Should India take anti corruption tips from Brazil? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Should India take anti corruption tips from Brazil? 

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In this issue:
» Junk bond bubble in the offing?
» Provisioning hit for Indian banks
» Not all good for FDI in retail
» Receivables weigh on Chinese companies' balance sheets
» ...and more!


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00:00
 
Brazil scored 3.8 out of 10 in Transparency International's corruption perceptions index. 10 being regarded as the least corrupt. Compare this with its BRIC peers. Russia at 2.4, India at 3.1 and China at 3.6. Yet Brazil is currently gripped by an anti corruption battle. One that involves very senior members of its politico. Getting a sense of deja-vu? Wait before you jump to any conclusion. The circumstances that have led to the anti-corruption uprising in Brazil are similar to that in India. But the legal outcome is entirely different. And hence we chose to highlight here some the key learning for India from Brazil's anti corruption law.

Corruption in Brazilian politics is not very different from that in India. Politicians were found guilty of using public money to pay secret monthly stipends to opposition members in return for their support. As per Financial Times, as many as 72 politicians have been murdered in Brazil in the past 30 years. So while the crime rate is high in Brazil's politico, the difference lies in the fact that the guilty are brought to book. That too by the legal system. Even the likes of the former President were subjected to tough sentences on being found guilty. As against that, in India, civilians are left to point out corrupt practices in political and corporate world.

Some of the legal reforms instituted by Brazil are particularly relevant to India. One of them is the ficha limpa, or "clean slate" law. This law prevents people convicted of crimes from running for public office. Another law that prevented the Brazilian Supreme Court from trying federal politicians without prior approval from the government has also been revoked. Haven't we been asking for such laws since long? It is time even the legal system in India gets its act together.

The quality of Indian polity seems to be deteriorating day by day. It is time for citizens to wake up and take a stance against this. If you feel this way too, then help create a 'snowball' effect to save India's democracy and growth story. Make your voice heard. Participate in our petition to the government.

Also do you think the Indian legal system should adapt anti corruption laws like the ones in Brazil? Please share your views with us or post your views on our Facebook page / Google+ page

01:35  Chart of the day
 
Countries in the Asian region in the past several years have grown at a stupendous rate. Not just that, although there were not completely immune from the global financial crisis, their recovery was much faster. This in sharp contrast to the developed countries in the West which are still mired in recession. Little wonder then that companies in the West are looking to capitalise on various business opportunities in the Asian region. And insurance is one of them. Indeed, the region is now expected to contribute more than half of global premium growth over the next ten years. A race is on for the best assets, with over US$ 100 bn in acquisitions seen in Asia since 2009. As the chart shows, insurance penetration in countries like India and China is still very low as a percentage of GDP. As a result many of these Western insurance firms are looking to localize operations in various countries in Asian region. Particularly so in India and China. But the going is not likely to be easy.

For starters, obstacles exist in the form of regulatory and distribution hurdles. Then, there is the challenge of competition. Sensing a whiff of opportunity in insurance, many local players have also strengthened their operations in various regions. Thus, not every insurance newcomer in Asian is a Westerner. Of course, Asian players are set to face challenges as well. Hence, it looks more and more likely that despite the huge potential in insurance, some benefits will be eaten away by competition.

Source: Economist


02:15
 
A leading financial portal has warned of a bubble building up in the junk bond market. And rightly so. Investors have thrown a record US$ 49 bn into assets classified as junk so far this year. This is more than two times the full-year record of US$ 21 bn achieved in 2009. Why such a frenzy for junk bonds one would wonder? Well, it's all due to some insane policy being adopted by the US Fed we believe. By artificially lowering rates, it is forcing investors to look elsewhere for higher interest rates. And this is then drawing them into risky asset classes such as junk bonds.

But is this a sound strategy? We don't think so. A lot of companies issuing junk bonds have very weak fundamentals and unless you are an expert, the odds seem to be heavily stacked against the investor. In fact, even experts find it difficult to successfully wade through the turbulent waters of junk investing. Thus, investors would be better served to follow the age old aphorism of worrying less about the return on capital. They should rather focus more on the return of capital we believe.

02:55
 
Food that is good for our health is often not quite appetizing to our taste buds. But it must be eaten to keep away from diseases. This analogy could be very well extended to the banking sector. Prudential norms may restrict the growth and profitability of banks to some extent. But they essentially exist to protect the long term interests of banks.

Just yesterday, the RBI increased the provisioning for restructured assets from the existing 2% to 2.75%. For the uninitiated, restructured assets are nothing but loans whose terms have been modified on account of deterioration in the financial health of the borrower. The central bank's announcement has come at a time when requests for loan recasts have hit an all-time high and are likely to cross Rs 3.25 trillion in the current fiscal. Data released by the Reserve Bank of India (RBI) suggests that corporate debt restructuring (CDR) cases shot up to 392 as on March 2012. This is a significant jump from 225 in March 2009. In fact, the total amount under CDR during this period has surged from Rs 958.15 bn to about Rs 2.06 trillion.

No wonder the RBI was prompted to raise the provisioning requirements. It is said that the increase in provision would shave off nearly 4% of the banks' profits. Though the banks may not be too happy with this move, any move in the direction of prudence is welcome. And more so at a time when the global financial system is suffering from the consequences of its past recklessness

03:32
 
After years of dilly dallying, the Government allowed FDI in multi-brand retail some time back. The start was good and even gave the Government a much needed 'makeover'. However, the fine print includes riders such as sourcing norms, investment in back end infrastructure and state governments having the final say in the matter. The issues are unlikely to offer a smooth passage to global brands in multi brand retail. Many of the markets lie within the states where the local Governments don't want multi-brand foreign retailers. The limited support is keeping a lot of lucrative markets out of bound for foreign players. Even in single brand, the mandatory sourcing norms lack clarity and are keeping the interested players on a wait and watch mode.

The policy itself has been a hot topic for debate for quite some time now. Time will tell whether the economy will be worse or better with the arrival of FDI in retail. But one thing is clear. It is one thing to make policies, quite another to implement them. And the Government scores badly on both.

04:00
 
A sign of trouble is when one starts to delay the payment of bills. For a company this sign is visible when its receivables start to rise. Unfortunately this is a sign being seen by a large number of Chinese companies. The recent slowdown in the dragon nation's economy has started to reflect in Chinese companies' balance sheets. The Chinese economy is expected to grow at less than 8% this year which is way off from the double digit growth that it was used to seeing. The sectors that have been worst hit include construction and infrastructure. The companies however expect this to be a minor blip. They think that the delay in payments is only on a lag basis. This means that they believe that the worst is already behind them and the coming quarters should be much better. This is the larger belief of the economists and experts as well. But given that the country depends on other countries for its growth through its exports, the reversal in fortunes is not likely to happen anytime soon. Unless the developed world sees a sharp recovery or China's domestic consumption revives, it is unlikely that China would see double digit growth soon. Perhaps it would be better for the companies there to prepare for slower times.

04:35
 
Buying interest in heavyweights from auto and commodity sectors led the benchmark indices in Indian equity markets to recover from the negative territory post noon, albeit marginally. The BSE Sensex was trading higher by around 30 points at the time of writing. Other Asian markets closed higher today while Europe also opened on a positive note.

04:50  Today's Investing Mantra
"If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall." - Warren Buffett

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    Equitymaster requests your view! Post a comment on "Should India take anti corruption tips from Brazil?". Click here!

    7 Responses to "Should India take anti corruption tips from Brazil?"

    M K Pradhan

    Nov 2, 2012

    Drastic changes/overhaul in the judiciary as well as the anti corruption laws are required. Why the cases in courts are lying g pending for years. Why the courts waste time in flimsy cases, like hearing bail petitions time and over a numerous occasions and prolong the cases.
    Proper investigating agency with free hands is the most important thing. Trials thereafter must be swift and severe - the Rajat Gupta case in USA.

    Like 

    Narasimham

    Nov 1, 2012

    India should bring a law with respect to corruption. It should include politicians and officials. People do not understand fully that thier hard earned money is being speny in a way or other to bribe these prople. For ex. peole buying a house is indirectly paying for all as respective builder will charge same to potential buyers.

    It is high time, we should bring laws and also equally imporant is implement new laws and present lawas in effective manner

    Like 

    manoj shah

    Nov 1, 2012

    yes.

    Like 

    Heena

    Oct 31, 2012

    This is what the entire country is demanding except the politicians. Politicians are day by day distancing from the people who can contribute to the nation. Their vote bank politics as well as caste based looting( including all sorts of reservations) is at the peak. The day may not be far of for civil war like situation.

    Like 

    S.B.RASANIA

    Oct 31, 2012

    yES. AS EARLY AS POSSIBLE- IMMDIATELY.

    Like 

    PM MENON

    Oct 31, 2012

    Yes certainly. In fact take it a step further and confiscate wealth/property etc amassed by the corrupt and put that money to good use.
    Boycott countries that provide safe haven for pilfered this nations money and live off it.
    give wide publicity to the acts of corruption in an honest way , not like the meaningless wild screaming that goes for a debate on some TV channels.

    Alternately make corruption official and fix rates like MRP for each service.Let it be open. This income can also be taxable like normal income.

    Like 

    sriram

    Oct 31, 2012

    1 ) All Politicians and Bureucrats should be allowed to be investigated / Prosecuted , without seeking approval of anybody ,simiral to any Indian.Existing Protective Laws / Rules/Procedures are to be removed.
    2 ) All India Heads of Departments should conduct Monthly Press Conferences or Give Statements to Public on the Performance it's Duties and Reply Public's Doubts/questions therein. Existing Rule that Buerocasts should not Open their mouths in Public , but Only Politicians / Ministers to talk on them in Public is to be changed.Reason being that Buereucrats can not give wrong information,as they are aware of full Facts,unlike Ministers/Politicians giving elusive replies without exactly clarifying the question in Point,with little knowledge of Full facts. As there are many sincere ( Honest ) Bueraucrates are aware of actual Details , Facts will come out then.

    Like 
      
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