I smell a Rat - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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6 DECEMBER 2007

The Associated Press carried a very interesting story about rats. More than 200 years ago, rats jumped ship for what is now known as "Rat Island". A Japanese ship, infested with rats, ran aground off the coast of a deserted island in Alaska in the year 1780. The rats, being great swimmers, made it to safe ground. It was the first time rats had made it to Alaska, said the AP report. Since then, Rat Island has been silent. The sounds of birds are missing, noted the AP report, because the rats feed on eggs, chicks and adult seabirds, which come to the mostly treeless island to nest on the ground or in crevices in the volcanic rock. Steve Ebbert, a biologist at the Alaska Maritime National Wildlife Refuge, gave his views on Rat Island to AP: "As far as bird life, it is a dead zone".

The AP report goes on to say: A visitor to the island 1,700 miles from Anchorage doesn't have to look far to find evidence of vermin. The landscape is riddled with rat burrows, rat trails, rat droppings and chewed vegetation. Certain plants are all but gone. Rats have been the scourge of islands worldwide. According to the California-based group Island Conservation, rats are to blame for between 40 percent and 60 percent of all seabirds and reptile extinctions, with 90 percent of those occurring on islands.

"Rats are one of the worst invasive species around," the AP report quoted Gregg Howald, program manager for Island Conservation, which is working with the U.S. government on a plan for Rat Island. The rats, apparently, have four to six litters a year, each containing six to 12 babies. One pair of rats can produce a population of more than 5,000 rats in an area in one year.

Unintended consequences.
So, why this fascination with Rat Island? Well, we have been hearing about the threat to the world from gas emissions and global warming. Maybe the threat is nearer to home: rats. The rats are the "worst invasive species". But it happened by accident - not by design. A Japanese ship carrying goods from Japan to California runs aground and, before you know it, all the birds are dead. Species have been wiped out. All because someone in California wanted to eat some sushi.

And we have a modern day parallel to Rat Island: The hundreds of thousands of unsold homes and deserted properties in USA. A historian writing the economic history of the world in the year 2100 will say, "The American people loved to shop. They bought useless cuddly toys and many plastic pieces of junk because they were cheap. Well, when millions of people buy hundreds of things that cost US$ 2 each, it adds up. To a US$ 700 billion trade deficit, to be precise. So America became poor because people bought useless toys for their kids. And some of them were made of toxic materials."

Intended consequences.
But there is another story embedded in Rat Island: the power of quick breeding. The strong will always plot and plan to overwhelm the weak. Every time a bird lays an egg that symbolises life, the rats get together and gobble it up. Pretty soon there is little hope and there are only rats, a species that is "invasive". Powerful groups that usurp power by changing the rules to sustain their superiority are also invasive species.

And note this distinction: All powerful groups are not necessarily invasive species, but all invasive species (since they must survive at the cost of someone else) are, by obvious definition, "powerful groups". Mahatma Gandhi was not an "invasive species" - he was a saint who used the power of truth to fight against many wrongs. To win, the Mahatma needed an audience like the British. If Gandhi's foe had been Adolph Hitler or Stalin, chances are his life span would have been a lot shorter. And his mission would have been a failure. Just like the birds pleading with the rats not to eat their eggs.

The "invasive" species.
India has its fair share of "invasive" species and sometimes you have to understand their power by linking some seemingly random news events and connecting the dots in a sequence that brings out the hidden picture.

Like the great enthusiasm and press write ups on SEBI finally working for the benefit of the small investor and clamping down on the front-end fees paid to distributors by asset-gathering mutual fund companies. What happened to that limited assault to break the power of the distributors? Instead of making it easier for an investor go on line and subscribe to a mutual fund, there is now a need for a PAN card to be submitted in an off-line mode. So, rather than making it easier for investors to harness the power of the internet, and reduce the distribution costs, the PAN card pre-requisite now nudges the investor closer towards the distributors! With all their high commissions intact! A system with Rs 10,000 crore excess distribution costs, as pointed out by Money Today, has survived. The "invasive" species have won.

Or the P-Notes drama. The P-Notes and short term money still dominates. SEBI may have opened its front door, but to whom? The same issuers of P Notes have now gotten a FII registration - short term money will come in via the front door. A part of the problem has been solved (to make the money more transparent) but should there now be a taxation policy that encourages investors to hold shares for a longer time period? Say, by having a higher STT on those who sell within one year? The foreign and local brokers have earned an estimated Rs 4,000 crores in commissions on short term flows - will they allow these short-term flows to be stopped? The "invasive" species have won.

And now move over to real estate. On November 29, the Maharashtra Government repealed the Urban Land Ceiling Act. The ULC forced any owner with land above 500 square metres to surrender this to the government for public use.

On November 30, NDTV.com carried an article which said that there are 200 plots in Bombay that have been moved from public use to private use. According to the NDTV.com report: "It's no coincidence that the civic authorities have just gifted several politicians' prime real estate through a backdoor amendment of the civic rules. Two hundred plots, earlier taken up for beautification, can now be commercially exploited."

"The sprawling 22,000 square meter playground in suburban Dahisar is where local schools hold their annual sports meets. But soon, on this maidan, there will be a club owned by a trust, run by a …. politician. What's worrying is that the Dahisar plot is only one of 200 plots that are going commercial."

These plots were originally for gardens and for schools but, in CY 2006, were given for adoption to a favoured few. The original rules did not allow any commercial development on these plots. However, an amendment to these rules said that any plot over 15,000 square meters can be used for a commercial development. But there was still the ULC, I guess, to stop anything from happening since the ULC covered all plots over 500 square metres. Now, the ULC has gone.

The NDTV.com report says: "Mumbai's open space is drastically shrinking and the biggest beneficiaries of this government move are several politicians…."

The NDTV.com report goes on to say, "If an amendment could be brought in to accommodate the plans of a few large plot holders, what's the certainty that it will not happen again for plots smaller than 15,000 sq metres also held by politically affiliated organisation?"

For us innocent citizens, the decision to do away with the ULC is being packaged as the one obstacle that prevented Bombay from receiving all the infrastructure money from the central government. And, yes, we are happy that it has been repealed. Just like the kids in USA who got all their Made-in-China cheap toys - a little candy to keep them quiet for those extra few minutes. A little candy that caused a nation to go financially bust. So we, the children of Bombay, get our urban infrastructure money at the cost of ethics and morals.

As NDTV.com says, "land grab is a slow but a well thought out process." The "invasive" species have won.

The rats on Rat Island were long term thinkers and active short-term breeders - it took them 200 years to prove their dominance. The power of the dominant has not changed. The time frames have been compressed.


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