Politicians steal food worth Rs 806 bn from the poor - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Politicians steal food worth Rs 806 bn from the poor 

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In this issue:
» For these firms, India is still shining
» Cut rate by 1%: KV Kamath
» Rural India surpasses urban in consumption
» Banks should follow uniform loan approval norms
» ...and more!

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Theft. It's a common word in today's world. Thieving politicians. Another common phrase. Politicians stealing from the poor? Well we can imagine that to some extent. But politicians stealing from the people below poverty line? And that too their food? This frankly angers us. And angry is how we felt after reading an article in the Economic Times. The article talks about one of the biggest scams in the history of Indian politics. As per a recent study, the politicians of Uttar Pradesh (UP) have happily stolen Rs 806 bn worth of food that was meant to be distributed to the abject poor.

India has always boasted of one of the largest food distribution system in the world. In fact food security for the poor has been the main agenda that has helped many politicians to come in to power. But a large part of the food never finds its way to the people for whom it is intended. The distribution system is such that the government stocks up the supply of grains at its warehouses. This is then transferred to the states who in turn distribute these to the poor at subsidized prices. Unfortunately due to poor storage and distribution infrastructure a large part of this food rots in the government warehouses itself. Another part is lost during transit. And out of the remaining a large part is stolen as per the current study.

In some small villages of UP as much as 100% of the food that was to be distributed to the poor was stolen. And this theft is not something that happened in the past one or two year. The theft has been going on for over a decade. This means that largely all politicians who have come to power in UP over the last 10 years have been stealing from the poor.

As despicable as this sounds the unfortunate reality is that probably UP is not the only state where such a thing is happening. It is perhaps taking place in each and every part of the country. Maybe the quantum of theft is not as big or maybe the studies have not yet caught up with them. But pointing out these harsh facts is just one part of the whole story. The bigger question is what will the government do about this? Will it just start its own investigation to argue about the exact figures of the scam? That is what it has been doing with all the other scams that have been unearthed. Or will it forget about the figures and take action to stop this theft from taking place?

What do you think can be done to improve the food distribution system in our country? You can also share your comments with us or post your views on our Facebook page / Google+ page.

01:05  Chart of the day
Thinking of switching your job? Well with the way things are in the economy, maybe right now is not the right time for it. At least this is the general thought process of the people employed in the IT industry. Once known for its high attrition rates, employees seem to have now become more cautious with regards to leaving their current jobs. As shown in the chart the attrition rates in June 2012 have come down as compared to what they were just a year ago. A big reason for this caution is the state of the industry itself. With clouds of uncertainty surrounding the global economy, people are not very sure of how long their jobs would remain secure. The fear worsens when it comes to the unknown which is what happens in a new job. But the question is how long would this remain. The July-September quarter usually sees the recruitment by IT companies speed up. As a result, most employees prefer to take their salary hikes (usually announced in the June quarter or in July) and then switch jobs. But with the way things have been for the industry as a whole, the hikes may not be very spectacular this year. As a result, the churn in the industry, particularly at the entry level, may shoot up in the coming quarter.

Source: Hindu Business Line

India's economic growth prospects are on a downhill. As per a Reuters poll, the June quarter growth forecast stands at 5.3%. This is way below the 8-9% growth reported 2-3 years back. However, despite dwindling growth prospects the domestic consumption story is still intact. Companies in such sectors have eschewed the slowdown concerns and are growing at a healthy pace. In fact, in an environment where most corporates are delaying their capex plans, consumer focused companies have upped their ante. That's because the consumption theme is eternal in India. Rising disposable income, swelling urban middle class and young population makes India a perfect consumption play. Further, increasing rural disposable income is a further icing on the cake. It may be noted that domestic consumption accounts for about 68% of the Indian economy. Thus, it offers a good hedge/investment alternative to ride on in the current environment.

Exactly 82 years ago a child was born. No one had guessed that he would go on to become the world's most successful investor ever. Yes, today is Warren Buffett's 82nd birthday. What amazes us is the fact that the legendary investor's wisdom never goes out of fashion. He had once said, "Never ask a barber if you need a haircut." If you think about it, the meaning is indeed very insightful. A person belonging to a certain profession is most likely to have views that are likely to be to his advantage.

We were reminded of Buffett's wise words when we came across an interview of K V Kamath, chairman of the ICICI Bank. He strongly argued for a bold rate cut by the Reserve Bank of India (RBI). In his opinion, the central bank must slash its main policy rate by 1%. As per him, this move was urgently needed to spur consumption and save the country from a severe slowdown.

There is no doubt that lowering interest rates would help the economy's growth prospects. But can the RBI afford a rate cut given the high inflation and widening fiscal deficit? We certainly don't think so. Moreover, playing with monetary policy alone is not the only answer to an economy's problems. There are other much more critical issues in the country that need to be sorted. As long as the policy inaction persists and reforms are postponed, the future of India is under threat.

There's both good news as well as bad news for those worrying about the India growth story. Here's the good news first. Consumption, the bulwark of India's economic growth is alive and kicking. And leading the charge is not urban India but the rural hinterlands of the country. As per a leading daily, additional spending in rural India was nearly Rs 800 bn more than urban India between FY10 and FY12. And this spending wasn't just restricted to necessities. There was a shift beyond it to discretionary products like TV and mobile phones. What more, this trend is only likely to get stronger from here on. Little wonder, consumer companies are making a beeline for rural areas.

And now onto the bad news? We believe that a good portion of this demand has been due to direct cash payouts by the Government and government-initiated employment generation schemes. Thus for this to sustain, Government will have to continue to keep operating these schemes. And this means thousands of crores of rupees which could have been put to more productive use. Imagine building more universities or bridges or other world class infrastructure with the same money. They would have certainly served the country for years to come rather than the one time consumption boost that the economy gets due to higher rural spending.

The risk taking approaches of different financers are bound to be different. Not only because of their size or ownership but also due to their operational policies. But our government officials love to treat PSUs like their own backyard. And hence without blinking an eye have asked PSU banks to have a one-size -fits-all approach for lending. The Ministry of Finance believes that all PSU banks should have a uniform policy for sanctioning loans. This they believe will ease out the funding constraints for large projects. That plenty of large PSU banks are already saddled with huge NPAs seems to be going unnoticed. Also the fact that most of these NPAs have arisen after the government's generosity in getting them restructured. That banks have to follow RBI's provisioning norms on risky loans does not seem to be going well with the Ministry. Hence irrespective of the risk taking ability of different banks, the government is prodding them to lend more. No doubt, easier availability of funds will facilitate economic growth. But that most of the problems in the banking sector are of the government's own making seems to be overlooked.

In the meanwhile, after opening the day in the red, the Indian equity continued to trade below the dotted line. At the time of writing, Sensex was down by 23 points (0.1%). Among the stocks leading the losses was Gas Authority of India Ltd. Barring Malaysia, other major Asian stock markets have closed the day on a weak note with Indonesia and Hong Kong leading the losses in the region.

04:50  Today's investing mantra
"I've found that when the market's going down and you buy funds wisely, at some point in the future you will be happy. You won't get there by reading 'Now is the time to buy." - Peter Lynch
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6 Responses to "Politicians steal food worth Rs 806 bn from the poor"


Sep 1, 2012

Corporates are no different. Scale might be a bit less.

What we really need is someone selfless like Sardar Patel to run this country for the next 50 years to run this country and clean the system. Wishful thinking but this dirt is no ordinary either.



Aug 31, 2012

Till such time we can enforce transparency, discipline and
accountability in our systems, scams such as these will
continue. We as a nation have yet to wake up to this
reality. None of this will ever happen unless we can bring
in the system of deterrent penalty for erring officials/
politicians. To that extent I wish ANNA Hazare succeeds
soon. God Bless him.



Aug 31, 2012

The loot is happening because of the flawed system of public distribution system. We should let the private sector distribute the grains and issue food coupons to those below poverty line. This is will largely stop the malpractice of the present system.

Like (1)


Aug 30, 2012

Dear Sir, Nearly all politicians in our country are CHORS. There may be a few exceptions for sure. They are exceptionaly good souls.Unless corrupt politicians and people with criminal backgrounds are debarred from contesting elections, this scourge cannot be eradicated.Cofiscate the illgotten wealth, make corporates, accountants bureaucrats accountable there is no VIMOCHANAM for our country. People at the Bottom Of the Pyramid are put to untold suffering.

Like (1)


Aug 30, 2012

Stall proceedings in UP assembly to prevent all discussions or debates on this matter !!!

Like (1)

A. Pat

Aug 30, 2012

You should ask this question to our dear PM who has mastered the art of answering - either by his silence or by his poetry - questions of distress surrounding the Indians. Or you should ask this question to Mr Montek Singh Ahluwalia who has the guts to state that Rs29 is enough for a poor man to live while building a Rs35 lakh toilet for himself. Or, the question can go to Mulayam, Akhilesh, Laloo, Digvijay or Sonia madam who all have demonstrated their hunger for power, greed for money without any accountability to the People. Its not a shame for the poor, but for us who are sitting in our cozy rooms and not doing anything about it. A revolution much bigger than what India Against Corruption is calling for, is the need of the hour. And if we have an inch of pride for our country, then we must go to the streets to teach governance to our 'governing bodies'.

Like (2)
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