be the stepping stones to solidifying India's economic prospects.

Despite ballooning fiscal deficit and mounting, it looks like India has not lost its charm for foreign direct investment (FDI). As per a survey of around 170 global companies, India will be the third most preferred destination for foreign funds till 2014. The country will thus follow China and America in attracting funds. However, the news is not that heartening since as per the report; the overall investment in the international markets will be subdued in the wake of ongoing crisis in the global markets.

India for sure has some strong points working in its favor like emerging middle class, a strong talent pool and lesser costs. However, it would be a folly to take these for granted. This is because these can't be capitalized unless the infrastructure and governance in the country change for the better. Hope the Government takes the hint and makes reforms its top most priority.

Since the global financial crisis struck in 2008, central governments in the developed world chose to bank on quantitative easing to kick start growth. This was in the form of money printing, easing interest rates and the likes. None of these measures helped these economies recover in any meaningful way. But that has not stopped governments from focusing on money printing anyway. The latest to announce another round of stimulus measures is the Bank of England. It plans to pump in another £50 bn into UK's stalled economy. Since the financial crisis hit in 2008, the Bank of England has already bought £325 bn worth of assets in two rounds. Obviously, recession in the country coupled with the deepening Eurozone crisis has taken its toll on the UK economy. Further, elsewhere the European Central Bank (ECB) and the People's Bank of China cut interest rates in response to the global slowdown. This may also have prompted the Bank of England to go in for this move. That said, it seems unlikely that this round of money printing will achieve much for the UK economy based on past evidence, except that it will sow the seeds of inflation going forward.

In what was an otherwise tepid show for the Indian equity indices, over the past week, the BSE Mid Cap and BSE Small Cap indices fetched the maximum gains. The Sensex closed higher by 0.5% at the end of the week. Reports of lower GDP (Gross Domestic Product) growth prospects and anxiety over the onset of the June quarter result season seem to have kept investors on the edge. However, stocks from the banking, consumer durable and realty sector found renewed interest. That the Indian and Mauritius governments are trying to work out negotiations on the revision of tax treaty is also a reckoner for investors.

Amongst global markets, Singapore, Brazil and Hong Kong led the pack of gainers for the week. Although UK and India trailed close behind, the Indian markets gained just about 0.5% for the week. Prevailing uncertainty about the Eurozone's risks led to Germany, US and France lose about 1% each. While crude oil prices gained almost 7% during the week, gold prices remained flat.

Source: CNNfn, kitco, Yahoo Finance

04:55  Today's investing mantra
"The global crisis is caused by pathologies inherent in the global financial system itself." -George Soros
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38 Responses to "Why this Rs 200 bn gift for the MPs?"

S A Padmanabhan

Jul 28, 2012

It appears that there is no conscience or shame for the people who are at the helm of affairs. Just think that any member of Assembly or Parliament, will be heaped with retirement benefits, even if he completes a fraction of his full term, even though he would have amassed enormous wealth during his tenure as a member, not to talk of his high salary and mind boggling perks as a sitting member. Every body knows what contribution many members make during their tenure.All these benefits were decided by themselves. No discussion, no walk over and no shouting at the well of the parliament.So these MPLAD will only add to his already enormous wealth and definitely will not make any difference to the common man.
In this context, it may be pertinent to cite a news item appeared in a news paper about a 1971 war veteran, one Mr. Pervez Jamasji, a Vir chakra holder, stating that his "annual" pension is only Rs. 2245/-, post 50% reduction on his becoming senior citizen ! Any right thinking citizen will feel miserable after reading this article, for the lack of consideration shown for these defense people, who sacrifice their life and limbs for the country.
S A Padmanabhan


Ragini Ghanekar

Jul 11, 2012

MPLAD scheme itself is not bad.What is needed is the accountability. There should be rules and regulations like number of quotations etc for transparency, approved list of projects which can be implemented. What should happen if amount is not utilized like future amount is reduced etc. If some useful infrastructure is created from tax payers money it is not bad. Even if MPs use it genuinely they will be popular and reelected. there is no co-relation between how he used the fund and whether he will be reelected. People get reelected for entirely different reason that is the fault of democratic system. Even if part of the money is used for beneficial projects for public good it is worth it. But the question is how much is used for public good and how much goes to undesirable pockets.



Jul 10, 2012

I do not think that MPLAD scheme should be dis continued,for the reason that in acontry of this size and population, there are local needs which can not be met by Govt, either for want of fund/ sanction/any other bureaucratic reason, can be and is started right away under this scheme and there are n no. of projects completed under this scheme in rural area which otherwise would not have found the light of the day. It will be grave mistake that for few wrong instances, this right of people getting their immidiate needs done from Govt is taken away



Jul 9, 2012

Each MP should follow some guideline for selection of the project. Time is not far off when their actions would not be reviewed. While formulating the guideline they should locate their priority plans considering the specific local situation.


R Dave

Jul 9, 2012

In this day of "leaders" sans integrity and selflessness, we as a mass of people are led by the lure of lucre. The MPLADs scheme wrongly presumes both the above qualities in our dear "leaders" as their guiding light. But the fact is that most of these elected representatives are self-serving, limited individuals who are skilled in milking the democracy. It is time to rescue the state and definitely do away with the 50 million annual theft per head. MPLADs must make way for a more professional and honest approach to development and budgeting.


r v iyengar

Jul 9, 2012

MPLAD is a total failure. Can anybody give an example of any area developmental work by any MP WHICH HAS MADE A REAL DIFFERENCE To the people of that area?
Given the kind of people who are at the helms of affairs
in India, this scheme just provides a easy way of pocketing a good amount of money.
If you look at MLA's and MPs and their financial status which is "declared" at the time of elections, you will find that most of them are crorepatis.
I wouldn't be surprised if MPLAD funds their wealth!
As for the kind of people who make it to these "august"
bodies, lot has been said already.



Jul 8, 2012

"MPLAD" is a freebie and treated as such by most of these (so called!) "people's representatives". This "handout" should be abolished forthwith. By doing away this MPLAD", one window for black money generation gets closed. Further, the invariable shoddy works executed under this scheme is avoided. Thus, doing away brings two benefits for the Nation.

Like (1)

S Dutta

Jul 8, 2012

this is a theft disguised as public service. If the government makes all the money in one shot, it will become a scam. So it is distributed in so may small units that the people will not know whom to complain against and for what. One may say that public has become cynical. But after so many scams, who will trust the government anyway. In any case, Caesar's wife should be above suspicion, as they say. The governmenr must not just be honest but also appear to be honest. And this does not appear to be honest.

Like (1)

P V Ranganathan

Jul 8, 2012

The MPs who shamelessly decided to increase their salary three fold, cannot be expected to abolish the MPLAD. The MPs, at least a vast majority of them, are there only to make money, officially or by corruption and not to serve the people.

Like (1)


Jul 8, 2012

The MPLAD scheme is not for our MPs who misuse it every time.I would like to see it stopped immediately.

Like (1)
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