Duplicitious governance - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
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4 JANUARY 2014

The UPA Government is full of duplicity. It has differing standards, benign when its, or its partners' interests are concerned, and harsh when those of its opponents, or of its citizens, are.

The duplicity was brought out most recently in the press conference given by the Prime Minister, Manmohan Singh, when he averred that Narendra Modi would be a disastrous prime minister, because he ruled when the Gujarat riots took place. By that token, Indira Gandhi ought to have been a disastrous PM too, for she ruled when the nellie riots occurred. And MMS ought also to have taken action, but didn't, to try and prevent, and to subsequently upbraid, UP Chief Minister, for the recent riots in Mazaffarnagar. But he is a political ally, and Modi an opponent.

The duplicity is brought out in the treatment meted out to various officials in the Adarsh scandal in Maharashtra. The Adarsh society, a high rise apartment block, was given several concessions, ostensibly to house war widows. Ministers (including three erstwhile Chief Ministers) and senior bureaucrats manoeuvred to allot the apartments to cronies, instead, using their discretion. The report which castigated them was, abhorrently, shelved by the State Government, until prodded by the heir apparent, Rahul Gandhi. But the end result was that the Ministers remain unanswerable and exonerated, but the civil servants not. Duplicitous governance.

All the more so when we juxtapose it with the plight of the owners of the Campa Cola society, who are in danger of losing their homes. The fact that these were occupied for decades, presumably after greasing palms, as they were illegal, and that those who took bribes are scot free whilst the owners are being de-housed, is completely in line with the UPA's duplicitous behaviour.

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This duplicitous governance hurts the economy.

Consider the duplicity in the treatment of two scandals. That of Satyam and of NSEL. The Government swooped in with commendable alacrity to arrest Ramalinga Raju, the perpetrator of accounting fraud at Satyam, but has not taken any action against the perpetrator of the NSEL scam, Jignesh Shah. Despite Shah being found unfit by the regulator FMC, to run an exchange, despite the fact that its audited accounts are unreliable, and despite the money laundering that occurred at NSEL. It has failed to meet its payment obligation even once since it drew up a schedule of payment to aggrieved investors. The Finance Ministry, which is charged with overseeing the recovery, is headed by Finance Minister P Chidambaram and Secretary, Economic Affairs, Arvind Mayaram. They were Chief Guest and guest of honour at the inauguration of the MCX-SX, a stock exchange launched by the group. They ought to tell investors why progress is so slow on recovering the amount, even after the EOW (Economic Offences Wing of the Mumbai Police) has attached assets of several borrowers, and of Shah and his cronies. Is there some hidden political agenda?

Such duplicity adversely affects the economy. Unless investors feel safe and protected, the investment climate cannot improve.

When other companies break laws, SEBI prohibits promoters from raising money, as a penalty. Yet, MCX-SX, part of the same group as NSEL, has been permitted to make a rights issue. Why? Is it duplicitous governance? Is there some hidden, political, agenda? As per this piece, the question is that, given "an indifferent finance minister's office, a young corporate affairs minister, reluctant enforcement directorate and "relaxed, incompetent, if not seriously compromised" economic offences wing with Sebi remaining a mere observer. The question, of course, is whether the enigmatic Gandhi can do anything about their problems." Rahul Gandhi must do something, if he wants a shot at being PM.

SEBI's silence in this matter is deafening, especially since it was initially opposed to granting a license to MCX-SX to trade equities and had refused permission to Jignesh and FT as being unfit persons. FT sued SEBI over this and the Bombay High Court granted permission, which ought to make it answerable. SEBI now says it will await, in the interest of natural justice (sic) before acting against Jignesh Shah et al. The 13,000 affected investors, and their families, would wish to know if they are not entitled to principles of natural justice? Or are there duplicitous standards for some people and weaker ones for the individual investors whom SEBI is mandated to protect?

This Government's accounting is also duplicitous. It is planning to delay the refund of duties to exporters, in order to show that it has contained the deficit. This is accounting duplicity. Were a private company, or an individual, to resort to such accounting shenanigans, the IT Department would swoop down on it.

It is this duplicitous governance, and the putrefying stink of corruption, that has led to its drubbing in recent state elections, and to the surprisingly strong debut of the Aam Aadmi Party, which campaigned on the plank of good and honest governance.

The AAP has kept one of its campaign promises, and is to give 700 litres of water per household, free, per month. This may not be as bad a decision as it looks, prima facie. There would, naturally, be a rush for official water connections, to obtain the free quota, from households which are now not having one, but are depending on water supplied by the mafia that controls water tankers. These deplete ground water resources at a faster rate. A conversion of illegal supply, via tankers, to official supply, may be a good thing, provided the Government then learns to restore groundwater supply through various means. As Rajiv Lall explains beautifully, and alarmingly, there has been a precipitous drop in water levels thanks largely to the subsidies such as free power, given to garner votes, and used by farmers to pump excessively.

The AAP also promised to bring down rates for power supply drastically, and has ordered a CAG (Comptroller & Auditor General) audit into the working of discoms. Delhi seems to have one of the highest rates at which power is purchased from the generating companies, perhaps a third more than Maharashtra's highest rate. There is no reason for such a discrepancy. Removing it would not only lead to reduced power tariffs but also to cleaner governance.

A large part of the reason for the discrepancy is overinvoicing. Adani Power, e.g., is being investigated for over invoicing. As this editorial in the Economic Times points out such over invoicing could not occur without the connivance of lending institutions, mainly public sector banks.

These banks are, of course, majority owned and controlled by the Government, which has skill sets in duplicitous governance. Is it any wonder, then, that the cost of power is high (and, so, can be brought down) and that it will be the banks that will face a huge problem of non performing assets in 2014, as no less a person than RBI Governor, Rajan, has warned about.

But sometimes the problems are caused by our own actions. After illegal iron ore mining cases were discovered, the Supreme Court stopped all mining activities, throwing the baby out with the bathwater. Unmindful of whether it was conducted properly and officially, and unmindful also of the cost to the steel manufacturers, or to the export revenue earned from it (contributing to the rising CAD). The Supreme Court has now permitted Sesa Goa to produce, but not to sell!!!, iron ore. Why can it not sell? Because, after a merger process, the name is now Sesa Sterlite! So it needs to wait to get the paperwork done, before export revenue can start flowing in! If this is the way GOI works, we don't need enemies and are perfectly capable of hurting ourselves.

Last week the BSE-Sensex lost 342 points to end the week at 20,888 and the NSE-Nifty dropped 102 to close at 6,211, as foreign investors sold on the basis of global cues, including the imminent taper.

The hope for India is to get a better Government, that is not duplicitous and that provides honest and good governance with sensible policies. One that encourages investors, both direct and indirect, both domestic and foreign, with policies and practices that give them confidence. One that does not reward fraudsters and punish victims. It seems that this lesson has not yet been learnt.

Query for readers: Do you think that the investigations in the NSEL scam are being conducted above board or is there a hidden agenda? Do share your views in the Equitymaster Club.

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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8 Responses to "Duplicitious governance"
Amit Rao
Jan 12, 2014
Kudos for a most informative and right to the point piece of writing. I do not happen to know whether or not Indira was PM at the time of the Delhi riots, although several of your readers have questioned this point.

Otherwise, this is the kind of writing which I can fully appreciate.

Best,

Amt Rao.
Like 
Shishir Lall
Jan 7, 2014
Accurate analysis & forthrightly presented....sad part is I don't see the replacements in June 2014 being any better.
We need structural changes & our constitution does not provide for changes to be made by anyone other than the Parliament & more than 272 now & in June 2014, have/will have an interest in continuing this "Duplicitious governance"
Like 
K J JOISA
Jan 6, 2014
Sir, Delhi riots happened after the death of Mrs Indira Gandhi. Hence the error in 1st para may be rectified Like 
PREM DHANKAR
Jan 5, 2014
I fully agree with Mr. G.S Vijay Kumar that Indira Gandhi was not the Prime Minister when the riots took place in Delhi. I hope the author will put this correction to this fact in some form!

Duplicitous governance is responsible for MAJOR SCAMS & PRESENT MARKET conditions. FII are fully aware of this. This being the reason they have been hi-jacking the market for so many years and Aam investor is left at their mercy!

BJP will do better if they take up this as major issue and promise Aam Investor strict and positive action against those responsible, they can be sure to get 272+ seats in election 2014. Bringing black-money( earned from this Duplicitous governance, back from Swiss Banks to the country is also a major issue, some one has to do it at any cost and put the country on growth trajectory.

Otherwise well frank and well written article, thank you. Warm regards.
Like 
J Mulraj
Jan 5, 2014
Mr G S Vijay Kumar, yes, thank you for pointing it out. it was a typo, I meant Nellie. It has been corrected. Like 
shah dilipkumar
Jan 4, 2014
it is totally a speech of digvijay sinh not learned manmohan singh he is a culprit of coal scam and want to cover his corrupted sin of maouni baba he is an indian doll for italian widow baby soniaji and rahul baba who once claimed for cambridge graduate has he got ant bechalor degree he has got bechalor status for good Like (1)
G S Vijay Kumar
Jan 4, 2014
Whilst I agree with the contents of the article about the duplicity of the Congress Government as well as Prime Minister Man Mohan Singh, I would like to mention that Indira Gandhi was not the Prime Minister when the riots took place in Delhi.

The anti-sikh riots took place in Delhi after Indira Gandhi was killed. However, many congress leaders could be blamed for the riots which broke out not only in Delhi but many other cities including Indore, Kanpur, Bhopal, Jabalpur etc.

Although Congress leaders keep harping about the Gujarat riots of 2002, people are aware of the number of riots that have taken place in many Congress ruled states.
Like (1)
Umakant Pandya
Jan 4, 2014
Hats off to you for your bold and frankly truth telling without any fear of Income-tax raid on you and your company. Like (1)
  
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