This is not a time for faith - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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14 MARCH 2013


The cardinals at the Vatican may have chosen their new Pope, the first time in the modern era when a non-European has been made a Pope - the religious head of the 1.2 billion Catholics.

And Cardinal Jorge Mario Bergoglio of Argentina has chosen the name Pope Francis - in honour of St. Francis of Assisi, a lover of the poor.

Closer to home, our Finance Minister gave his sermon on February 28 on how he sees the immediate finances of the country and what he plans to do about them.

And at the end of two weeks of speeches and explanations and expert opinions sprinkled with the usual high-praise ratings that come out of Chicken India, I have a simple question: do you have any faith in the Finance Minister and his government to ensure that the money planned to be spent will actually be spent the way it is supposed to?

The budget indicates an increase of 30% in the expenditures towards social services, education, and health - things that are supposed to help the poor. Do you believe that any of this increase in expenditure will actually reach the targeted poor? Or will it fatten the pockets of the middle-men?

Has the Finance Minister acknowledged that corruption is India's number one enemy?

And what, if anything, is he willing to do about it?

Instead, the Finance Minister and his love for the "quick-fix" have brought him back to his favourite - and only - nursery rhyme: "I hope the RBI will cut interest rates." After having denied Dr Subir Gokarn an extension of his term as a Deputy Governor of the Reserve Bank of India and having seemingly loaded the bases with another supporter of lower interest rates, the Finance Minister can bet on some action there when the RBI meets on March 19th.

India 10 year and WPI: high real rates did not affect GDP
Source - RBI, Bloomberg, Data from Apr 1996
As of December 31, 2012

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The falsehoods of governments

In July 1991, Dr. Manmohan Singh - then the Finance Minister to Prime Minister Rao - correctly pointed out that "investment was an act of faith".

What Dr. Singh implied was that no amount of numbers could persuade (or dissuade) any investor from making the act of an investment - a key catalyst for the future of the seeds of growth.

The reforms that began in 1982, picked up speed in 1985 and 1987, and accelerated in 1991 brought with it a lot of faith. And a lot of investment.

But over the past decade, the UPA and NDA governments - and state governments across political parties - have been tainted by private deals, cosy relationships, and corruption. Politicians are now the problem - not the solution. They have blatantly used their position of power to enrich themselves, their families, and their friends. They have become that large worm plugged into the intestine of the economy eating away at our very core.

Every spending programme aimed for the poor is assumed to be laced with a substantial kicker of money to some middle-man.

And where there is no programme in existence - they create a new one.

A highly educated person like the Finance Minister has announced a plan to set up a woman's only bank and fund it with Rs. 1,000 crore.

Why could the FM and his team not identify existing, non-government women's organisations and give them the money to allocate the Rs. 1,000 crore? I am sure the FM has heard of SEWA set up by Ela Bhatt over 30 years ago. And I am sure he has the ability to analyse their efficiency. And, yet, rather than allow groups like SEWA (which, by the way, is focused on women) to help him reach his well-intentioned goals of helping women, the FM chose to set up a new entity! Why? Was he more interested in ensuring that the programme becomes another political football and another way to encourage leakages in the system? What a terrible idea! Another project that will be doomed to failure and manipulation.

Every big-ticket deal from spectrum, to coal, to iron ore, to gas fields, to the Common Wealth Games has the dubious distinction of a political hand somewhere on the take.

And every investigation by the CBI is seen to be manipulated for some end objective. The Supreme Court, noting the power of the government, has forbidden the CBI to hand over any information on the so-called "coal-gate" scam to the government. That is a record of shame. The Supreme Court is clearly indicating its lack of faith in the government's ability to keep information that it receives from the investigating agencies in confidence. Does the honourable Court fear that the government may, in fact, leak this information out to its friends to help them prepare a defence?

Why should we heed the government's appeal?

In an interview with CNBC after the budget, the Finance Minister noted: "I am hoping that the people of India will heed my appeal and not demand so much gold. For example, if the people of India stop buying gold for one year, that will solve most of our problems in that year."

Let me give you a counter appeal on behalf of the people of India, sir: If the politicians and the bureaucrats stopped cheating India for one year, we will solve most of our problems for the next century!

The budget is an annual statement of accounts. But within it lie stated and unstated intentions. The Finance Minister has been focused on balancing the need for spending more (in light of a general election in the next 12 months) and worrying about a possible downgrade from the international credit rating agencies. That is his balancing act: the act of a politician, not that of a statesman.

There is nothing to suggest that this government - or politicians in general - wish to address the issues facing India. There is nothing to suggest they even care about corruption. There is everything to suggest the government is happy to announce new routes of creating ways to guarantee future leakages (a bank dedicated for women) rather than identifying existing routes which can be used efficiently and effectively.

Nope, there is no faith to be wasted here.

Make sure you have your allocation to gold.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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12 Responses to "This is not a time for faith"

P C Chacko

Mar 30, 2013

After indepedene the government of India through the five plans and other projects spent many billions for Industrial development ,infrastructure developments, social developments ,labour well fare etc. Had atleast 70% of the money allotted and spent were actually spent for the purpose for which they were alloted ,the face of India today would have been better than many developed Western countries.Unfortunately majority of the funds were drained by the corruption and misappropriation .Let us hope at least in futre we will learn lessons and act prudently, to see a better India A lot of developments have taken place but not to the extent of the money spent.If all will beome honest then things will improve much.

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G Darad

Mar 17, 2013

I am sorry, we have fallen in the habit of cursing politicians of all hue, whereas the fact is that every citizen of this country (barring hardly 10%)wants a share in the brazen loot, otherwise how do you explain the failure of movements like that of Anna? We have got used to our comfortable lifestyle and hardly bother about the quality of money as long as it is not in the pocket of the other guy.Crowds in all geographies and at all times in history have caused apocalypse and decimated the treacherous but you can hardly expect the same behaviour from this cacophony called India.What about the cheating of common investors by the mutual fund industry? Mr. Dayal himself is a witness to this state of affairs. After all, people get the government they deserve and politicians have not been thrust upon us by the providence; they are deliberately installed at the helm by this rotten anarchy and nobody is going to clean the stables for us.Unless and until the educated elite understands its national responsibility and leaves its cozy drawing rooms, nothing is going to change except our style of lamentation.

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Parantap Dave

Mar 17, 2013

Dear Ajit,

There can be no existence or action without FAITH, I feel what you mean is not to have BLIND FAITH. At least personally me and sure many like me have FAITH in EM and we can surely ignore FM

Regards,

Parantap

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Raju

Mar 17, 2013

Hats off to you Mr. Dayal!!! We are very lucky to receive very inspiring & motivating articles from you. Considering the reach to public from this platform is limited, media (in particular) shall discuss these issues in public forums such as at NDTV, newspapers, at most publicized platforms & let people understand where their taxes are diverted and how politicians bank accounts are filled.

Please continue to write the facts and represent ‘People of India’ and hope someday politicians understand that they are not different than British Raj (earlier money used to go to England and now to Swiss bank) and people take revolutionary steps by electing educated, clean (from both corruption & crime) and capable candidates for bright future of India.

Thank you again.

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Albert

Mar 15, 2013

Bravo! Bravo! Mr. Dayal has once again hit the nail squarely on the head. The FM should be sent this letter via registered post, courier, e-mail and SMS so that he does miss the message contained here. Mr. Dayal has encapsulated the sentiments of a billion Indians in this missive and it'll be a shame if only a small fraction of the population gets to read it. Lets circulate it amongst all we know personally asking them to forward. It's time for this message to go viral.

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Sthithapragnja

Mar 15, 2013

Ajit Dayal Ji,

With humility fortified with abundant ignorance,I am prompted to observe as under:
In my school going days I have often heard the two famous ADAGEs : (1) PHYSICIAN HEAL THYSELF; (2) PREVENTION IS BETTER THAN CURE:
Coincidentally the converse has become a crystal clear occurence which makes me quote from my little layman's wisdom thus::

"" CURE IS BETTER THAN PREVENTION ""(to reiterate herewith another famous one quoted in reverse
NINE STITCHES DELAYED much BEYOND the right time ARE BETTER THAN ONE STITCH IN TIME "" and instead of stopping the leakages whenever noticed,the tap is kept open for free drainage of the ......
(There is a vernacular maxim :USHNAM USHNENAH SHYMYATEH !!(Heat is subdued with heat alone ??)

I hasten to conclude!!

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Ramanathan

Mar 15, 2013

It was your Honest Truth that made me lifetime member of Equitymaster. What a clear, straight forward writing!! Simply amazing. Continue to write articles more frequently. Best wishes to you and EM.

Like (1)

Shirish

Mar 15, 2013

We have reached a stage where mere words by people like you and me is not going to change anything. Govt and poticitians have become completely immune to public criticism. Instead of blaming current politicians, time has come for the intellengtia of the country to enter politics. That is the only solution to cleance the system. Otherwise article after article will keep appearing saying we should do this and we should do that, but actually nothing will change.

Like (2)

Samir Saraiya

Mar 15, 2013

Nice to see someone in this country can call a spade a spade and instead of showering senseless eulogies points out that the real drain on our countries resources is not consumption of Gold but corruption. Has any one total led the value of the scams in the last fiscal Tetra trucks, Westland helicopters + + + +?

Like (1)

GEORGY

Mar 14, 2013

Every sentance you said is apt. Your counter appeal on behalf of the people of India to the FM is absolutely worth pursuing, and if implimented will see India in the top leauge of nations.

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