Eena Meena Dika, Finmeccanica.... - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
Eena Meena Dika, Finmeccanica.... A  A  A

16 FEBRUARY 2013

Yet another corruption scandal broke out last week, involving an Italian firm, Finmeccanica's, alleged payoff to achieve closure of a deal to acquire 12 helicopters, to be used by VVIPs, for Rs 3,600 crores. Opposition parties may well be singing the old Kishore Kumar song

'Eena Meena Dika,
Daal Mein Kala Kala,
Ho Gaya Gotala,
Rumpum Poh,
Mar Gaya Woh'.

Now Rs 3,600 crores for 12 helicopters is quite a large outlay, at Rs 300 crores per helicopter! To put it in perspective, it is 17.3% of Government expenditure of Rs 20,784 crores for all social services including education, health, broadcasting etc.

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The reason why one mentions education becomes clear when we compare Hiroshima's progress, 67 years after being completely destroyed by a nuclear bomb, with Detoroit's progress, over the same time frame. Detroit was once a thriving auto hub. The debate between the Democrats and Republicans in the US is essentially about the latter asking the former to encourage people to work instead of increasing the welfare bill, which is already unsustainably high.

Modern societies and Governments would do well to spend more on education, and training their workforce, and then having an enabling environment which encourages work and growth. They don't do so. Then, because they want to get re-elected, or maybe because their conscience starts to prick them, they introduce various welfare schemes.

The welfare schemes are well intentioned, but mismanaged. A lot of the money is eaten away by middlemen in the delivery process.

For all the brilliant innovation and all the planning, rates of unemployment , globally, are tragically high. In many countries it is over half the population, in Nauru it is a pathetic 90%.

Society needs work. Voltaire put it beautifully when he said "Work saves us from three great evils: boredom, vice and need".

The California Public Employees' Retirement System (CalPERS) is the largest pension fund in the world. As per this article, it is eating up taxpayer's money; in fact the entire state. For years CalPERS has been considered to be a fine example. However, even good institutions can be run aground through ineptitude, bad management, bad design or complacency. In the case of CalPERS, e.g. a worker got 1.43 times the number of years he served prior to retiremend, as a % of past 5 year's average salary. This is inflation adjusted. Besides, people are living longer. So the scheme is hugely unviable. It is not earning the return the assets are expected to return, creating a shortfall, which has to be funded by taxpayers. In essence, it is borrowing from the future. The problems will occur when, some time in future (not too distant) the money in the fund will be insufficient to pay for pension and healthcare.

We in India are also not creating a suitable environment for growth and environment. Land acquisition , environmental clearances, hundreds of permits still needed to start a business, and other issues, continue to hamper growth. Laws that make it almost impossible to shut down a manufacturing unit prevent the start of one. Even after 8 years, South Korean steel maker Posco has not got permission , due to environmental reasons, for setting up a steel plant which would be the largest foreign direct investment into India.

And now there is the problem of having to deal with bizarre tax demands. Companies like Shell and Vodafone have got notices from the tax department because they issued shares to their parent, at par, which the department feels ought to have been issued at a premium, and wants to tax the difference as an income! The issue of shares is a capital receipt and not a revenue receipt. These notices come at a time when the Finance Minister is travelling the world, meeting investors and telling them to come and invest in India.

Then we have misplaced priorities. For reasons not obvious, the Government is loath to part with Air India , despite its bleeding finances. The Government has agreed to a (hold your breath) Rs 30,000 crore package to rescue the airline. Now compare this with the Rs 20,784 crores on all social services, including education and health, and one clearly sees the misplaced priorities.

Then we have cases of benign myopia when dealing with a favoured few. Banks have lent some Rs 7,723 crores to Kingfisher Airlines and the collateral is worth about a fifth, comprising, as per newspaper reports, Rs 171 crores shares in the airline, Rs 100 crores in real estate, Rs 90 crores in helicopters and Rs 925 crores in corporate guarantees. (Why didn't they think of buying fewer helicopters at Rs 300 crores a pop, appropriate the ones from Mallya and save a whole lot of money both ways?). In short, Mallya has used public money to promote the brand Kingfisher, which, as a liquor brand, he is not allowed to advertise, but as an airline brand he could. This points to the folly of blinkered thinking; sale of alcohol is not lowered by absence of advertising. It also points to utter hypocracy, because all liquor products are advertised as 'cassettes and cds' or 'playing cards' or such non existant products.

Interestingly, an anagram of Kingfisher Airlines is Kiss Finger Hairline, perhaps indicating that banks may have to kiss their money goodbye, after having been fingered and needing to face receeding hairlines.

The other interesting news is the attachment, finally, of assets of the two Sahara group companies that raised money from the public by issue of OFCDs (optionally fully convertible debentures) without issuing a prospectus. One hopes that the delay has not diluted the value of the assets; one suspects it would have. The wheels of justice grind slowly and even when a regulator seeks to intervene, the judicial process is often misused.

Coming back to corruption, one of the areas is in urban roads. Mumbai roads are tarred, which requires them to be re-surfaced every year, after the creation of potholes by rains that drive Mumbaikars mad. Yet, as this Ted talk shows, (there is technology available for building roads out of porous asphalt and use a process wherein they heal themselves and last longer. The only drawback is that this will deprive some officials of an annual annuity.

In welcome news is the one that states have committed themselves to a model law, which will pave the way for the introduction of the long delayed GST (goods and services tax). One can expect a timeline announcement for introduction of GST, in the Union Budget, which would be a bullish factor.

Last week the Bse Sensex lost 16 points, to end at 19,468 and the NSE-Nifty also lost 16 to close at 5,887.

Will the Government now take steps to encourage growth, clearing obstacles and simplifying processes? It should.

Will the Finance Minister announce the Government's willingness to stop the bottomless funding of a lost cause and agree to sell Air India? Will he then use the sale proceeds to invest in education and skilling?

Is it not better to teach a man to fish rather than give him one?

(For vegetarians, is it not better to teach a man to grow fruits, rather than gift him a lemon?).

The market may continue drifting slowly downwards up until the Budget, perhaps between 18,500 - 19,000. Then it will be up to PC. Will he be politically correct or practically concerned, is the question.

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.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.
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8 Responses to "Eena Meena Dika, Finmeccanica...."
purnima L. Toolsidass
Feb 17, 2013
Every point is well taken and hard hitting. I only hope the people in power read it and feel ashamed!
The need to expand and enhance education has always been low priority, at the cost of developing the potential of our greatest asset - the future citizens on India!
The lopsided priorities would indicate insanity; had vested interests not been so blatant!
Like (1)
Feb 16, 2013
If there is a technology available for laying roads out of porous asphalt that could last much longer than tarred one then why the mumbaikars and other urban people should not consider staging a road roko agitation to implement the same? Is it the people are not aware of such a technology available or being complacent or resigned to the fate of corruption or generous enough to gift the babus their annual annuity? What Mr Anna Hazare and his team are doing? What is Mr Kejriwal doing? What the team equitymaster is doing despite high qualification from the world's best universities and also aware of the knowledge of technology but still holding silence? Does the comments posted here by the bloggers reach the target audience to initiate action or if I am wasting my time to read this article and mark my protest to such lack of initiatives by the respective state and central government?

Now that there are several readers who must have read this and known the fact of long lasting road laying technology, what as a reader and citizen of this country, do the author expect the people to force the politicians to switch from tar to porous asphalt roads?
Like (1)
Feb 16, 2013
In the case of Posco, India cannot afford to lose a large portion of its green land or forest to build a steel plant of gigantic size. Already the world suffers due to climate change because of industrialization and carbon emission. The word vegetarian is used only in our country and without any doubt it is the rich food and not fish, cockroach, chicken, meat, snake, pig and last not but not the least the innocent and holy cows. The central government and the people are right in not giving the land to the steel company. Employment should not happen due to sacrifice of environment and yes if Posco says that they are ready to give another earth like habitable planet then go ahead for acquisition of land lest they have got to shut shop and move elsewhere who are ready to give them. Like (1)
Feb 16, 2013
The government should sell back Air India to Tatas if they will have it for a low price.
As for corruption problems, fear needs to be instilled in the politicians without which I don't see any changes taking place anytime soon.
Have guts anyone??
Like (1)
Ragini Ghanekar
Feb 16, 2013
I wholeheartedly support the idea of teaching a man to fish than give him one. But this need to be told to National advisory council and its head Mrs. Soniya Gandhi who is at the helm of it just by dynastic politics rather than ability and congress party's inability to find and project capable people amongst it,if any, as future leaders. They are ready to feed 2/3 of population for almost free. How they will do it they do not know and do not want to know. They just want to win election or are fools. Like (1)
Feb 16, 2013
It is precisely true that officials in charge of roads in Mumbai will be deprived of their annual annuity.Unless sub-standard construction of roads exists we will be facing the same hurdle every year.Paver blocks are also replaced every year even though the existing ones are good.Nuxus between officials & so called contractors ! Condition of renovated BMC schools is pathetic.Forget about quality of education offered, which is supposed to be an utmost national priority.
Less said is better about various scams that are exposed recently. Air India is a big fraud,where taxpayers money is spent by Government of India who is not answerable to anybody.Why speak about Japan for progress done after world war II ? Nationality is a word forgotten by Indians !
Like (1)
Feb 16, 2013
All the instances narrated by you here are a confirmation that India has been turned into a banana republic by the present ruling dispensation where the aam aadmi feels totally helpless and the corrupt and the rich are having a free run to squeeze as much blood as possible and as quickly as possible. Like (1)
Feb 16, 2013
what a perfamence of india at curption only at currption Like (1)
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