UPA's magic formula for poverty reduction! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

UPA's magic formula for poverty reduction! 

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In this issue:
» Why India must be worried about what Bernanke says?
» Gold smuggling on the rise in India
» Is the emerging market growth trajectory nearing its end?
» Regulatory changes are a big risk factor in India
» ...and more!

There is something about statistics that often puts people in awe of them. As if statistics represent some kind of objective reality, untouched by human biases! But statistics, more often than not tend to be far removed from reality.

Take the latest poverty statistics released by the Planning Commission. As per its estimates, the poverty level in India has fallen sharply to 21.9% of the total population in 2011-12. Back in 2004-05, poverty level stood at 37.2%. So in other words, close to 20 million people were lifted out of poverty each year from 2004-05 onwards.

The UPA was quick to take credit for reducing poverty at a much faster rate than the NDA regime. But do these poverty statistics really reflect reality? Have people actually come out of poverty?

What is the cleverest and quickest way to win a game? Simply tweak the rules to your advantage! And this is exactly what the government seems to have done. Instead of actually lifting people out of poverty, it has very slyly altered the definition of poverty. And lo and behold, the poverty levels have fallen drastically!

The Planning Commission has used the Tendulkar methodology for estimating the poverty rate. As per the methodology, people whose consumption of goods and services exceeds Rs 33.33 per capita per day in cities and Rs 27.20 in villages are deemed to be above the poverty line.

But what can one really get for such a paltry amount? No wonder these statistics have been the cause of a lot of mockery and rage. But Congress party leaders were quick to come to the defence. As per Congress spokesperson Raj Babbar, one could get a meal in Mumbai for Rs 12! Another party leader said one could get a meal in Delhi for Rs 5! Union Minister Farooq Abdullah even went on to say that a person could have a full meal for Re 1 depending on what one eats. We don't think there is much to debate here. Either the government has absolutely no clue of the ground reality. Or it is terribly scared to look reality into the eye.

On one hand, the government wants us to believe that just about 22% of India's population is now poor. On the other hand, it vehemently went about approving the Food Security Bill which will provide cheap food to about 67% of India's population. Isn't there a strange dichotomy here? Why provide highly subsidised food to two-third of India's population when statistics show that just about one-fifth of India is poor?

Be it the poverty statistics or the Food Security Bill, a very strong political agenda seems apparent. With the general elections barely a year away, we couldn't expect things to get worse than this.

Do you think the UPA government has really reduced poverty levels drastically? Please share your comments or post them on our Facebook page / Google+ page

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01:30  Chart of the day
A recent hike in gas prices has spurred rounds of debate on the need and impact of such a move. Some believe that the move will incentivize the sector and make it more viable. But does the new pricing really serve this purpose? We don't think so. Apparently, the new pricing formula just takes a weighted average of global benchmarks but nowhere does it mention the costs of producing gas in India. There is a further disconnect as price is quoted in dollars while costs are incurred in rupees. That in itself is a reason to worry since rupee seems to be a on a weaker footing.

As per current mechanism, contractors are allowed to cover expenditure on production before sharing profits. However, there seems to be no discipline and transparency on the cost front. This leaves a lot of room for manipulation. Companies like Reliance Industries Ltd have been alleged of gold plating costs and purposely limiting the production to benefit from the way the system works. It is because of such flaws in the system that production has been consistently falling and India remains a gas deficit nation. It's time the Government brings in more rationale and transparency in policies for a sector that is the backbone of Indian economy.

Data source: Business Standard

Our sense of history is not that great but we believe Alexander the Great is the closest a person has come to conquering the world. What if we tell you he has competition? May be not in terms of conquests, but in terms of sheer influence. The influence to move global markets like no one else has before. This is indeed Ben Bernanke we are talking about. India got a taste of the man's enormous influence when a recent comment of his made the policymakers run for cover.

No sooner did the word 'tapering' roll out from his mouth, billions of dollars started exiting India's capital markets. Thus, when it became clear that it's not stimulus rollback time yet, did some stability emerge. However, we are not out of the woods by any stretch of imagination. Our economy is in shambles and we will need every dollar of the precious foreign investments that we can take. What's worse, it is a vicious cycle we can't get out of. Money is not coming in because the economy is bad and the economy is bad because not enough money's coming in. In short, what we need is a full blown surgery rather than the band aids that the policymakers seem to be applying here and there.

The government blames India's high level of gold imports for the deficit problem that has gripped the country. Therefore it is firing all its guns to try and curb gold imports. To this effect, it has increased the import duty on gold in recent times. It has also issued a number of other clauses to deter the import of gold. And most of these measures seem to be having the desirable effect. Import of gold has come down to 30 tonnes in June 2013 as compared to 162 tonnes in May 2013.

However, the stringent measures have had a side effect too. It has led to the increase in smuggling of gold into the country's shores. As reported by the Wall Street Journal, the total value of gold seized during the June quarter stood at Rs 270 m as compared Rs 25 m during the same period in 2012. The thing that the government seems to be ignoring is that there is a huge demand for gold in India not because of its prices or anything but simply because Indians love gold. It is a traditional source of savings for most of us. Therefore any measure aimed at increasing its relative price would only make people get the gold through other means, albeit illegal ones.

In our opinion, the government is targeting the wrong area to fix its deficit problem. It could concentrate instead on the inflows side which is the money coming into India. For that it would need to take measures to boost India's image in the minds of the investors. Or it could cut down on its ridiculous populist measures and control expenditures. But is it willing to take any of these measures?

We doubted the resilience of the BRIC story in 2005 itself! But our concerns stand vindicated as more and more opinion seems to suggest that the emerging markets fairy tale is over! Not that the story was as disappointing to begin with. In 1990, the emerging markets accounted for less than a third of world GDP. Then came what we can call a golden decade. From 2003 to 2011 the share of world output provided by the emerging economies grew at more than a percentage point per year. The decade in fact marked the biggest economic transformation in modern history. Investors the world over started taking investments into emerging markets more seriously. In fact, even when America showed signs of crack in economic trajectory post 2008, the BRICs were a supposed symbol of resilience. The benefits of cheap labour were huge stepping stones for countries like India and China in making strides in global trade. Rise in commodity prices, was a boon in disguise for the likes of Russia, Brazil and to an extent South Africa.

However, it seems that those who bet on the emerging markets theory held their hopes too high. Not just India, China and Brazil but several other emerging economies now seem to be falling like a pack of cards. Rise in wages, jobless youth, currency adjustments, current account deficits are just some of the challenges that have taken the luster off emerging markets. As per Economist, emerging markets' rise in terms of contribution to global GDP may have peaked for the time being. Are investors in sync with the change in global dynamics?

Whenever companies or investors invest in overseas geographies, it becomes important to factor in regulatory risks. And investors investing in India have had to deal with quite a few of such risks this year. Take the case of the only listed exchange, Multi Commodity Exchange of India Ltd (MCX). Shares of this exchange have almost halved in the year so far. This has been on account of various regulatory hurdles such as introduction of the commodity transaction tax and restrictions imposed on the currency derivatives market.

But that is not all. In the past too, companies have borne the brunt of regulatory issues. Vodafone having to pay retrospective taxes is one such example. This, in fact, was one of the many reasons why foreign investors began to look at India with a wary eye. Indeed, regulatory risks are nothing new in the world of business. Many a time businesses or investors learn to adapt to changes. But it becomes important to understand these risks carefully and consider them when investing.

In the meanwhile, Indian equity markets have extended their losses and are trading at the day's lows. At the time of writing, the benchmark BSE-Sensex was down by 69 points (-0.35%). All the stock indices were trading in the red. Metal and Realty stocks were the biggest losers. All the Asian stock were trading weak led by China and Japan. The European markets also opened on a weak note.

04:50  Today's investing mantra
"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now."- Warren Buffett
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28 Responses to "UPA's magic formula for poverty reduction!"


Jul 31, 2013






Jul 29, 2013

Why don't we adjust the lunch allowances to the Minister in Mumbai to Rs. 12 and in Delhi to Rs. 5.

This will also help to reduce Government expenditure.

Whoever said we can have lunch at Re. 1 should be trim and slim and not like some of the overweight babu's.


Madhavan Kutty

Jul 29, 2013

This is just an eye wash. UPA is a complete failure in all aspects. When elections are coming,they have to go to the votes again and they don't have anything to say. This is just for that purpose.



Jul 29, 2013

This is nothing but a political game for upcoming election.


Raghavan Sathyan

Jul 28, 2013

We have to react like an intoxicated!Because I got so much angry while reading such statements.People's interaction through public medias are comparatively very less participation to understand what is the reaction of the people.If such a condition reach to a realization,with in no time we can see the Anti-slogan from 90percent of average Indians struggling to maintain their living mechanism! Don't like to say anything more!


Dr. Arun Draviam

Jul 27, 2013

The ridiculous poverty line; shame on Planning Commission



Jul 27, 2013

Actually these political people who claims that one can have food at Rs.12!, Rs.5! and even at Rs.1! must be their on experience and they must have come out of their poverty as they were always busy developing themselves instead of their country's development and improving its people's life style.



Jul 27, 2013

UPA govt has not reduced any poverty but only increased the poverty.they are just fooling 1.25 bn Indians by claiming that they have drastically reduced poverty. What kind of mockery is to have come to a conclusion that a per ca-pita income of Rs. 33.33 in cities and Rs 27 in rural area! shame on these politicians and even its surprising as such estimation come from veteran economists like Mr. Tendulkar and it seems to please their political masters by burying the real face of poverty.



Jul 27, 2013

Neta's have gone nuts....since they are getting subsidized food from parliament canteen and have enough black money to eat they have forget the taste of real food that common men eats.


Rajesh Bhagchandani

Jul 27, 2013

U P A government has done lot for skilled and semiskilled workers of india

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