To hell in a hand basket - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
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15 DECEMBER 2008

The Vatican must have lost some money.
Or maybe they have heard the confessions from the sinners who lined up at the confession box. The holy priests must have heard all the cunning schemes that were guised as financial engineering. And then the pleas for forgiveness.
But the sinners may not have been absolved of their sins.

The Associated Press reported Pope Benedict XVI as proclaiming that the "global financial crisis is a result of the quest for short-term gains at the expense of the common good."

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The Pope further noted that "the widening gap between rich and poor is a threat to world peace". The international financial system should sustain long-term investments and development but the recent crisis "demonstrates how financial activity can be completely turned in on itself, lacking any long-term consideration of the common good."

Maybe politicians and policy makers need to hear the Pope’s message, scheduled to be broadcast on January 1, 2009 to mark the Roman Catholic Church’s World Day of Peace. For we continue to be obsessed by the hunt for the "perfect" markets; our holy grail remains the forces of "liquidity"; and rewarding the sinners seems to be the prime objective.

But, wait a minute: the Pope is the head of the Catholic Church.
Our Prime Minister is ruled by a lady who belongs to the Catholic Church.
We can’t have our economic and monetary policy dictated to us by a "foreign hand"! No, way.
The BJP will scream murder, the RSS will implement it.
The Leftist will go into another tirade on foreign interference in our internal affairs - conveniently forgetting that their own inspiration comes from non-Indian shores.

So, while the Pope had some pretty relevant observations in his speech, India is different and needs to play its own tune.

Wish list of policies for the New Year
So here are a few ideas for those who write policy based on the ultimate objective of "price discovery", liquidity, and with the sole focus of making the rich, richer:

  1. Allow P-Notes to function till eternity and recognise that all these "investors" are doing is betting on "black" or "red". And accept the fact that sometimes the actions of high velocity money will cause the market cap of HDFC to increase to USD 20 billion and sometimes the market cap will sink to USD 8 billion. HDFC will still be HDFC but its share price will move all over. All prices are "correct prices" and discovered by high-volume trading. Three cheers for policies that carry the flag of "liquidity"!

  2. Loosen up the purse strings and allow banks to continue to finance the projects of real estate developers. India is short of housing, so building homes is a good objective. But money will probably be lent to support the profit margins of the real estate companies. Heck, if Paulson can lend his friends money that finds its way to pay the bonuses of the financial sinners in USA - why can’t India play this little side-game?

  3. Reward banks like ICICI Bank who forgot the basic principles of risk assessment and focused on market share. So when the bank faces a financial challenge that nearly unsettles the otherwise safe Indian banking system, reward the management with bonuses and promotions. Let the good banks which did worry about risk and return wear the halo of goodness around them. Halos are for free and don’t need a bail out. Reward the sinners for trying to have a better time in this life and leaving future generations to clean up the risk a la Citibank and Lehman Brothers.

  4. If a mutual fund adopts some terrible practices which threaten the entire mutual fund industry, give them a lifeline to access money from the Reserve Bank of India. Then allow them to carry on with their business as if nothing happened. Rather than cancel their license, there is a suggestion to build a bigger barrier for new entrants that may wish to challenge the irresponsible behaviour of the existing giants.

So, there it is: a short and sweet list for the New Year.

I could have wished for more sanity in our policy-making and politicians.
I could have wished for preparing policies based on a long-term economic vision of India.
I could have wished that money earmarked for the poor actually gets to them.
I could have wished that P-Notes and short-term flows are banned.
I could have wished for so many things.

But - unlike many other wishes - this shorter list is likely to come true. Because we are already following these policies. So my wishes are already facts of our existence. They can be repackaged - like old wine in many new bottles.

Let’s celebrate the Indian century.

Look out, folks, here we come: straight towards hell in a hand basket.
Unless the message of the Pope - a complete outsider to the world of finance and economic development - finds its way through.


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