Restore our faith, Mr. Prime Minister - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
Restore our faith, Mr. Prime Minister A  A  A
24 AUGUST 2013

Dear Prime Minister:

In July 1991, as the Finance Minister in the Narasimha Rao government, you gave a long interview to the Economic Times justifying on why India needed to reform from the "license raj" days to a more open economy. That interview was, in many ways, a sort of admission of failure - without you or anyone in the Congress actually saying so - of the wealth destructive policies followed by successive Congress governments particularly under Prime Minister Indira Gandhi. You and your colleagues in the then Dream Team were part of the "Cream Team" which had set India back by a few decades with myopic policies and acceptance of corruption. But, as the reforms of 1991 gripped our imagination, we were willing to forgive you for those past errors, even if they were unspoken. The one statement from you in those thousands of lines of rationale for a new way forward in the Economic Times interview which stuck in my head was "Investment is an act of faith". The reforms of 1991 unleashed a huge outpouring of "faith" in you and in your party to lead us forward.

Much has happened since July 1991.
From the great India Shining stories of your rivals in the BJP, to the Resurgent India and Incredible India battle cries of your own party, to the innumerable scams that have plagued India at the district, municipal, state, and federal level of government - across party lines.

India has grown from being a closed economy to one where its citizens can travel anywhere in the world and undertake an enterprise anywhere in the world.

The world, itself, has changed a lot and the monetary systems in the more open global financial markets have shown the immoral connectivity between big government and big financial firms.

Your personal life has changed, too: you have found yourself in the seat of the Prime Minister of two consecutive governments. In a seat of leadership. In a position to convert the faith we had in you - an apolitical and intelligent person - into dreams of a better India.

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And, yet, as your handling of various scams and episodes over the past decade have shown you have fumbled and remained silent. You have taken the unabashed faith we had in you and converted it into a cynical distrust of you and your senior colleagues in the Administration. From being a symbol of honesty you are now seen as an incompetent and, possibly, dishonest man. It is possible that you may not have made any personal money in all the incidents of grand theft. However, an honest man retains his honesty not by being a silent spectator to a theft but, rather, by actively trying to catch the thieves he has witnessed perform a theft. So far we have seen you look the other way and not use the full power of the government machinery to bring the suspects to justice. In fact, to add insult to our intelligence, we see your cabinet colleagues tossing counter-allegations on the talk shows that thrive on this absurd situation. Under your leadership, the movement by Anna Hazare to cleanse the corruption in India (a movement of the kind that Mahatma Gandhi, whose endorsement of Nehru gave the Congress Party its power, would be proud of) was converted into a convoluted discussion on irrelevant subtleties.

The harshest proof that any leader can have is when a nation's people no longer believe in their own currency. Having being the Governor of the respected Reserve Bank of India you will understand this. As a dream merchant, living off our faith, the key monetary indicators of your success (or failure) should be:

  1. Are Indians investing in IPOs and in the stock markets - an IPO is a great indicator of faith in the future and, at its extreme, borders on insanity; politely called "irrational exuberance" this unabashed faith in the ability to create something in the future out of nothing;

  2. Are Indians burying their cash in mattresses or putting it in safe bank deposits - if Indians are stashing their cash, it means they have no faith in the future and they are scared; their fear of "risk" is because their past experience has shown that they get no rewards for the risk they have taken. In fact, they have probably been slaughtered. Their rational reaction: have no faith and stay safe in bank deposits;

  3. Are Indians buying gold - a global currency - or the currency of our own nation, the Indian Rupee? Here, I will give you the benefit of a partial doubt. People buy gold either because they have no faith in their own currency or no faith in the world. The reason why Indians are buying gold is, therefore, difficult to pinpoint as a loss of faith only in you, your leadership, and your government. The hijacking of the global financial system and the ownership of policies of many central banks by a few large financial firms has resulted in a desire to own something besides a "fiat" or paper currency: gold and silver are seen as these alternatives. As an Indian, I am sure you have bought some gold for your family. As the Governor of the Reserve Bank of India, you must have been party to discussions and decisions on keeping gold as part of the RBI's global reserve currencies. So, you know that gold is not just a "useless metal", as branded by your Finance Minister.
The timing of this letter to you - when the Indian Rupee is taking a whack - is part of the delusional process of governments. Governments listen when hit by crises - they rarely plan.

Of the 3 indicators above, the data on the first two points (a dead IPO market and a surge in bank deposits) were apparent for any student of economics and finance looking for the first signs of trouble. For the first signs of a deflation of your historic "Investment is an act of faith" statement made in 1991.

But your cabinet colleagues, your spokespersons on media, and the various "yes-men" in important positions of the administration were probably too busy trying to figure out the next "personal cash-extraction" scheme or "quick fix" to pretend all is fine in your kingdom.

As long as the suited bankers of Wall Street firms kept the moolah flowing in for various equity portfolio products, bond funds, and infrastructure funds - and as long as the invites to speak at Davos and other hallowed destinations were alive - the local "lack of faith" indicators were ignored. Elections may be held in India, but lucrative post-retirement jobs are a function of visibility at these global conferences. After all, what can the poor Indian voter do? Even though the Supreme Court has recently ruled that a convicted person cannot stand for election, your party - along with the other political parties - is already finding ways to fight this absurd birth right that politicians seem to have to rape and plunder at will - and be elected to do it again. So, ignore the locals and let the foreigners cuddle you and make you feel good about India.

Well, the foreign financial firms are, well, foreign with (rightfully) no loyalty to any country. They need to earn their next commission. They earned commissions from making their clients "buy India", now they will earn it from making their clients "sell India". Don't count on an invitation to be a key speaker at the next Davos. Discard your delusions. And now find a way to win back the "faith".

With an annual savings pool of about USD 400 billion (at today's whacked rate of the Indian Rupee) and a gold hoard of an estimated USD 1 trillion sunk somewhere in the mattresses of most Indian homes, there is no shortage of money to get India back to its Resurgent or Shining days.

Yes, we will shed the useless metal and we will be happy to take risks again and fund the dream merchants who launch IPOs.

If you launch a "gold-for-gold" or "gold for INR equivalent of future gold price" Gold Bond scheme with a 6.5% per annum interest as your government did in November 1962 (and collected 16.3 tonnes of gold, valued at Rs 5 crore today), just after India lost a war with China, it will fail.

In 1962 patriotism ran high and faith in the Congress government and politicians was at a peak.

Today, patriotism is still strong - which is why any gold-for-gold scheme will fail: Indians love their country too much to entrust their hard earned wealth to a bunch of questionable, low-character hoodlums who hold positions of power.

But, using the latent gold to actively drive the future growth of India - and stop this slide in the INR and loss of faith in India - is important.

So, when your Finance Minister comes to you to sign off on a "gold-for-gold" scheme like the one you had in November 1962, March 1965, and October 1965 which he is probably designing as I write, tell him this:

"Our citizens have lost the faith in us. We need to win it back. And we will do so by impounding the passports of every legislator and every political party officer and their extended family. Furthermore, we will impound the wealth of every legislator and their extended family and keep all these assets as collateral in this new gold-for-gold scheme. Their passports and their wealth will only be released when we have made good on our promise to the Indian citizen to return all their gold by the year 2020. And if we fail to return the gold, the assets of the legislators held in custody will be disposed off and - given that the average legislator has a lot of wealth - we will always have sizeable collateral to pay off the obligations to the Indian citizens. Only under such an act of faith from our side will the Indian citizen come forward to deposit their latent gold for us to convert it into USD, then sell that USD and buy INR to stem the slide of the INR.

Oh, yes, that Anna fellow: tell him we have placed the CBI under the jurisdiction of the Supreme Court and they are free to work as they see fit to root out corruption. Furthermore, here is a list of investment banks and scoundrels who have duped investors in questionable IPOs - make sure they are blacklisted from any future IPO. And add their names to the list of people whose passports and wealth is being impounded. And, finally, tell the organisers at Davos that our passports are impounded so we will restrict our travel to Indian villages. And, no, we will not eat food at a villager's home to prove we qualify to be a Prime Minister."

So, Mr. Prime Minister, if you still stand by your statement that "investment is an act of faith", win back the faith and India will respond with the investment.

Otherwise, pray hard that your next visit to Washington, D.C. does not end up as an "Indian Super Power with a begging bowl in hand" cartoon in the western press.

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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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34 Responses to "Restore our faith, Mr. Prime Minister"


Aug 29, 2013

An unbiased assessment of the performance of the Prime Minister. If he continues to be a mute spectator, it will land the economy to deep ditches



Aug 27, 2013

The rot is from the root. Elected Representatives are expected to provide upward communication to the Prime Minister and convince him through majority vote. The Elected Representatives are not competent to do so. Thus the root of the Parliamentary Democracy has been destroyed.How? Representative for election are nominated by the leader of the Political Party. After election he is expected to vote in Parliament on whip of the leader. The leader is the dictator and all elected members are his “yes men”. The adoption of The Food Security Bill, 2013 on 26 August, 2013 confirms the rot, all amendments moved by the Party in majority are passed and amendments moved by the Opposition are negated. Elected Representatives hearing from “We the People” has been marred, if they hear and act, the representation is at the stake. Prime Minister is the elected representative. Mr. Prime Minister is also expected to follow this rule; hence your letter even if it is read will have no effect on the deaf ears. The restoration of faith for investment is under the carpet, none is competent to fetch for “We the People”. The foreign investment will not be for “We the People”, it will be for profit and to reverse the freedom.


Kunal Bavishi

Aug 26, 2013

This article reminds me of Nassim Taleb's quote "IF YOU SEE A CRIME AND DON'T REPORT ONE, YOU ARE A CRIMINAL".

We all see some sort of civil or criminal violation of law happening daily in front of us and do nothing to rectify it. Shocking but true.

Like (1)


Aug 26, 2013

The article echoes the feelings of large number of Indians. But Mr. Ajit, you are not Soniaji, who could be heard. Ears of those who matter are locked to her utterances and signals. Though the effort is appreciable, alas, it goes down the drain, with common people like us, and who do not have any say in the running of the economy, appreciating your article.

Like (1)


Aug 26, 2013

Honest words Mr. Ajit Dayal. This is what lingering in the minds of honest and sincere people. But it is 100% sure, our PM will not react. Even I am wondering whether he is the same man who headed RBI for some time. Really money and power is working.

Like (1)

Narayandas Velamati

Aug 26, 2013

I agree to what you have put across to the facts which should be highlighted by the media only to to make the PM guilty and act regardless to the dictum from his party only to perform in the interests of our country and its citizens before we go with the begging bowl.Act to our strenghts first i;e;Agriculture and Diary,human resources,Utilisation of our vast resources effectively (Without Scams),Infrastructure,International Tourism etc

Like (1)

Pankit Padia

Aug 26, 2013

Dear Ajit, Its certain that current government has failed to restore faith given track record of scams, weak economic policies, delay in approving infrastructure projects, etc. However, people generally forgets past happening, when they see some good signs. Like, it has been expected that CAD will come down due to low import and high export amid high USD/INR rate. Soon after good numbers are shown to public for CAD, Inflation, etc. all other things will get earased. Thats where we livein. Good governance is what we expect from PM.

Like (1)

Neeraj Varshney

Aug 26, 2013

Dear Mr Dayal,
Do you honestly think that "Mr Yes Madam" will get affected by your suggestions? Who elects these clowns and gives them the power to "rule" over us. We the People. It is a long haul for a nation like ours. As you have brought out, the perpetrator is the law maker in our nation and now they do not let any clean person to enter their "incestuous political hot tub".
The arithmetic of our elections and voters is a study in itself and no matter how much people like you speak, write or say. It does not matter. I was always an optimist on my country. But now, I want to now leave this country and lead my retired life in a country which respects human life and dignity. I may not have my old friends but thanks to info revolution I will stay connected to my children and near and dear ones. India is an accidental nation. We only grow by accidents. Hope so that we grow this time for good.

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Rajan Nireshwalia

Aug 25, 2013

Excellent Article. A must read for EVERY Indian..

RAISED TO A BILLION!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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Aug 25, 2013

I think our honourable Prime Minister has forgotten the meaning of the word 'faith'. If this is true then what you can expect from him?

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