PM bags the 'underachiever' of the year award - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

PM bags the 'underachiever' of the year award 

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In this issue:
» India does not have any leeway for fiscal stimulus
» The worst is over for India: Mark Mobius
» US hanging on a 'fiscal cliff'
»  A peek into 1QFY13 earnings and it does not look too good
» ...and more!

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When he became the Prime Minister (PM) of the country, Indians were overjoyed. They thought that Dr Manmohan Singh, the mastermind behind the economic reforms of 1991, would spearhead the country into another phase of glory. But alas, in the years that followed, his silence and indecisions proved everyone wrong. His image was reduced to nothing but a puppet in the hands of the ruling political party. And to add salt to injury, the Times magazine has labeled him the 'underachiever' of the year.

The magazine has given him this tag due to his reluctance to 'stick his neck out' on reforms. The path breaking reforms that he had introduced in 1991 had led India to slingshot into one of the fastest growing economies in the world. But twenty years hence those were the only reforms that he appeared to have introduced. In recent times, policy paralysis and lack of reforms has led India's growth to dwindle down. And during such times all eyes turned towards the once dynamic leader hoping that he would step up and do his job. But his monumental silence on the subject shocked the India and the world alike. And when he did speak out, it was only to dole out empty promises like any other politician.

At a time when his country needs him the most, Dr Singh has chosen to keep mum. His silence has allowed the politicians to use discord and bickering as tools to shun policy reforms. Or delay them indefinitely. Instead all they do is to meet up and approve populist measures that can help them get reelected in their respective offices. These reasons were used as a ground for the magazine to label him as an underachiever.

His political party has retaliated against this and has cited several instances in which he has actually helped the country. But the truth is that the once dynamic leader has fallen short of his duties. When his country needed him the most, he chose to abandon it to remain in the good books of political parties. He stood at one side and watched the circus of corrupt politicians sidestepping the country's interests for their own personal profits. And he did nothing.

In a way the magazine was wrong. Dr Singh has achieved something in his tenure as a Prime Minister. He has achieved to keep his political party leaders happy and in profit. After all, that in itself is an achievement isn't it?

Do you think that it is correct to call Manmohan Singh the 'underachiever of the year'? You can also share your comments with us or post your views on our Facebook page / Google+ page.

01:10  Chart of the day
India needs infrastructure. This is not news. The sector is badly in need of investments. But thanks to the policy dillydallying of the government the sector has seen a massive slowdown. Though the government has tried to promote funding for the sector in a hope to revive growth. However, due to the high interest rates, there have been fewer takers of loans. Therefore it would not be surprising to note that the growth in infrastructure loans has actually dipped down to a 4-year low. In 2012 the growth was a mere 13.3% YoY. The problem here is that interest rates are high to control inflation. This in turn is high due to supply side bottlenecks which can be removed only through infrastructure development. For that the infra sector needs funding. And that is not happening due to the high interest rates which are deterring the sector from taking additional loans. It is like a vicious circle and unfortunately it is only spiraling out of control. The only way out is for the government to take a solid stand. But will they do that?

Source: LiveMint
* As on mid May each year

Is the worst over for India? Who better to answer this perhaps than the man known as the guru of emerging markets, Mark Mobius? In an interview to a leading daily, Mobius has opined that India has probably seen the worst of this downward cycle. And as per him, things could improve from here. He could well be right. If the theory of reversion to the mean is of any use, it does point towards a gradual improvement in India's fundamentals from here on. Mobius was also right in pointing out that the real culprit behind India's high inflation in not interest rates. Instead, it is the low productivity and high taxation and restraints on the private sector. Certainly a line of thought that we were again in agreement with.

What we didn't agree with however is Mobius' assessment that Europe and US would soon see an improvement in their fundamentals. These two regions, it should be noted, are undergoing deleveraging at the moment and this process does last a long time. Thus, any improvement on display is only due to loose monetary policy. Once money supply is tightened, a lot of economic growth will also disappear with it. However, Mobius sees the economic uptick as a phenomenon that is here to stay. It will be interesting to see whose views turn out to be correct, ours or those of Mark Mobius.

Popping sour drug pills is never a patient's delight. However, without them the chances of recovery are bleak. Hoping that the ailment will go away on its own is akin to hoping for a miracle. India can least hope for such miracles at the moment. One of the most respected minds in India's economic advisory panel believes that the time is ripe for India to take some sour pills. Only then could the economy rid itself of some chronic problems. Dr C Rangarajan, who chairs the PMEAC, believes that tough action on government expenditure is the only way to curb deficits. Without that any amount of extra taxes will not suffice to bridge the fiscal deficit. Subsidies on fuel etc can be capped only freeing up control on pricing. At the same time lower subsidies could be compensated with more capacity creation. In effect these together will boost economic growth. But Dr Rangarajan's sound advice is unlikely to be heeded by vote hungry politicians. After all, the subsidies are more useful as tickets to election success than as welfare schemes.

The US is now beginning to feel the negative effects of a 'fiscal cliff'. What this means is that tax breaks prevailing during the Bush regime are expiring this year. On top of that spending cuts will kick in. These cuts were part of the debt ceiling deal in 2011. Thus, this fiscal cliff is set to wipe out a total of US$ 7 trillion over a decade. Obviously, not much is likely to be done on both these counts in light of the impending elections. But once elections are over, the new government might choose to address this issue. The economy in the meanwhile is struggling to recover. Europe's problems are weighing heavy. The job market has also stagnated as employers are wary of hiring in a highly uncertain environment. And there are expectations that QE3 might be announced. Although that is hardly going to achieve much given that its predecessors were not able to jump start the economy either. Thus, what we are seeing in the US are only more problems and not many meaningful solutions.

The current quarter could be another awful one for Indian firms as revenue growth might plumb still lower. Most brokerages expect Indian companies to report a decline in earnings for the quarter ended June 30, 2012. Policy logjam and higher cost of capital have severely dented the investment cycle. Persistent inflation, economic uncertainty and high retail lending rates are also weighing on consumer sentiment, thereby affecting consumption growth. The depreciation of the Rupee has also made matters worse. IT and pharmaceuticals are expected to report strong sequential margin expansion helped by the drop in the rupee. Commodity sectors such as metals, mining and oil and gas might see a decline in earnings. Cyclical and rate-sensitive sectors such as infrastructure, capital goods and mid-sized state-run banks are expected to bear the brunt of weak earnings.

Since GDP growth in India has slowed to a 9 year low of 6.5% in FY12, it is not surprising that credit growth in the country has seen a similar slowdown. The rapid increase in bad loans and restructuring has forced banks to be cautious on growth. Overall credit growth in the banking sector, on a year-on-year (YoY) basis, stood at 17.1% as on 18 May 2012. This is sharply down from the 22% growth seen a year ago. Banks' gross non-performing assets in FY12 increased sharply by 46% to Rs 1.3 trillion, versus a 20% growth seen last year. Around Rs 400 bn of bank debt given to troubled firms was set for recast. Bank lending to power, telecom, agriculture and textile sectors has dropped to its slowest pace in four years. Loans to consumption driven sectors such as credit cards, gems and jewellery and vehicle loans have however seen a spike. But, unless the economy improves and the investment environment becomes conducive, credit growth in India is still expected to be weak. Unless various hurdles are removed, big ticket projects will not take off. And unless rates come down, expansion plans will continue to be deferred.

In the meanwhile, after opening the day in the red, the Indian equity markets continued to trade in the negative zone. At the time of writing, Sensex was down by 144 points (0.8%). Among the stocks leading the losses were Tata Power and Jindal Steel. Other major Asian stock markets have closed the day on a negative note as well with China and Hong Kong witnessing maximum losses in the region.

04:55  Today's investing mantra
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    27 Responses to "PM bags the 'underachiever' of the year award"


    Jul 12, 2012

    I think the interest rates were fairly high in 2011 as well where there is decent growth in infra is not just beocz of high interest regime,there are a complex set of legal, regulatory, procedural, societal issues- land acquisition, pumping of black money, collusive corruption to name a few-which are holding back the development of infrastructure.



    Jul 11, 2012

    Mr. Manmohan Singh and Mr. Montek Singh Aluhwalia should say no to printing money ie deficit financing and help Business and Industry get cheaper funds through indian ways rather than apeing the west, where they will always be at the mercy of the Rich Nations.. Government and its Enterprises should be run on austerity principles, beneficial to common man. Solar Energy and Wind Power should be tapped. Shram Daan and community projects should be encouraged and subsidized. Foreign Income should be taxed. Corrupt Congressmen should be punished to raise stature of the Ruling Party. Mahatma Gandhi's austerity should be practiced by the current leadership and Gandhi family, to do justice to that name, in place of en-cashing it to stay in power, and to keep out of corruption charges! The country should be prepared to give amnesty to those who declare and bring foreign funds to the country. The offenders thereafter should be severely dealt with.


    M.L. Mandhana

    Jul 10, 2012

    The noble award of UNDERACHEVER by the magazine is appropriate but too late. What people of the country has realisesd just after the start of the 2nd term of the UPA has realised it so late. Afterall noble awards are preferre4d to the person after thorough analysis. But the question is whether Mr P.M will receive/accept it with honour or not? Such world renowned honour will bring any joy to his entire carrer? Not only India but world over such recognition to one's acadamic carrer has never been heard. Bud achha budnam bura...why has he not been 'bud'like A.Raja and others to cheer his and his family.

    Like (1)


    Jul 10, 2012

    Underachiever is a mild word to discribe. In fact our PM has betrayed entire country as people has trusted him as a pperson who would heel their wounds. remember his promise of reducing inflation in 100 days? And he worked only for his party and fellow partymen to ensure that they always are in profit and good mood

    Like (1)


    Jul 10, 2012

    The award is apt and he deserved it. Now it is clear that he does not decide or do anything on his own. He works on orders or advice from someone higher up. As Finance Minister earlier he apparently must have been directed by the then PM. Now he is under direction of someone else.

    Besides active Policy formulation he even failed to prevent high scale corruption which was evident to many outside the Govt. He deserves another award 'Man of inaction of the year' award.

    Like (1)


    Jul 10, 2012

    As an investor it was very disturbing to visualize the total picture of the economy which will come up before us within a year or two because scams after scams unfolded at regular interval, no bold policy decision was taken during last few years and lost the opportunities. The result is of everybody's guess. He acted like blind Dhritarastra and overlooked all the ills going on.

    Like (1)


    Jul 10, 2012

    I think the magzine has correctly assessed the situation prevailing in our country. The saddest part is that since he took office, the PM has not shown the inclination to adopt any radical reforms --whatever be the nature of coalition poltics,at least he should'v e tried-- Besides, as they say,if we compare the system to a horse and the PM as the rider, the horse knows within the first few minutes whether it is in control or the rider -- so once the rider gives up control to the horse, then there is no hope for any change. Even now it is not too late,there is still 2 yrs left,if PM now takes a bold stand the country will benefit--after all he has nothing to lose, as it is virtually certain he will not return for another term.

    Like (1)


    Jul 10, 2012

    The country had high expectations from Dr. Manmohan Singh, but he proved us wrong. A well educated, matured and responsible person like him, has placed himself and his party above the nation. He should have taken firm decisions pertaining to economy and finance of the nation and even if all coalition partners threaten to topple the government he should have allowed that, in national interest. The coalition partners had no better choice. The underachiever is shame for the nation and what progress can be expected from such person, at least now he must voluntarily retire from public service, it is future of 120 crores population.

    Like (1)

    Gandhi S

    Jul 9, 2012

    No, he does not even deserve being called an "under achiiever"; for that may mean that he tried. He should have been called a shameless farce. Why? Because perhaps even in the 90's perhaps he was only being dictated to

    Like (1)


    Jul 9, 2012

    With his performance during last 2 stints as PM, it's quite evident now that Mr. Rao needs to get all the credit for the economic reforms rolled out in 1991 and not Mr. Singh.

    Like (2)
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