Will Lokpal alone be enough to tackle corruption? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Will Lokpal alone be enough to tackle corruption? 

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In this issue:
» RBI tightens noose on wilful defaulters
» Yet another bad news for Coal India Ltd
» RBI maintains status quo on policy rates
» India bitten by bitcoin bug
» ....and more


00:00
 
It's a historic moment for the anti corruption crusaders in India. After decades of wait, the LokPal Bill has taken a huge stride and has been passed by the Parliament. The revolution that started two years back and witnessed huge public support seems to be bearing results now. This is indeed a welcome event. But is the euphoria justified? Will this law be enough to get rid of the deep rooted corruption in India? An article in Livemint offers an interesting perspective on this.

The first thing that deserves a mention is the timing of the event. The noble intent of the law was obvious from the very beginning. However, it is only now, after the ruling party has tasted defeat in the elections that the bill is seeing the light of the day. It is obvious that the Lokpal lacks the backing of a strong political will and is more likely to be followed in letter than in spirit.

Before we highlight why it may fail to work, let us point out some of the positives. The bill gives the watchdog more authority and autonomy, the cases are likely to be resolved faster with set timelines and it brings under purview even the Prime Minister office.

And now some nuances that if not taken care of may defeat the purpose of the Lokpal.

To understand whether this law can solve corruption issue, we need to understand what drives corruption. It is not just the issue of morality but incentives. The bill, that excludes private sector from scrutiny, does not address that aspect. Second, we have made enough laws and witnessed their fate to be too optimistic about Lokpal. With multiple laws and powers bestowed on elected representatives, discretion can always be applied and ways can be found around the laws. Third, the success of the Lokpal will depend on the integrity of its representatives, for which there is no guarantee. Afterall, conflicts of interest can not be totally ruled out and any slip up here will make a joke of the whole law. Again, it won't be as empowering as it is made out to be because people will give their verdict only with their votes after a gap of 5 years. Even it if curbs the number of corruption cases, it does not take care of the regular accountability of the representatives to carry out the duties they owe to public.

In short, while the bill has become a law, its implementation will be the key issue that will determine if it can achieve what it intends to. And India does not have too good a track record as far as execution is concerned. Hence, we can't rest here and lose sight of the end objectives. It is just the starting step and not even half of the battle against corruption is won.

Do you think that Lokpal Bill alone can end the deep seated problem of corruption in India? Let us know your comments or post them on our Facebook page / Google+ page.

01:45  Chart of the day
 
A carrot and stick approach has been the trademark of RBI chief Raghuram Rajan. Whether it comes to Monetary Policies or dealing with erring banks, Dr Rajan has taken a measured stance. The problem of rising bad loans for the banking sector has been the biggest worry for the regulator of late. As per an article in Economic Times, the central bank is even considering a leveraged buyout of bad loans. In addition, it will independently value bad loans sought to be restructured. The governor is expected to get cracking on the cosy relationship between companies and borrowers. The management, directors and auditors of companies classified as wilful defaulters will be brought to book. Political interference in such cases will also not be tolerated. The gross NPAs of the banking sector have nearly doubled from 5.8% in 2011 to 9.3% in 2013. Meanwhile restructured loans have shot up by 45% YoY. It is therefore the regulator's prerogative to bring in regulations to ensure that bad asset quality does not become commonplace for Indian banks.

Bad loans have been rising across industries

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02:15
 
The trouble for Coal India Ltd keeps on mounting. Already, the company was slapped with a fine of Rs 17.7 bn by Competition Commission of India for allegedly abusing dominant position in supply of coal. And now a tender worth Rs 30 bn to appoint a vendor to import 5 million tonnes (mt) of coal has failed to attract any participants. The company is going to fall short of meeting its production target this year. As a result, the country needs to import coal to meet the demand. Most of the coal import is handled by private companies who have refused to participate in the tender process due to strict conditions imposed by the company. Now, the company is likely to refloat the tender with modifications whereby private commodity traders could find their way into the project. But its time that CIL finds a long term solution to solving India's coal problem. Despite having huge coal reserves, India still imports coal to meet its demand. This situation needs to be rectified urgently.

02:50
 
Notwithstanding the persistently high inflation rate, the Reserve Bank of India in its mid-quarter Monetary Policy Review has kept the key policy rates unchanged. The repo rate or the rate at which the central bank lends money to commercial banks has remained unchanged at 7.75%. The cash reserve ratio (CRR) or the percentage of deposits banks have to necessarily keep with the central bank as cash, also remains unchanged at 4.0%. The status quo comes despite the higher inflationary levels. However, the Governor has cited that sanguine liquidity conditions and the anticipated fall in vegetable prices prompted the move from the central bank. RBI has preferred to adopt a wait-and-watch approach before it takes any aggressive move and mar the already weak economic growth. Not only the RBI move can be termed as a balancing act, but it would also be widely acclaimed by the lenders who are saddled with huge burden of non-performing loans. Additionally, it also brings respite to the industry that is cash strapped. That said, if the situation were to remain unchanged and the stubbornly high inflationary levels continue to remain beyond the desirable benchmark, it can call for policy tightening measures going forward.

03:20
 
The digital currency Bitcoin has become a rage in recent times. Especially since paper currencies are losing value due to loose monetary policies by central bankers around the world. The fact that Bitcoins are not regulated has also raised its appeal. So much so that trading in Bitcoins has surged. Indeed, as per an article in the Economic Times, 57% of the total Bitcoins are in circulation. Little wonder then that the price has also shot up and has raised fears of a bubble forming there. Indeed, the growing popularity of Bitcoins has already begun to make regulators quite uncomfortable. China has banned financial institutions from accepting it. Norway and Germany are considering treating it as an asset rather than a currency. India's stance on this remains unclear and the RBI has not come out with anything concrete yet on this front. The problem with fads is that it is just that a fad. At some point in time in the future, the fad will just diminish. If bubbles are forming in Bitcoins, logic suggests that somewhere in the future, this bubble will burst. And the chances of that happening could further increase if governments and central banks find some way of regulating it. When that will happen is anybody's guess.

04:05
 
Imagine a hypothetical scenario where a company hires new recruits from a management school that has graded them to be the best of the best. But few months into their job and most candidates turn out to be absolute non-performers. What do you think the company will do next? It will lose all its faith in the way the students were graded, isn't it? Well, replace the management school with credit ratings agencies and the candidates with newly listed companies. You are likely to get the picture that just like the unfortunate firm in our example, investors too have started to lose faith in the way companies are graded for their IPOs.

Simply because there are far too many firms that had bagged high IPO ratings are now performing poorly. In fact, when we do our usual IPO analysis, even we are surprised with the strong disconnect between the high IPO ratings and the company's long term fundamentals. Apparently, the grading is mostly linked to the level of disclosure from the company. Hence, a lower disclosure invites lower rating. This is certainly not the right approach as per us. A more holistic view of the company's business model, management and valuations also needs to be taken into account. With these factors missing, a wrong assessment of the firm was highly likely and this is precisely what happened.

04:50
 
Following the RBI's announcement of maintaining the status quo, buying activity strengthened leading the Indian markets to trade firm throughout the rest of the day. The BSE-Sensex closed higher by about 205 points or 1.2%. Gains were seen in stocks across the board with those from realty and capital goods spaces leading the pack of gainers. Mid and smallcap stocks were trading firm as well, with their respective indices up by 1.4% and 1.1% respectively. Stock markets in other parts of Asia ended the day on a mixed note with China down by about 0.1%, while Hong Kong and Japan ended higher by about 0.3% and 2% respectively.

04:50  Today's investing mantra
"Be fearful when others are greedy and greedy when others are fearful." - Warren Buffett
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23 Responses to "Will Lokpal alone be enough to tackle corruption?"

A.Pereira

Dec 20, 2013

If the Lokpal was effective and powerful, it would have resolved many issues - at least addressing corruption at the very top level (policy making). However, with the politicians joining hands to approve a weak bill proves that they were playing to the stands, but have no intention to curb it. Best example is the double punishment to a whistle blower without documentary evidence - on one side they want to keep RTI weak (so that evidence is not gathered properly) and on top of that, they connive to prevent whistle blowing. Why after all they will want a tough law against themselves? Their life depends entirely on corruption of highest extent. so, unless a govt truly of the People made truly by the People and then People cooperate in every respect to achieve the end objectives, it will take years to reform our democracy.

Like 

Devesh Pratap Singh

Dec 19, 2013

With rampate corruption in all fields and it is hard to finda man who will not succum to corruption when come to clash of self interest.I donoy think the things will improve mutch.But allsaid it is a good bigging
Devesh

Like 

Kirandeep Atwal

Dec 19, 2013

Even if there is Lokpal, the politicians will find some innovative ways to do corruption because they know by using money power they can win election. The main reason for corruption in India is poverty. In developed countries there is very less corruption. The average income of citizen in developed country is very high. Therefore, it is impossible for politicians, however rich, to buy their votes.

Like 

Santosh Soni

Dec 19, 2013

Lokpal alone can not rule out the corruption. Implementation of the law is very important. Further the public and the Government cooperation is a must in eradicating the corruption. For example a train passenger should refrain from giving bribe to TTI and TTI should refuse to accept it.

Like 

R K Gogate

Dec 19, 2013

It would naive to think that passing the lokpal bill will eliminate corruptuon feom the society. However unless a first step is taken there cannot be a solution to this menace

Like 

R Patel

Dec 19, 2013

It is a known fact that political parties donot want Lokpal. The bill would not have taken decades to pass. Unless the pressure on the Government by people with dedicated leaders like Anna are there all the time the measure will fail.The war is not over. Only the first skirmish has been won.

Like 

K.V.Nayak

Dec 19, 2013

While I welcome the introduction of Lokpal Bill,I am not very sure that it would be implemented in letter and spirit,the reason being that the implementers are only human beings. And it cannot be taken for granted that the implementers are all men of high integrity. Most of our laws are good but what is the result? The general public are really disillusioned.

Like (1)

Sthithapragnja

Dec 19, 2013

With utmost humility I observe as under:
The much-touted LOK PAL Bill has been passed and made into Law! I am prompted without any ulterior motive (I am a law abiding citizen paying all the taxes) to observe that like the quiz question” What has many teeth but still cannot bite “ ??
It is the COMB which has many teeth but is used to comb the hair on one’s head.

On the same analogy the LP Bill may have very many teeth but like the proof of the pudding is in the eating, when the implementation(by the very enforcers of the law)arises our laws are merely like the Comb !!
(Of what use can the COMB be , for a BALD MAN ??)

I hasten to conclude !!

Like (1)

shailesh

Dec 19, 2013

The author is being too negetive about lokpal implementation.Though i understand the concern but should forget CAG and RBI which has been operating independentely in same political environment

Like (1)

Sainathan

Dec 18, 2013

Why was the Lokpal bill which was lying in hybernation for two years was cleared in such speed? Why did different political parties like the congress, BJP, BSP and RJD gave such whole-hearted support? The reasons are simple:the route of the congress party in the Delhi assembly elections and the drubbing they got at the hands of the AAP; the Kejriwal effect. The bill that was passed is more apt to be called Jokepall bill. Hope AAP movement doesn't fizzle out. Anna's reaction bewildering, to say the least. Surprised why Anna does not speak out the truth! Looks like a fixed match between congress/BJP/other political parties and, unfortunately, team Anna

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