Ratan Tata blames the government - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Ratan Tata blames the government 

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In this issue:
» Govt. seeks to step up spending
» More than 10 m mobile subscribers to lose their connection
» US housing companies no longer looking for buyers?
» Fiscal cliff a result of wrong math?
» ...and more!

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    India Inc is not very pleased with the government. The red tapism. The policy paralysis. Dilly dallying on the existing policies. Troubles with land acquisition. The list of their complaints is long. Now the head of one of the most prestigious groups has blamed the government for the outflow of foreign investments from India. As per Financial Times, Mr Ratan Tata has warned the government of driving away foreign investment from India. He has also stated that the government is effectively driving the big business houses of the country to look outside the country for growth.

    The Tata group has been at the receiving end of the government's inefficiencies. It has suffered a series of setbacks in business operations thanks to the government. It faced inordinate delay in setting up a steel facility at Orissa. The fiasco surrounding the Nano plant in West Bengal was one of the most talked about incidents at that time. All such issues have led to huge losses for the group. As per Mr Tata these issues are all examples of the government's inability to make decisions. On top of it different government agencies have different interpretations and opposing views on the same law. Such issues would naturally make any major business house cautious when it comes to making additional investments in the country.

    Alas, the point Mr Tata has made is true. The country's slowing economic growth stands testimony to the government's inefficiencies. India's GDP growth has dropped down to the region of just a little over 5% which is the slowest in nearly a decade. This is all because of policy paralysis and slowdown in investments. Things were not helped by the list of scams and corruption cases either.

    The thing that India needs is action. Action against the wrong doers. Action on the policy front. It has tried to take a step towards it with the recent announcements of FDI in retail and aviation. But these are just baby steps. A lot more needs to be done. There are land reforms and labor reforms that need to be looked at. Not to mention the need for a body to kick start the pending infrastructure projects. And these are just the beginning of a long list. Hopefully the government would continue with its new found momentum towards reforms. Rather than just taking the backseat all over again and basking in the glory of their small reform moves.

    Do you agree with Mr Tata that the government is driving away foreign investments from the country? Let us know your comments or post them on our Facebook page / Google+ page

    01:00  Chart of the day
    Most of the consumption stories doing the rounds in India show a huge potential in the untapped rural markets. After all it is home to two-thirds of the country's one billion-plus population. But the sector where the story is playing out in reality is the Indian telecom sector. The increasing penetration of mobile telecom services in rural areas is being acted out in reality. As shown in the chart, the urban markets seem to have reached a saturation level with tele-density in excess of 160%. On the other hand rural tele-density is on the rise. The rising rural tele-density is clearly indicative of the much-larger drama unfolding in the Indian telecom market. Though growth in subscribers has eased off in recent times, nevertheless the underpenetrated rural markets continue to present a huge opportunity for telecom operators.

    Source: Telecom Regulatory Authority of India (TRAI)

    The Union Budget that is presented on the last day of February every year may soon earn the title of 'national joke'. Throughout the year, the Finance Ministry keeps revising its budget plans and deficit estimates. This year is no exception. Rather, frequent revisions of estimates and targets have become the norm.

    As per an article in Business Standard, the government is likely to spend additional Rs 308.4 bn to meets its revised fiscal deficit estimate of 5.3%. But do not be surprised if the Finance Ministry revises its deficit estimate still higher. It is not just higher government expenditure that is the culprit. Failure on the revenue front is also to blame. The 2G spectrum auction was a damp squib. The divestment of stake in PSUs has not worked out as per plan. This is the reason why most experts are of the view that the fiscal deficit could go as high as 5.6-5.8% by fiscal end. This, in turn, would result in additional borrowing of Rs 300-500 bn. Will this result in a rating downgrade for the Indian economy? The warnings have already started pouring in.

    If you are the CEO of a mobile company and you suddenly see a market the size of Australia's population suddenly up for grabs, you would jump with joy, isn't it? This is exactly the kind of feeling that heads of mobile service providers would be going through in India right now. Simply because around four telecom operators are likely to switch off their networks from January 18, 2013. What prompted this move is the cancellation of licences by the Supreme Court in February this year. And then the subsequent inability of these companies to retain all of their licences. Consequently, around 26 m subscribers will be forced to migrate to rival telecom operators. However, it is unlikely that they will be welcomed with open arms as it will all depend on the ARPUs they bring along with them. For the sector though, this is another in a recent string of good news. And will hopefully aid in turning its fortunes for the better.

    Agreed that you do not have to necessarily be a math wizard to run a country. In fact the most successful stock investor in the world, Warren Buffett too has underplayed the importance of maths for investing success. Having said that, we cannot appreciate instances of policymakers making economic projections that do not add up. If it were in India, at least we would take it with a pinch of salt! For projections of how disinvestments, higher tax receipts and resource auctions will bridge fiscal gap were without any mathematical proof. Same is the case with big ticket subsidy planning like the one on Food Security. It was devoid of prudent number crunching. Hence Indians are used to policymaking by mathematically challenged individuals. However, it seems that the problem faced by Americans is not very different. An article in Moneynews elaborates on this. It discusses how the math of President Barack Obama's plans to get over fiscal cliff does not add up! The US government's debt to GDP ratio has grown from 36% in 2007 to 73% in 2012. In such a scenario not having realistic plans to reduce debt reflects poorly on the government of the world's largest economy as well.

    Demand for homes seems to be picking up in the US but of an entirely different type. Indeed, this time it is not potential buyers buying houses, but people looking to rent relatively smaller apartments. The statistics point to this fact. Multifamily construction nationwide in the US is two-thirds of the way back to its pre-recession peak. In contrast, single-family home construction is still only about a third of the way back to its peak. If one looks at the demographics, the demand for such apartments has been coming from the younger population looking to live on their own for the first time. Or those who had moved in with parents during the recession and are now looking to strike on their own. Consequently, the rentals have also increased. And this has propelled builders to build more such apartments leading to fears of overcapacity. The question is whether these rents will be sustainable. And this depends on how well the job market picks up. Not surprisingly, pockets which have seen improvement in job prospects have also seen higher demand for homes and therefore rise in rents. The other factor is supply demand. If overcapacity does materialise, rents will again face downward pressure. Whatever the case, the demand for single family homes certainly is not facing the kind of demand that there once was in the pre-crisis days.

    The week gone by was a positive one for the global markets. Gains were seen across markets, with China's benchmark index leading the pack of gainers. Gains in the dragon nation were largely due to the hopes of more government support towards growing the economy. As for the rest of the regions, positive sentiments were spilled over from the stronger than expected nonfarm payroll report of the US. As per reports, the data indicated that 146,000 jobs were added to the economy in November, a figure much higher than what was expected by economists. The unemployment rate is believed to have dropped to 7.7% as compared to the expectations of a status quo figure of 7.9%. The Indian equity markets were amongst the lowest gainers this week, with the BSE-Sensex up by 0.4% for the week ended December 07, 2012.

    Amongst the other markets, China was the top gainer (up by 4.1%) followed by Russia (up by 2.4%).

    Source: CNNfn, kitco, Yahoo Finance

    04:55  Weekend investing mantra
    "If only one word is to be used to describe what Baupost does, that word should be: 'Mispricing'. We look for mispricing due to over-reaction." -Seth Klarman
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    29 Responses to "Ratan Tata blames the government"

    PG DAS

    Dec 20, 2012

    I agree with RATAN TATA's views. Govt's new glory reform attempts cant out-way the losses of opportunity of the past decade together their inefficiency and corruption shielding for financial and political fronts.



    Dec 11, 2012

    Yes I agree his statements,all Politienc are after tehir Votes and their Chairs,we need a man like Sardar Patel to take bold steps for the Nation.Now the most needed thing is Selfless Service to the Nation.


    R.S. Mani

    Dec 10, 2012

    Every political party is functioning for the vote bank only and it is not possible to please all the people all the time. The Govt has to take certain decision for the welfare of the whole country not worried about the vote bank. Thanks to Mr Tata for his boldness and i hope the Govt should wake up from the illusions by respecting the view of the Industrialist to get more foreign investments. Already we are loosing lot by helping china's growth.


    Monojit Mustafi

    Dec 9, 2012

    The problem is very deep rooted. The solution is never such easy that our few words can achieve. Men like Mr. Ratan Tata know many things by direct association. We the normal citizen can feel the existence of corruption at every step. We can only ensure we act right in our respective position, but that way we can not demand understanding from younger generation and they get frustrated, faced with grave reality around them in the society beyond their control. If men like Tatas, Birlas, Ambanies, Goenkas, Mittals, Narayana Murthys, Parekhs, etc. etc. feel so helpless in helping the nation's cause, we the commonest of common men in this part of the world are at great loss and we do not know how many generations we need to fight it out. The fact remains that the spirit of anti-socialism, anti-nationalism and even anti-humanism is very very strong in many of us, enjoying power and authority in governance in each and every aspect of life. There are many individuals who use party politics as camouflaging covers to all their misdeeds in public life. Identifying as representative of some political party or other, forget the publicly laid down principles of functioning of the party. It is a huge subject that can not be explained in few words only. Regards


    Monojit Mustafi

    Dec 9, 2012

    What Mr. Ratan Tata has alleged may be absolutely right, even though for an ordinary citizen like me has no access to every details. I feel for this state of affairs in the country, destroying the opportunities of free, fair and honourable living to our future generation. I personally feel, it is not Government only to blame, it is the individuals concerned who has no sense of honesty and integrity in guarding the interest of the nation, in helping the present and future generation breathe fresh unpolluted light and air from the atmosphere. These people never minds acting destructive against the interest of the Almighty who created this universe with some purpose. They might enjoy highest grade of professional and social status, only at the cost of others. Government, if you go by the present status, it is an inevitable combination of a number parties with varied outlook and principles, different approaches to life policies. For mere survival to maintain governance so it does not turn into a jungle of beasts, every action needs to ensure majority support. Opposition parties are always there to create further chaos and confusion to the constituent parties in the Government. With established principles of action laid down in Govt policies, there are individual entities who try to make their fortune in the process. If the head of the Govt publicly support their action, it is off course a crime, rendering normal citizen mere helpless. If their corruptive action is not approved by the Govt. Head, law of land can take action. It is also established fact that there is no cut short in the country's legal system, unlike Sher Shah's time that needs there be an Authoritarian Dictator, the very words that can raise big hue and cry from specially those people who have been enjoying special status in a democracy like ours. So, we may need some foreign rule or rule by an Indian individual, next to Lord Shiva! Else, if we can have more patience and try helping situations around us with all our might to help the cause of our future generation, we have to strive for the same, with blessings from God only.


    jai Garg

    Dec 9, 2012

    Very True!


    Shiv Shankar Ranganathan

    Dec 9, 2012

    I agree with Mr.Tata completely!


    Dalip Singh

    Dec 9, 2012

    I agree with what Mr. Tata has to say,and common man is angry and frustrated with the way the govt. is handling the affairs of the nation.Almost all the major parties in the parliament,whether in the ruling or the oppositon are hand in glove and corrupt.There is no opposition in this country,we the common man is the one who is in the opposition and there is no body to appeal to.This country has never experienced anything worse than the present corrupt regime and foot in the mouth ministers who have become too hardened and shameless with the passage of time.God save this country.



    Dec 9, 2012

    Yes I fully agree with Tata's views. In fact it is the Nation's View. But the johnies in UPA will realise this only after their apple cart has been turned upside down.
    They only know how to defend Madam Sonia and her family members, at the country's cost. The general public who voted the johnies into power should bring the johnies physically back to their constituencies, and put them under house arrest.
    People should teach them a lesson when it comes asking for votes in 2014.



    Dec 9, 2012

    If One of the most respected person of corporate world says truth(just before retiring) shows acts of politicians have crossed human tolerance limits.Indian media should be bold to send message across nation about present state of govt else all these will remain comments only without results

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