When the will to eliminate corruption goes missing... - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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When the will to eliminate corruption goes missing... 

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In this issue:
» Chinese banks outsmart regulators
» Is India's forex crisis akin to the one in 1991?
» US has the worst income inequality
» Indian auto sector sees a bleak road ahead
» ...and more!


00:00
 
That corruption rules the roost in India is a fact well known. The unraveling of umpteen scams in the recent past is ample testimony to this. Satyam, 2G, Commonwealth Games, Coalgate are just some of the examples in an ever growing list. There is so much apathy that the common man now accepts this as part of life seeing no way for the corruption to come to an end. And when the government talks about bringing down corruption, they seem like empty statements at best.

The Coalgate scam is an example of how the government is indifferent to eliminating corruption. The scandal has once again come to the fore as the coal ministry has acknowledged that crucial files relating to the controversial allocation for the coal blocks have gone 'missing'. As reported in the Times of India, some of these documents deal with the financial aspects of the projects as well as the various applicants for these coal blocks. The latter especially was important because it would have given an idea of whether less deserving candidates were allotted blocks at the expense of more deserving ones.

How can documents just disappear into thin air? No doubt the government is expected to provide an answer. But that is likely to remain largely unsatisfactory and one can safely say that the incidence of these files 'reappearing' remain remote.

These instances clearly show that the desire to eliminate corruption just isn't there. Whether subsequent governments will be able to do anything different for the time being remains suspect. More importantly, can such an alarming trend find its way into Corporate India? What if just like the government, corrupt managements also find ways to do away with records that show them in an unsatisfactory light? It is something to ponder upon.

Do you think that the government has any intention of curbing corruption in the country? Please share your comments or post them on our Facebook page / Google+ page

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01:26  Chart of the day
 
Today's chart highlights how the developed world has fared in terms of GDP growth since the pre-recession levels of 2007-08. And the picture does not look that encouraging. Barring the US and Germany, which have seen higher GDP growth since then, the rest of the countries still have some catching up to do. Eurozone, infact, has been hit the hardest. Other than Germany, almost all other countries have yet to recover. The ones that have been among the hardest hit are Spain and Italy. These are also the countries which have been burdened with massive debt, rising unemployment and likely bankruptcy. Hence, it is hardly surprising that the road to recovery for the Euro area will be a long and painful one.

Data Source: The Economist


02:01
 
The non performing assets of Indian PSU banks have been a staple feature of financial publications over the past few months. The bad loans have nearly doubled in absolute value over the past 12 months. Even as a percentage of total loans, the ratio is heading closer to the levels seen in 1992-93. Hence there is every reason for the banks, the regulator and investors to be worried. Thankfully, the RBI has done a good job of at least ensuring that reporting of such financial distress is regular and transparent. Even the banks that tried to hide restructured assets under the carpet could not get away. The RBI ensured that they pay the penalty by providing more for the slippage on such loans.

The Chinese banking regulator, however, does not seem to be having much success. As per Wall Street Journal, the Chinese banking regulator has been squeezing liquidity for months. This is to ensure that the banks do not indulge in unwarranted high risk lending. But it seems the banks have outsmarted the regulator. By window dressing the loans to risky corporate as less risky loans to banks, the entities managed to skirt lending limits. As much as 2 trillion yuan (US$ 326 bn) have been lent under such transactions. Even the claim that the quality of loan in Chinese banking sector is sanguine has no takers. In fact, as per rating agencies, the Chinese banking sector is sitting on a ticking time bomb of NPAs. Given the size of Chinese banking sector, once can only hope that the banking crisis does not evolve into a global one.

02:36
 
Indian auto industry, amongst the fastest growing auto markets until recently, currently looks a pale shadow of its former self. With discretionary spend being curtailed massively by consumers, the auto industry is struggling to make enough volumes. To give a perspective, July was the month where car sales fell for the ninth straight month. What more, even commercial vehicles are finding the going tough in the wake of poor industrial sector growth. On the other hand, interest rates and fuel prices are acting as other huge spanners in the wheels.

To top it all, the situation is showing no sign of improvement over the next few quarters. As a matter of fact, it could easily get worse from here. Little wonder, companies are not taking any chances and are implementing significant cost cutting measures so that the damage to bottomline is minimised. However, the only ray of hope seems to be the good monsoons across the country that could boost farmer sentiment and give a leg up to sales. But a return to old days of double digit growth could only be possible once efforts are taken to boost real GDP growth which in turn could bring more income in the hands of consumers.

03:02
 
With India's widening current account deficit and dwindling forex reserves, it is quite obvious that one would be tempted to compare the current situation with the crisis faced in 1991. As you would recall, India was on the verge of defaulting on its sovereign debt owing to very low forex reserves. At that time, India was left with forex reserves that were enough to cover just 15 days of import bills. It was only after India pledged gold with the International Monetary Fund (IMF) that we were rescued from bankruptcy.

Currently, India has forex reserves of about US$ 280 bn. This amount would cover about seven months of our import bills. While this is not as bad as it was in 1991, it is the lowest import cover since 1996. And also the lowest among BRIC nations! And the Indian rupee has been falling sharply against the US dollar, making new all-time lows. It goes without saying that there is a lot of panic in the financial markets. Indian share markets have been falling. Foreign investors are pulling out of India. So this has put the government and the RBI in damage-control mode. Prime Minister Manmohan Singh has been asserting that the current situation is not akin to 1991. World Bank chief economist Kaushik Basu has seconded the PM's opinion. As per him, India has enough forex reserves and it wouldn't have to go to the IMF again for a rescue.

Well, that's fine, but does that make this crisis any less worrisome? We believe the current adverse scenario is not just a temporary passing phase but a reflection of all our inadequacies and incompetence as an economy. Temporary fixes are not going to do us any good. If we really want to grow and compete in the global economy, we need radical changes.

03:31
 
The Rupee opened the day at an all time low. It touched the 64 to a dollar mark briefly as well. This is despite the collective efforts of the government and RBI who have been trying to do everything possible for stemming the Rupee's decline. Some of these measures have been to increase the import duties on gold and silver, import of which has been blamed for the deficit problem. There are also some strange measures like banning duty free import of flat panel TV sets which form a popular item in the shopping baskets of travelers going abroad.

Nevertheless none of these measures have really helped the Rupee. All they have done is to create more panic in the minds of the investors. This in turn has sent rupee tumbling to lower levels.

The government's main priority now appears to be to woo its NRI community. To appeal to their patriotic sense to invest in India and bring some dollars our way. Let's not forget that this appeal had worked way back in 1998 when the government shored up support for the rupee by issuing NRI bonds. This time around it has already asked banks to hike the interest rates on NRI bank deposits hoping that the NRI community would come to the rupee's rescue. Unfortunately this time around there is a question mark whether the government would be successful at this attempt or not. The thing is that most of the rupee's decline this time is thanks to the government. There are structural issues in the economy that are not even being addressed. As a result, there is a loss of investor confidence. So why expect the NRI community to rescue the rupee? Won't it be better for the government to swallow the bitter pill and remove the structural issues instead?

04:06
 
Imagine 1% of a country's population earning nearly 20% of the total income earned by its citizens. This is believed to have been the situation in the US in 2011. As per reports, the US has the worst income inequality amongst developed nations. Back in the seventies, the top 1% earning citizens had a share of about 10% of the total income. Essentially, the same has doubled over the past few decades. A key reason cited for the same is the lower taxes, which were cut by as much as 47%. As per the Huffington Post, the nexus between the politicians and banks (including Wall Street) has played a big role for expanding this inequality; the former frame favourable laws allowing banking executives to spruce up their paychecks and bonuses. Income inequality is a situation that would not be desired by any nation. This is because it could lead to political unrest. While the US does seem to advocate and portray a situation of political stability, going by this statistic, it may be time for the country to look inward.

04:46
 
In the meanwhile, persistent selling activity led the Indian stock markets to languish in the red during the post noon trading session. At the time of writing, the BSE-Sensex was trading down by about 100 points or 0.5%. Losses were largely seen in auto, healthcare and IT stocks. While the BSE-Midcap was not spared either and was down by 1%, the BSE-Smallcap bucked the trend and was marginally up.

04:56  Today's investing mantra
"The intelligent investor is likely to need considerable will power to keep from following the crowd."- Benjamin Graham
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16 Responses to "When the will to eliminate corruption goes missing..."

Jose Mathew

Sep 27, 2013

When supreme court ruling against convicted leaders disqualifying them from contesting election Indian public thought at last we will be able to prevent criminals to become our leaders. Congress party is hell bent to thrash all our hope for better future. To retain power at any cost congress now come with the ordinance making it possible all criminals to contest in the election and loot us till the end of the world. Wake up young indians if you want to live with self respect and throw this party out.

Like 

Radheshyam Sharma

Sep 4, 2013

What is the solution?
Do we have to continue to bear these corrupt political parties?

I believe we now have a choice to get rid of corruption.

VOTE FOR AAM AADMI PARTY IN THE COMING ELECTIONS.

Like 

Ravi Kolathur

Aug 21, 2013

Here's a fictional guess how of this story will die ('inspired' by the old Nagarwala case): The person in charge of the record room where these files were meant to be kept safely will be suspended and he/she will be Provident Fund and other retirement benefits will be denied. Soon after that person will die. One report will say that he jumped in front of a speeding car and died, and the another report will raise questions if this was another hit-and-run case in Delhi. And, a few decades later we will narrate this to grandchildren as one of the greatest unsolved mysteries of India, and we'll bare feel a twinge of regret for the despicable state our great nation has been reduced to (because then, presumably, our nation will be in an even more despicable). Amen!

Like 

Sunil

Aug 21, 2013

If PM Mr. Manmohan Singh & "Honb'le" Sonia Gandhi want, this reserve of Fgn Exchange can be finished within 6 days instead of 6 months. "Aise imaandar vyakti se kya fayda jo khud imaandaar hote hue bhi beimaan se kuch nahin bol sake yaa uske khilaf koi karyavahi naa kar sake." I think current situation is worse than the condition of 1991.

Like (1)

N.M.R.Shreedhar

Aug 21, 2013

The govt is figuring out how to last till its term completion and return back for another 5 years-- if corruption is required to attain its goal, it will gladly go with it. In this regard,all political parties stand united , whether it is single party or coalition--witness how all parties,irrespective of their ideologies came together against the Supreme Court judgement that convicted persons cannot stand for elections -- so now we are recognising and rewarding coruption by sending such people to govern us. Pretty sorry state of affairs, isn't it? Perhaps one way to beat the problem is to study how zero-corruption countries are managed and adapt their form of governance to suit us. regds

Like (1)

P D Sahu

Aug 20, 2013

As u have very aptly stated in the article that all politicians get elected through fair or foul means with the aim of self agrendisment at the expense of others money.Burocrates join hands with them with the same objective.this explains the reasons of missing will to eliminate corruption.

Like (1)

Nikhil H. Shah

Aug 20, 2013

The question is:

Do you think that the government has any intention of curbing corruption in the country?

The counter question is:

Are you kidding? Are you making a fool of us?

Ha! Ha! Ha!


Like (1)

surendra

Aug 20, 2013

The current government has single point agenda - how to win in elections and make Rahul the Prime Minister. Country's interest is not on the agenda. Current PM is maturing in his dummy role by the day. Sonia seems to be calling the shots.
Tax payers money is being squandered for the party's benefit under the garb of benefiting the aam aadmi.

Like (1)

S.Balasubramanian

Aug 20, 2013

Govt. wants Accountability and Responsibility for Corporates; wants Good Governance. If the Govt acts responsibly with accountability, it can preach.

Are we to be mute spectators or rebellious agitators or are we make prayers to Almighty to save the country from the corrupt politicians?

Like (1)

Prof. Narender Jain

Aug 20, 2013

This is the standard way to harass common people who do not want to bribe the government officials. The file goes missing and no one can do any thing. However, file reappears out of thin air the moment the hands are greased. I do not find any surprise in this. The problem is if CBI can not do any thing about it what can an ordinary citizen do but curse the system.

Like (1)
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