Does all play and no work make Jack a bright boy?

22 JANUARY 2011

The performance of both the Government, in the passing of laws needed by society, and of Parliament, in enacting them, has been abysmal. During 2010 the Government passed only 112 legislations, less than half the average of 242 during the 2005-8 period. The winter session of Parliament was a non starter, as the opposition filibustered it, demanding a JPC (joint Parliamentary Committee) probe into the telecom scandal which the Government was loath to accept. Should this impasse continue, perhaps the Budget session would also be stalled, which would be the zenith of bad governance. It seems our Parliamentarians and our Government believes that all play and no work makes Jack a bright boy, and then proceed to reward themselves with a pay hike!

---------------------- Lucrative Gains in Derivatives ----------------------
New to Derivatives? Worried that it could be too complex? No problem! We have top Derivatives Analyst, Asad Dossani to help you pick out the winners. Our subscribers are sitting pretty on triple-double digit returns in just a few months! And at the time of going into print, 3 out of 3 open recommendations are in profit. Click here to know more...

Meanwhile, in the absence of any decisions, let alone the bold ones requires, the fiscal condition of the Government festers. This is despite good tax collections. Indirect tax collections in the period April to December 2010 are up 43% compared to the same period last year led by a 68% growth in import duty collections. Indirect tax collection, though, may show a slower growth if the Government reduces taxes on crude oil and refined products, with an eye on the bottom lines of oil marketing companies, such as IOCL, and of upstream company, ONGC, which were to hit the capital market with follow on offers. These have been postponed to allow the Government to put a little rouge on their balance sheets.

The continuation of subsidy for diesel results in several consequences, all bad. It is bad for the health of the Government finances; the subsidy has to be paid for and the budget is used to pay a third of it. It is bad for the health of ONGC's Balance Sheet as ONGC, OIL and GAIL pay for a third of the subsidy, as a result of which ONGC's follow on offer of Rs 15,000 crores has been postponed. This, in turn, is bad for the future of securing India's energy needs. It is bad for the health of individuals as sales of diesel cars goes up thanks to subsidised diesel and which cause more pollution. It is bad also because it gives an erroneous picture of India's manufacturing cost because transportation costs are actually higher, without the subsidy, than they are shown to be. Sooner or later manufacturers will have to hike prices to reflect this; continuation of diesel subsidy merely postpones the day of reckoning.

Look what happens when the day of reckoning finally arrives, as it inevitably does, because no nation can go on subsidising things forever. Iran, one of the major oil producing states, subsidised petrol, diesel and electricity in a big way. Its subsidy bill was 10% of its GDP. When President Ahmedinijad said that subsidies would have to go, prices of petrol went up 75% and of diesel 2000%.

Pakistan's Government tried to raise petrol prices, which led to a walkout by its partner, MQM, and a retraction of the hike. India has raised petrol prices but not diesel. This benefits a small mafia who adulterate subsidised diesel with even more subsidised kerosene, creating further pollution problems.

Even in rich Japan, the second largest economy in the world, the absence of planning has huge consequences. Nagasaki, once a rich and bustling shipyards, is now decaying. Japan's population is aging and the young people leave cities like Nagasaki in search of jobs. India has an advantage of a youthful population one that, if given proper training and jobs, will ensure that the economic boom continues for years. And that is where good governance is imperitive.

But we do not have it. The Government is refusing to divulge names of those having Swiss Bank accounts, promising to prosecute them for tax evasion, instead, citing confidentiality clauses in agreements with other countries. The biggest tax defaulter, Hasan Ali, against whom a claim of Rs 50,000 crores is pending (imagine what that would do to the fiscal position), has been granted a reprieve. Tax authorities have sought details from Swiss authorities, by saying his offence was that he failed to file tax returns. This, not being an offense under Swiss law, allowed them to refuse to divulge details. Had the IT authorities told them he was guilty of tax evasion, instead of failure to file returns, the information would have been obtained.

Thus there are millions of ways in which the connected can escape the law and any pompous declaration by the Prime Minister to make them cough up dues amounts to mere words. This is not how the nation will be built and the boom continue.

If its any consolation, the fiscal hole of America is even bigger! The Government debt is $ 14 trillion and Treasury secretary Paulson (Corrected: Timothy Geithner) has to ask permission from Congress to take on more debt. They are being tough. Geithner will point out the consequences of not being allowed more debt. By autumn either the US Government will default on its foreign debt, causing a huge investor crisis, or it will default on its pension payments, causing a huge domestic uproar. Since neither are palatable, one assumes Congress would relent.

Last week saw a demonstration of the impotency of Government. A cabinet reshuffle was merely a nonsensical exercise in musical chairs and not an exercise of displeasure at poor performance, as at Wipro, where the two joint CEO's were replaced for it. The Prime Minister, after the inane reshuffle, has promised a bigger one, post budget, seeming to indicate that he feels governance should be by equated monthly instalments! What, Mr Singh, do you hope to do a month later that you can't do now?

Political apathy is seen at the state level. The BJP has called, and enforced, a bandh in Karnataka, because the Governor recommended that the Chief Minister be prosecuted for a land grab scandal. This surely impacts the work of software companies, who have contributed to the State's economic growth by providing high paying jobs.

To add to its woes, Infosys has been slapped with an IT claim of Rs 400 crores, on the ground that its onshore work (when its employees work at the customer site) is not export of software but is body shopping! Hello!! Software is the product of the mind and the mind usually tags along with the body (except, perhaps, in the IT department).

Last week the Sensex gained 147 points, to end at 19007, and the Nifty added 41, to end at 5696. The rally may continue, perhaps strongly, till the end of the month but sentiment may then be dented by an increase in interest rates. This is inevitable. The Government can order its officers not to disclose the names of tax evaders. It can order its investigating agencies to file charges in a way that will let offenders go free. It can order the agencies to close cases against murderers like those of Jessica Lall or Aarushi. But it cannot order inflation to go down. For that it needs RBI to do its bit.

So, yes, the India story looks good, thanks to its people and their entrepreneurship. It would look better if the Government governed. The story can be dented unless corruption is tackled and governance improved; 14 prominent citizens have voiced their concerns. It is high time the Government listened.

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.

Equitymaster requests your view! Post a comment on "Does all play and no work make Jack a bright boy?". Click here!

14 Responses to "Does all play and no work make Jack a bright boy?"


Jan 28, 2011

The U.S. wants to increase the allowable deficit it accumulates and tax cheat Timmy wants congress to sanction that.Cautioning dire consequences if not sanctioned !!
The U.S. is no longer the beacon of emulation it once was.It has become a gambling den where the mba's are busy cooking up new schemes to milk money off the middle class that is already long back tapped out.



Jan 26, 2011

we need more debate and discussion from people like Mr. Mulraj.Action hopefully will follow.Please keep it up Mr. Mulraj !



Jan 24, 2011

What IT Dept have slapped on infosys is as per the provisions of the IT Act, one should try to understand what body shopping is, its disgusting to comment on the official machinery like this and not expected from you.



Jan 24, 2011

Mr. Mulraj:

You must have read about the "Onion, Beer, Petrol: Necessities and Luxuries being equally priced in India" story line. Even if you have not, you must have felt it yourselves - had you purchased these three items over the last two three weeks!

Is that what 'Development' means? Or what the 'Growth' translates to, for a common man in India?

It is high time that taxes on petroleum products are rationalized before the so-called subsidy is removed. To that extent I think your recommendation is running far ahead of time.

Do you wish the such honest payers to be taxed unto death? The subsidies need to continue. At least that way the honest tax payers get 'compensated' to whatever little quantum.

There could be a different mechanism to address 'the loss to Indian Exchequer' due to 'Subsidy on Petro Products':

1. First, patent Indian Government's current "Model of Petroleum Product Taxation & Pricing & Subsidization" across all global geographies.

2. Next, sell that model to countries that are running high debt burden (including but not limited to United States of America, European Union Members).

3. Collect royalties on Indian Intellectual Property. That should yield the Indian Government more than what they 'losing' in terms of 'subsidization of petroleum products to its tax payers'.

The sales pitch for that model is very clean and clear:

(a)immediate and sustainable reduction in the debt burden in the form of tax revenues;

(b)demand destruction for petroleum leading to lesser price of crude oil in international markets;

(c)lessened greenhouse emissions thus paving way for better climatic control; and ultimately a

(d)rise in the inflation in deflating economies.

Isn't that what the World requires?

- Chandra.



Jan 23, 2011

In the whole world the well accepted definition of Democracy = of the people by the people for the people this definition is for the whole world except for India. It is not known why the people are not raising voice against the said Govt’s bad governance. Why there is no unrest, protest and other democratic ways the people adopting against the misdeed of Govt. In my view our Hon’ble Prime Minister is good planner of big program but he cannot implement the same. The US President has once praise him “ When Hon’ble Prime Minister Manmohan Sing speaks the whole world listen. In my opinion this is half truth. Because here the whole world excluding our India listen to our PM. This is because in case of India no one listen to our Prime Minister Manmohan Sing viz. his Cabinet colleauges and even partymen including Party President.


sudhir apte

Jan 22, 2011

Mr Mulraj sorry to point it out but I think Hank Paulson is no more treasury secretary of US, Tim Geithner has taken over a long time back.


S Grover

Jan 22, 2011

Why is the tax on fuel prices not under revision. I believe if the tax on fuel was removed both fuels will be cheaper than they are today, i.e. diesel and petrol i am not sure of kerosene. Obviously, it may not be expected that the tax be totally removed because our government needs to fill up its bourses as well. So, in effect the government is taxing the fuel, subsidising it with this tax and that too only a third. This is quite ridiculous. And we all put it as if the govt is doing a favour by subsidising it. In fact the truth is that it only makes the govt happier if the prices increase as they have more tax to make schemes on and pocket the percentages. What is the rationale of such a high tax on fuel and what is the hype about reducing the subsidy. Reduce tax and remove subsidy that should be the idea.


Tushar Shah

Jan 22, 2011

Hi Mulraj,

I like your ideas, hard hitting style & the content.

But you are getting sloppy in your grammar & also in facts.

Secy of Treasury is not Paulson. It is Timothy Geithner.

What an awkward statement is this? "Meanwhile, in the absence of any decisions, let alone the bold ones requires, the fiscal condition of the Government festers. "

Please read your article to find grammatical mistakes.

Elegant ideas need elegant language.

Please continue to express your ideas. You are far ahead of the pack.

Tushar Shah


rakesh dutta

Jan 22, 2011

Japan is no longer the second biggest economy . it is China now. secondly, US Treasury Secretary is Timothy Geithner not Paulson as stated in your article.



Jan 22, 2011


Its Tim "the Tax Cheat" Geithner who is Treasury Secy, "Hank" Paulson is long gone after doing his bit to rob middle class America and pay the banksters of Wall Street! :)

Equitymaster requests your view! Post a comment on "Does all play and no work make Jack a bright boy?". Click here!