No white, all black - The Honest Truth By Ajit Dayal
Investing in India - Honest Truth by Ajit Dayal
No white, all black हिंदी | A  A  A
16 DECEMBER 2010

There are two kinds of printing presses which have been running overtime these days: the one owned by Ben Bernanke and the other owned by the Indian media.

While Ben Bernanke's "print-as-many-dollars-as-you-want" press is potentially worrisome for India's economic future, the traditional white, pink, and yellow newspaper presses are busy unearthing all the scandals that have disrupted India's past. And this could be potentially good for India.

------------------------------ Repeat Broadcast ------------------------------
"Silver is speculative..."
"You don't get rich buying gold..."

Listen to these golden nuggets from none other than Bill Bonner as he discusses Gold as an investment option and most importantly - Is Now the Right Time to Buy Gold in our...
FREE Webinar on GOLD. At 10 AM on Saturday, 18th December.
To register NOW for the rerun, click here.


The big, fat, and ugly
We had the Suresh Kalmadi led Commonwealth Games grab the limelight for a while only to be overshadowed by the 31-story Adarsh building saga.

Then we were bombarded by the telecom scandal where "paper companies" with no track record were given an esoteric asset called spectrum at a throw-away price. The Comptroller Auditor General's reports suggest that the gift was to the tune of US 31 billion dollars - equal to the amount that India spends on its defence forces every year. But scandals even in a de-licensed raj of post-1991 India are not new. For those born in the mobile phone era, there was a Telecom Minister called Sukh Ram who was caught with a sack full (yes, literally, a gunny sack full of notes worth Rs 3.6 crore) in his house in 1996 allegedly for awarding telecom contracts. If memory serves me right, the Finance Minister in that era was Manmohan Singh, the man with the "life-goes-on" smile. (Sukh Ram was finally convicted thirteen years later in February 2009 to three years imprisonment, the money found in his homes was confiscated, and he had to pay a fine of Rs 200,000.)

And just as we were winding down the scandal-ridden month of November, we were engulfed with news of the loan-for-bribes scandal that is engulfing the real estate and banking sectors. But there is no surprise in this scandal. India is up for grabs and those with access to money can grab large tracts of wealth being offered by the politicians. So those who have the money - the banks, the insurance companies, and UTI - are constantly bribed to send a little bit down to these so-called "promoters" and "entrepreneurs" to help them in their time of need and their hunt for greed.

While all these minor scandals were playing out, the biggest one out there - and the least covered by the media, because many in the media are involved - seems to be the Nira Radia tapes. The Outlook magazine and their website has transcripts of various conversations taped between Ms Nadia and a star cast that includes journalists, politicians, respected thinkers (for lack of a better description), and industrialists.

I have not read all the transcripts but what I have read is fascinating and shows the deep sense of rot and corruption that has over powered India. And many in the media, champions at cornering the corrupt politicians, are now caught naked in their hollow claims that they were doing their journalistic duties and scooping for information. Many in the press were for sale. Just as they were in the economic liberlaised India of 1994 when Enron reportedly spent millions lobbying the press in India to write good things about their one-sided sweetheart deal in Dabhol Power Corporation. By the way, was any minister or bureaucrat ever hauled up for that loss to the exechequer? It was a blessing that Enron went bust or we would be paying for electicity in US Dollars per unit of consumption.

And in between these larger reported scandals are the countless drains on the exchequer whether it is wood stolen from forest land; iron ore from mines; gas from energy fields; or even coal from the now-listed juggernaut Coal India.

But not all scandals need to be big, fat, and ugly. The smaller scandals are cute and hilarious and populate the Indian landscape just as our road-side places of worship. Like the small town paanwalla in Gujarat, who with a few Google searches found out that many of his friends' names were being used (and probably still are) for collecting money from a willing government.

As the Financial Express reported, "A newly e-literate village paanwala's obsession with Google has blown the lid off a unique NREGS scam in Porbandar. The motley bunch of beneficiaries include affluent NRIs, doctors, government officials, teachers and well-off farmers - all shown as unemployed village labourers holding NREGS (Mahatma Gandhi National Rural Employment Guarantee Act) job cards. So far, the money siphoned off comes to nearly Rs 1 crore.

On paper, there are 963 NREGS job cardholders at Kotda village in Kutiyana taluka of Porbandar district. Records show they have been paid over Rs 95 lakh for their 'labour' over the past three years. In reality though, none of them have ever dug wells or built roads in their lives or actually received any money for the same under NREGS or otherwise."

--------------------- Do you like the "Quantum way"? ---------------------
If you've been reading the Honest Truth and like what Ajit has to say, we are sure you would be pleased to make our acquaintance.
We are, Quantum Mutual Fund, a fund house that works on a set philosophy - the same philosophy reflected in the Honest Truth - Non-commissions, Transparent Costs, Basic Products, Long Term Investing!
Give us a chance to know you better. We're just a click away!


How white turns into shades of grey, or plain black
The use of Google has not been confined to unearthing just the small scandals. At the height of the SEZ scandal, when every industrial group knowingly and willingly was trying to grab land supposedly for the next industrial revolution of India. Reliance had received approvals from the government of Maharashtra and the central government in 2006 to get 10,000 hectares of land in Alibag, a few nautical miles from the Bombay port. Nothing wrong with that except that one of the conditions for granting an SEZ license was that only non-arable land could be converted for industrial use. It took a few villagers with access to Google Maps to prove that the green colour on the proposed Reliance SEZ was not Ben Bernanke's green-coloured dollar bills from his blessed printing press floating down on the villages of Alibag but, rather, this was very arable, agricultural land. Hence, the maps showed it as green! In fact, the locals claimed, the rice produced from the potential SEZ accounted for over 50% of the rice produced in the state. Therefore, this land was wrongly being given to Reliance. It took local knowledge to ensure that state and national politicians were not selling another national asset for less than what it was worth. Whether that land eventually finds its way into Reliance only time will tell but, for now, that land grab has been stopped.

And while Ratan Tata may confess about the Rs 15 crore that he refused to pay to start an airline, the Tata group did not come out of their own SEZ foray for the Nano plant in West Bengal looking like angels. Far from it. On top of that fiasco, for all the piety about the riots in Gujarat in 2002 and the atrocities of a Modi-led government, the Nano car plant finally made it on Gujarat soil at the invitation of the same Gujarat Chief Minister. I guess if you need to build a car, why worry about what happened in ancient history?

And, in my own business of running a mutual fund, I am appalled and shocked that a group led by a person of high integrity like Ratan Tata let their mutual fund house be hijacked by a distribution model that probably mis-sold their funds and gathered thousands of crore of AuM for them. Running a mutual fund can be a clean business - I know because that is the path that Quantum Mutual Fund has chosen to pursue. Gathering assets the way the entire mutual fund industry has done over the past decade (and the fact everyone did it does not make it right!) was downright unethical.

A bribe is paid to someone to change their behaviour. There was a "bribe" paid (knowingly or unknowingly) in the adoption of a bad business practice of using an army of distributors to gather assets for the mutual fund industry by wrongly selling "investment solutions" to innocent investors based on commissions paid. Assuming that the Tata mutual funds gathered Rs 10,000 crore of equity assets over the last decade and paid 4% fees to collect the assets, that is a payment of Rs 400 crore. If Rs.1,000 crore was raised then the payments made to distributors were Rs 40 crore. This opaque and undisclosed payment - a common business practice - has been outlawed by SEBI since August 2009. But prior to the SEBI ban of August 2009, the "incentives" paid by Tata Mutual Fund seem to be a lot more than what Mr Tata refused to pay for setting up an airline. So, when I hear that Mr Tata was on the Radia tapes, it upsets me - yet another blemish on the image of honesty.

I have often said that there are few things of value in India and they are (not in any order): Gold and the brand names of Infosys, HDFC, and Tata. And I admire the people who built these firms, who work for these firms, and the values they instill. But, as the saying goes, sometimes the runner stumbles. And the brands get diluted. They may have larger market caps, but they have smaller ethical values.

Ready to come clean and wear white?
"The business of business is business", said Alfred Sloan.
That may be true, but it does not make it right. Business can and must make profits, but cannot be condoned for theft or oblivious of its responsibilities to society at large.

The point of bringing two well known groups - Reliance and Tata - into this story is not to single them out as bad business groups but it is for us to recognise that however much we may curse the politicians, the politicians by themselves can do no harm if businesses and businessmen did not focus purely on money. On GDP and market cap.

Maybe our political leaders have had enough of corruption - or believe that they, or their relatives, or party have made enough of money and it is time to put a stop to it.

Sonia Gandhi recently confessed at a conference in New Delhi, according to news reports, stating that "Graft and greed are on the rise. The principles on which independent India was founded, for which a generation of great leaders fought and sacrificed their all, are in danger of being negated." So the Congress looks like it wants to focus on good governance and helping the poor.

Sharad Pawar, never wishing to be out-gunned by The Lady, as reported in the Business Standard of November 19th, "will address party MLAs tomorrow to educate them on how to improve their performance, make quick decision and refrain from corruption". The article goes on to say, "Pawar wants that NCP ministers should concentrate on their ministerial jobs and not on amassing wealth for themselves. The party needs money but it should not be mobilised through excesses. Pawar to ministers is expected to tell his party men to follow this in true spirit or face the axe."

The leader said Pawar had already expressed his displeasure about his men neglecting the party organisation and its functioning. Instead, ministers were busy making their fortunes. "This will not be tolerated in future. Pawar would ask NCP ministers to be careful in discharging their duties especially when Chief Minister Prithviraj Chavan has already accorded priority for transparency in governance and administration. The party should not be defamed due to their wrong doing or involvement in corruption."

Goldman with guns!

While politicians are re-defining themselves and trying to create a new brand identity, are the Indian industrial groups ready to give similar speeches. And follow it up with action?

It's being done in Japan where the construction industry has for decades succumbed to pressure from gangsters and has finally refused to play ball. This has led to a few shooting incidents on construction sites in Japan. Since owning guns is banned in Japan, the police suggest that the mobsters are behind these attacks. The International Herald Tribune quotes Jake Adelstein, a writer and observer of the evolution of the yakuza (the mobsters) in Japan, describing them as "Goldman Sachs with guns".

(Uh, oh some breaking news in case you are trying to figure out where the next scam will come from: yet another government-appointed committee on how to finance India's infrastructure needs has a Goldman Sachs representative on it. If anyone has read The Big Short by Michael Lewis, they would never appoint Goldman on any government committee.)

So will businessmen and business groups in India adopt a "No Bribing Policy"?

And will we - as individuals - refuse to work with or be employed by a business group that is involved in corruption?

A modern day version of "satyagrah"? I guess if we did follow that rule and refused to lend our talent to thieves and crooks, most of us would not have jobs and would have to set up our own companies to work for!

Hail the demi-gods!
We live in a world dominated by market cap, Bloomberg, CNBC, and Forbes where the ranking lists of the rich are worshipped and the owners of money are gods living in towers that we, too, wish to occupy.
And we emulate them by buying the clothes they wear, the cars they drive, the things they do.

Money was created as a medium of exchange; we made it into a measurement of success. And as long as we live in that world measured by money, we will have scandals.

And Prime Minister Manmohan Singh will continue to give us the same sweet,"why-blame-me smile" that he gave when he was the Finance Minister and Sukh Ram had a sack full of dirty notes stashed in his house.
And our beloved PM's disarming smile will make us all believe that we live in an honest country run by honest governments at the central, state, and municipal levels.

When, oh when, can we have a clean and fair India?

Which of the following do you consider to be honest beyond any doubt?

Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
Quantum Long Term Equity Fund Quantum Gold Fund
Quantum Liquid Fund
Why you
should own
An investment for the future and an opportunity to profit from the long term economic growth in India A hedge against a global financial crisis and an "insurance" for your portfolio Cash in hand for any emergency uses but should get better returns than a savings account in a bank
Suggested allocation 80% 20% Keep aside money to meet your expenses for 6 months to 2 years

Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"

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.

Read our Privacy Policy and Terms Of Use.
Get The Honest Truth directly
in your mail box.
Just enter your e-mail address» 

Read our Privacy Policy and Terms Of Use.

Equitymaster requests your view! Post a comment on "No white, all black". Click here!

45 Responses to "No white, all black"


Dec 23, 2010

now a days ,nobody is honest in p[olitics and business.businessman want to see their business at the top and politics and busines now adays are complementory to ech other...............


Rajeev Maheshwari

Dec 22, 2010

Politics name itself is a dirty name.
No body is honest in politics & no body can remain honest in politics, because politics make your behaviour. It is best to legalise limited donation [corporate donations] to political parties .the least we can do is to choose those person who want to survive in politics & do some good work for public.There are many politicians like Nitish Kumar & Narendra Modi.They make adjustment to survive & do some good work.
The bad example is Mayawati, Sharad Pawar who had printed money to their best level.
They make all adjustment to survive & doing their work with no boundry.


Nikhil Shah

Dec 20, 2010

From when and how, Pawar has become a saint?

He says NCP ministers should concentrate on their jobs and not on amassing wealth for themselves!

Dear readers, do you know why? Because he is the best at the job of making money himself and nobody can ever beat him.

Beyond iota of a doubt, the most corrupt politician of all time. Doesn't he deserve a Bharat Ratna for this?



Dec 20, 2010

Well written. Liked the words, "Money was created as a medium of exchange; we made it into a measurement of success."

keep it up with your creative work.


Rameshwar Prasad

Dec 20, 2010

In my opinion Tata group is honest but for some of of the recent reportings on the group.


S A Padmanabhan

Dec 19, 2010

I would have voted Tata group as honest but for some of of the recent reportings on the group.



Dec 18, 2010

i think manmohan singh is a honest man but he is boundd by very dishonest person


ramkishan sonthalia

Dec 18, 2010

This saying was more applicable to real estate companies. However, now it is relevent to the scams which appeared recentely. All the money gone through hawala which means no white.
Hope I could clear the matter as per my understanding.
Ramkishan Sonthalia



Dec 18, 2010

Humam main to sab nange nahate hain..
Aap jahan paani dekhte hain wahin nange ho jate hain

It seems to apply to all - even EQM -- Blow your trumpet else you will not get business - but too much will find yourself short of breath and short of ideas to make a difference. Ajit should know - Leader does quantify and accept pain of change and make the difference by their work in the long run.


Vijay Kastury

Dec 18, 2010

The lack of consequences for being corrupt will have a cascading impact on the psychology of people. As the money gained through illicit means starts chasing real estate and manifesting through conspicuous consumption, the question that comes across to most minds is why not join the game, especially if there are no consequences. So it should not come as a surprise if you come across an army general who sold out the secrets to an enemy state or if MNCs refuse to recruit Indians or promote them to senior positions ( despite being highly qualified) because whilst their intelligence is beyond doubt their integrity certainly is, an intelligent person lacking integrity is a bigger danger and this is how most Indians will be looked at.

Equitymaster requests your view! Post a comment on "No white, all black". Click here!