Seedhe Mann Ki Baat... - The 5 Minute WrapUp by Equitymaster
Free Reports

Seedhe Mann Ki Baat...

Dec 21, 2016
In the Issue
» Political parties unaffected by demonetization
» Conflicting reports compound currency woes
» Market Roundup
» And More...
00:00
Rohan Pinto, Research analyst

Dear Mr Modi,

Let me first thank you for some of your simple yet effective initiatives.

Prime among them is the Swachh Bharat Abhiyan. It took a prime minister to remind us of the importance of cleanliness and sanitation.

You then realised our excess reliance on imports and encouraged foreign companies set up manufacturing bases in India. The aim was fourfold: provide blue collar jobs, increase technological know-how, support domestic markets and exports, and augment foreign exchange accretion.

On Employment and Reform...

Then, with more than half of India's population employed in agriculture and allied sectors, you realised the urgent need to provide today's youth with crucial soft skills including how to use digital technology.

It seems you realised that unemployment is a ticking time bomb that could turn the promise of a 'demographic dividend' into a demographic disaster.

Kudos to you and your team.

Furthermore, Sir, the real estate land bill and the Goods and Services Tax are both steps in the right direction.

And Now Demonetisation...

But on 8 November 2016, you shared your vision of a corruption-free India, a fight against black money through the demonetisation of high-value notes.

The honest, tax-paying citizen watching you that night couldn't help but feel proud. You had the entire country motivated to fight for you, ready to endure pain for the greater good.

Half a league, half a league,
Half a league onward,
All in the valley of Death
Rode the six hundred:
'Forward, the Light Brigade!
Charge for the guns' he said:
Into the valley of Death
Rode the six hundred.

Lord Alfred Tennyson pens the courage displayed by the light brigade of six hundred men in a battle. In a similar vein. You had the entire country motivated to fight for you.

Sir, surely you had better data than us to determine how much black money was being hoarded in cash.

My colleague Vivek Kaul estimated this figure at 5% of the total cash in the system. To disrupt more than 100 crores lives for 5% of the cash in the system...

I ask you: Is it worth it?

Further, the lack of new notes has resulted in chaos. The cash-based Indian economy is suffocating.

Some complained...but few stopped fighting.

Sir, if demonetisation was planned as you said it was, then why so many amendments from the central bank...why the paucity of cash...why all the chaos?

Unless, of course, the plan all along was to wean the people off cash and go digital...

The past year saw payment banks set up, encouragements in the form of discounts for digital payments, etc. If the plan is to go digital, then why not create the infrastructure for it?

A country being forced to go cashless still has a huge percentage of its population unbanked. It is a tough ask for your citizens indeed.

'Forward, the Light Brigade!'
Was there a man dismayed?
Not tho' the soldier knew
Someone had blundered:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do & die,
Into the valley of Death
Rode the six hundred.

Even if the intentions were right and just, the execution has gone horrendously wrong.

We as citizens of this country give full support to the idea of eradicating black money. And look forward to other methods of doing so apart from demonetisation.

However, we want to ask. Will our post demonetisation pain go in vain? Will the government stand up and take responsibility of its citizen's plight?

--- Advertisement ---
Our Latest Small Cap Recommendations...

Last Thursday, we released our latest small cap recommendation report.

In this report, we revealed full details on a solid small cap business that we believe has solid long-term money-making potential.

Plus, we also revealed 3 small caps that you could consider buying right away.

Click here for full details...
------------------------------

02:30 Chart of The Day

Demonetisation has been a huge economic disruptor in 2016 impacting the common man. While the exercise is touted as a tirade against black money and terror funding, but it remains incapable to crack a whip on money laundering that happens in the name of political funding.

Donations received by political parties fell by a steep 84% in FY16. But these essentially are donations above Rs 20,000 that have to be declared by political parties in the form of an affidavit to the Election Commission. It excludes cash donations below the threshold limit of Rs 20,000. And political parties have been making hay by utilising this loophole. Reportedly, the cash contribution received by political parties increased from 0.14% in FY15 to 1.42% in FY16. This despite the notification made by the Election Commission in August 2014 that disallows tax benefits on cash donations made to political parties.

So while the government seems earnest in its efforts to put an end to the black economy, its efforts will not fructify it it leaves this hole for political parties to sneak away. My colleague Vivek Kaul has a very interesting insight on this anomaly that can undo the benefits of demonetisation. This is what he had to say

  • Also, it is extremely unfair that the citizens need to show an identity proof while depositing their old Rs 500 and Rs 1,000 notes into a bank account, whereas political parties can continue to receive donations of up to Rs 20,000 in cash and need not declare who gave those donations. This includes the leading political party of the country which in 2014-2015 got half of its donations from unknown sources.

    In fact, as I have been saying repeatedly, the issue of black money cannot be tackled seriously, without making political funding transparent. This needs simple majority in the Parliament. The BJP has a majority in the Lok Sabha and can take the first step towards this. It is likely to be supported by some parties in the Rajya Sabha as well. Even without a majority, the party did manage to get the Goods and Services Tax passed through the Rajya Sabha. So, what is holding it back on this front?

    In fact, the Election Commission has suggested that "anonymous contributions above or equal to the amount of Rs two thousand should be prohibited." But why even allow a window of Rs 2,000? Political parties should move towards a totally cashless way of taking donations.
Political Parties Get Lower Donations in FY16


03:10

One of the grouses of the public hit by demonetisation is the lack of proper information dissemination. Also data on new notes given out by the Reserve Bank of India and the government do not seem to be on the same page. This has further added to the confusion about when the liquidity shortage would ease.

As per a press release by RBI, the total amount of money withdrawn by the public from accounts or ATMs stood at Rs 2.16 trillion until 27th November 2016. The Minister of State for Finance put a figure of Rs 3.29 trillion as the amount of money supplied in the high denomination 2000 and 500 rupee notes by 29th November 2016. This leads to the inference that currency worth Rs 1.13 trillion was disbursed between 27th November and 29th November. However, this appears to be a tall order considering that RBI had released an amount of Rs 2.16 trillion over a period of 17 days starting 10th November when the exchange of notes started post demonetisation.

The fact of the matter is that the shortage of new notes is unlikely to go away in a hurry with the forced slowdown continuing for a few months more. Clearly the economy would have rebounded faster from the demonetisation shock had this humungous exercise been planned and prepared for adequately by the government.

04:30

In the meantime, the Indian share markets gained marginally in the post noon trading session. At the time of writing, BSE Sensex was trading higher by 44 points and NSE-Nifty was trading higher by 12 points. The mid cap and small cap indices are trading higher by 0.2% and 0.3%, respectively.

04:50 Investing Mantra

"If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Rohan Pinto (Research Analyst) and Madhu Gupta (Research Analyst).

Today's Premium Edition.

Power Generation: An Industry In a State of Flux

The rise of renewable energy lays siege to thermal power production.
Read On...Get Access

Recent Articles

You've Heard of Timeless Books... Ever Heard of Timeless Stocks? August 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Why NOW Is the WORST Time for Index Investing August 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process) August 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
This Company Beat the Business World's 'Three Killer Cs' August 16, 2017
And what it has in common with beating the stock market too.

Equitymaster requests your view! Post a comment on "Seedhe Mann Ki Baat...". Click here!

1 Responses to "Seedhe Mann Ki Baat..."

Sudhandhira

Dec 21, 2016

That is a very mild criticism of Modi, Rahul Pinto. Citizens are NOT a group of soldiers to march according to Modi and his coterie's whims and fancies. How is he going to compensate the extraordinary suffering all honest Indians have undergone. The business magnates who support his party are the beneficiaries of all the mouthing on corruption that is going on. All what you see on TV, of lakhs and crores being unearthed is only the tip of an iceberg. The actual iceberg in all its entirety is not going to be exposed to the citizens of India. Mark my words and lakhs of honest Indian "citizens" echo the same feeling. I challenge you to conduct a survey of this and publish the results for all CITIZENS to know!

Like (3)
  
Equitymaster requests your view! Post a comment on "Seedhe Mann Ki Baat...". Click here!
DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the subscriber could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the subscriber could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the subscriber should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the subscriber could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.