Do we have the right to reject the government? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Do we have the right to reject the government? 

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In this issue:
» UPA govt on a 'face saving' drive?
» Is the Sensex heading to 17,000?
» NPAs to peak by 2016:Fitch
» Japan will be in crisis by 2020
» ....and more


00:00
 
The Supreme Court of India has passed an epic decision. Continuing with its drive to clean up the Indian political scenario, it has directed the election commission to provide the option of 'none of the above' in polling. This basically translates into a right to reject. So in the upcoming elections if a voter is unhappy with the selection of candidates, then he can exercise his right to reject and cast a negative vote.

The apex court's judgment is in line with the basic tenets of a democracy. As the judge stated "Democracy is all about choices and voters will be empowered by this right of negative voting". Over time the court hopes that the option of negative voting will help bring about a systematic change in the country. Political parties would be forced to clean up their act. They would be under pressure to field only those candidates whose merit would help them win votes.

Given the number of scams and lack of governance that has tainted the political scenario in the country, this is indeed a welcome decision. Earlier voters would simply not turn up to vote if they were not happy with the fielded candidates. The problem in that case was that that either their votes would be misused or worse still, their absence would just not be counted. The winning candidate would be selected based on the votes of the people who did turn up to vote. But now this is expected to change. No wonder that the political parties are so displeased with this ruling.

But before you start rejoicing the Supreme Court's decision, it is important to note that there is a catch. What happens if majority of the voters opt for the right to reject? Would it mean that the political parties would be forced to resubmit their list of candidates who are more credible and meritorious? This is where the problem lies. Unfortunately the law states that in such an event, a candidate could still win based on the minor fraction of voters who did cast a positive vote.

Therefore for this ruling to become effective, the laws need to be amended further. Nevertheless, it is indeed heartening to see the apex court's stand on trying to improve the political governance in the country. It must be recalled that earlier this year the Court had passed a ruling that essentially required the dismissal of a politician who had outstanding criminal charges. Unfortunately for that ruling the government has been working hard to negate the effects by coming up with ordinances that would prevent the ruling from coming into play. Let us hope that the politicians do not do the same to our right to reject. Looking at the way the government has been taking the country and its people for a ride, we badly need to exercise our votes more cautiously. We have the right to get the right government in place. And if we don't see that happening, we need to be able to exercise the right to reject!

Do you think the Supreme Court's ruling on the 'right to reject' will help clean up the political space in the country? Let us know your comments or post them on our Facebook page / Google+ page

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01:10  Chart of the day
 
2009 was a bad year for business confidence in the country. The global meltdown was one of the biggest culprits at that time. But as we head deeper into 2014, business confidence seems to be declining back to what we saw in 2009. Unfortunately this time round the problem is more internal than external. Slowing GDP, the twin deficit problem and the government's lackadaisical attitude towards policy reform and implementation has hurt the business sentiment. As per a survey conducted by FICCI (Federation of Indian Chambers of Commerce and Industry), India Inc is less confident with regards to all the operational parameters. In recent times, leading business houses have openly stated that they are looking for growth outside India as they are fed up of the business environment within the country. Unfortunately this is also the time when the government is desperate for foreign funds. But such dismal numbers on business confidence would make it increasingly difficult for the government to sell India's story to any investor. Be it domestic or foreign. And instead of working on improving its image it is just too busy passing ordinances that allow criminals to continue running the country.
Business confidence sinking to 2009 levels?
Source: FICCI

01:55
 
Recently we highlighted how the UPA government seemed to be encouraging criminalization of politics by passing an ordinance to protect tainted politicians. It has led to a political storm with criticism coming in from all quarters. Interestingly, the ordinance has received criticism from within the Congress too. The latest whiplash came in from none other than UPA prime ministerial candidate Rahul Gandhi.

Here is what he is supposed to have said at a press conference, "I tell you what my opinion on the ordinance is: That it is complete nonsense. It should be torn up and thrown away. That's my opinion."

Rahul Gandhi's vocal criticism of the ordinance comes as a surprise. At the face of it, it appears sincere. But politics is seldom as simplistic as what meets the eye. Could it be that the Congress is now in 'damage control' mode? Or it is a mere PR campaign to lift public opinion about the Gandhi scion and portray him as the sincere, honest change maker?

This suspicion arises due to several reasons. First of all, he is Congress party vice-president. That puts him in a very powerful position, second only to his mother Sonia Gandhi. Where was he all this while when the Bill was being passed? Why did he voice his disagreement only after a flood of criticism mounted against the controversial ordinance? It either shows that Rahul Gandhi has little say within the Congress, or it was just a well-engineered PR campaign.

02:40
 
Just yesterday, we put out a Warren Buffett investment mantra about how short-term market forecasts are poison and hence, should be kept locked in a safe place. They should be kept away not just from children but also grown-ups who behave like children in the market. Unfortunately though no such mechanisms exist. And therefore, such forecasts are made with gay abandon with investors even taking their decisions based on it. Take this latest one for example. As per a leading daily, there are a couple of brokerages out there who expect the Sensex to fall to 17,000 in the near term. Their rationale? The absence of any near term catalysts that will take the markets higher. Well, we love the audacity of the predictor. For no effort has been made to give at least a narrow range within which the Sensex would trade. Instead, all we have is a precise level for the benchmark index few months from now. All we can say is no entrepreneur is going to make its capital allocation decisions over the next six months based on where the Sensex will stand. And since share ownership is nothing but part ownership in a business, we wonder why it will be any different for an investor. Rather than focusing on where the Sensex will be, he will be better off analysing the long term fundamentals and valuations of individual securities. Thus, market forecasts, especially of the near term should be treated exactly in the manner Warren Buffett suggested. It is indeed a poison and should be stayed away from.

03:10
 
The performance of PSU banks has been an eyesore for a while now. And the problem of NPA is the elephant in the room. The chairmen of the PSU banks are prone to dismissing concerns over peaking NPAs. However, rating agencies and investors have been very cautious. In fact while many were expecting the NPA problem to peak by FY14, rating agency Fitch believes that investors may have to wait until FY16. As per a Fitch report quoted by Economic Times, the problem of slippage in loan book may drag for another 2 years. The easy liquidity available in overseas markets may make it easy for troubled companies to service domestic loans. But once liquidity gets tighter globally the entire portfolio of restructured assets with Indian banks may have to be written off. The Fitch report has also downgraded large PSU banks like State Bank of India, Punjab National Bank and Bank of Baroda on capital concerns. The government's inability to recapitalize these banks could affect the capital adequacy (CAR) and business viability. Having said that PSU banks are not the only ones facing the NPA problem. Select private sector entities too face a similar problem.

03:50
 
We had earlier talked about how Japan's debt had reached unsustainable levels. And one of the solutions being proposed was raising the sales tax by as much as 20% by 2020 to prevent the country from going down under. But a member of Japan's upper house of Parliament, Takeshi Fujimaki believes differently. As per an article on Bloomberg, Fujimaki opines that a crisis in Japan is inevitable. And raising the sales tax alone is not going to do much in averting this disaster. Indeed, the current Japanese government is on a mission to break the 15 year deflation in the country. And the Japanese central bank on its part intends to achieve this through the tools of monetary easing. It also intends to stoke inflation to around 2% over the next 2 years. As a result of this, the Bank of Japan is buying more than 7 trillion yen of Japanese government bonds per month. That is not all. Japan's public debt is more than twice its GDP. And this is the highest ratio globally. The current government might fend off a crisis in the near term. But the massive debt is bound to blow up on its face in the foreseeable future.

04:20
 
The major global stock markets witnessed losses over the week and ended in the red. The US stock markets were down 1.2% over the week on chances of a partial government shutdown next week and concerns on debt ceiling. The focus on these fiscal issues overshadowed the encouraging economic data on housing, job and consumer statistics earlier during the week. The US dollar reacted to these developments by touching seven month low.

The European stock markets also lost ground due to concerns over US budget impasse that offset the encouraging euro zone business confidence data. Besides, the markets reacted negatively to the Italian debt auction highlighting concerns of a political crisis in Rome. The stock markets in Germany, France and UK lost 0.2%, 0.4% and 1.3% over the week.

Barring Japan (up 0.1%), the major Asian stock markets ended the week in red. The stock markets in China were subdued and lost 1.4% over the week ahead of head of the launch of a pilot free trade zone in Shanghai. Further, a weeklong holiday in China that starts on Tuesday kept investors at bay.

The Indian stock markets led the losses with the BSE- Sensex losing 2.6% over the week as markets reacted to inflation concerns highlighted by the Reserve Bank of India. The stocks in the banking and realty space led the losses over the week.

Performance during week ended Sep 27
Data Source: Yahoo Finance


04:55  Weekend investing mantra
"You should not buy a stock because it's cheap but because you know a lot about it" - Peter Lynch
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27 Responses to "Do we have the right to reject the government?"

Tikam Patni

Oct 1, 2013

This decision is more of correcting an anomaly. But should have gone further. If a majority of voters polled do not want any one, their choice must prevail. It will be another anomaly that the second highest will be declared a winner.It is wrong.

Like 

Ajay

Sep 30, 2013

It is really one of the good judjement, though it needs to be supplemented by some more decisions.

Like 

Shivsubramaniam

Sep 30, 2013

Yes it is a welcome decision. But should we not take into account the percentage of voters turning up to vote ? Only on an average 60% voters exercise their franchise. The govt. should include this number of non voters too into the category of "none of the above" and decide the winner only if he/she gets votes minimum of 50% of the voting population in that constituency. Shiv

Like 

sayayusuf

Sep 30, 2013

'Right To Reject" is most powerful instrument then any ordinance. If political party is honest have sense of Nationlism then they must explain to common people.

Like (1)

narendra

Sep 30, 2013

it is a nice decision, but one more thing needs to be incorporated and that is if rejected votes comes in number one place that is say there are three candidates and A get 10 votes, B gets 15 votes, C gets 20 votes and if none of above gets 30 votes then non of the candidate must be declared as winner and the election must be done again

Like (1)

Venkatesh

Sep 29, 2013

The supreme court has done the right thing. But at the same time the Electiom Commission has to see the % of 'NONE OF THE ABOVE' voters to disallow the person to get elected on minimum votes cast. If the % is much higher then the majority of voters are in favour of 'NOA' option. Also the candidates once rejected should not be allowed to contest again. Also the EC should make it mandatory that the credentials and the criminal charges if any, of the the candidates should be displayed at the polling stations. This may involve money, but it will be much less than the money they loot after getting elected.

Like (1)

Vinod Sahni

Sep 29, 2013

Supreme Court decision is incorrect. If NOTA votes are highest (in comparison to those polled by candidates of political parties/independents) then logicically "first past the post" IS NOT a candidates who has next best number of votes. While one can debate whether to have a repoll or let a constituency not send a representative, but surely declaring anyone "elected" is ILLOGICAL.

Like (1)

PRITAM MALHOTRA

Sep 29, 2013

A landmark decision followed by another ladndmark decision of SC to clean our dirty politics!We still have miles to go to purge our political system.Huge amount of pumping of unaccounted money at the time of elections,feilding of large no of candidates,
predominance of caste and religion, distribution of freebees just before six monts of election leaving behind other infrastructural needs of the contry etc.
are many issues.The democracy has to evolve itself for better governance, after all it is world's biggest democracy !


Like (1)

ravindra somaiya

Sep 29, 2013

However small step this may be but it is necessary. The doubt that you project can be taken care at a latter stage, but this step has to be taken first for that step to follow.Hope all would do the needful.
SriHariOmJaySriKrsnRviKrn

Like (1)

Suresh Kabra

Sep 29, 2013

SC has done its best to save our democracy. Now its effectiveness will depend on us. If we all vote & reject candidates of criminal background by majority, the candidate even if elected by default, will have very little moral authority to represent us. Opposition & media will ensure the rest, especially if he tries to take the system for a ride. I'm sure that the loophole in the law will be amended in due course of time. Imagine what will happen if majority of them get rejected in the forthcoming election. How will it get reported, especially in foreign media? Our politicians try to ignore own media but take notice of adverse reports in foreign media. How will such situation affect our international relation, FDI/ FIIs & our economy? Who would like to do business with proven rouges? Both Congress & BJP can ill afford it. For once let's get up & get counted. Henceforth we don't have the excuse that our VOTE doesn't COUNT.

Like (1)
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