In a rapidly evolving world, its no use living in the past

19 FEBRUARY 2011

Winds of change are sweeping across the world, even in countries, like Egypt (and now Libya) where people have ruled for over 30 years. People are giving short shrift to leaders who fail to usher in reforms that will drive their economies and provide jobs and low inflation. The sum of inflation and unemployment rate is called the Misery Index and it was high in Tunisia and in Egypt, before people there took to the streets. It is also high in India.

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The contagious virus that is India's bane is that of corruption, and the unwillingness of the leaders to do anything serious to tackle it. Most often, when someone does get jailed, it is a minor figure, with no political clout to protest, whilst the big fish, who have clout, get away. There is a justifiably huge amount of scepticism that any serious action will be taken to recover money from all those found guilty of various scams, including the Commonwealth Games, the telecom scam, the Adarsh scam, the Karnataka land allotment scam and many others. In the telecom spectrum scandal, the CBI last week grilled industry leaders like Anil Ambani, Prashant Ruia and Sandip Basu, MD of Loop Telecom, and raided the offices of Kalainagar TV.

The reason for justifiable scepticism is because the Government does not want to take the necessary tough decisions. It is merely investigating the FDI inflows from Mauritius, with which India has a double tax avoidance treaty (Mauritius accounts for 40% of India's FDI) and not thinking of doing away with such treaties, which are mainly used as conduits for roundtripping of black money. Nor is the Government making any serious attempt to get information on bank accounts of Indians in tax havens.

It is possible that, in the forthcoming budget, end February, the Finance Minister may offer holders of offshore accounts a carrot in the shape of an amnesty scheme, simultaneously wielding the stick of an IT raid if they do not play ball. It should. The argument against an amnesty scheme is that of a moral hazard, because if these become numerous, there is no incentive for tax honesty. Yet, morality is relevant to law abiding citizens; the Government, indeed the political class as a whole, has not demonstrated any moral standards worth emulating. These are the persons to whom the amnesty scheme would be directed; where is the hazard without the morals?

It is certain that the coming budget would significantly step up outlays on schemes of public largesse, in a feeble attempt by Government, to shore up its image of shielding the corrupt. Where would the money come from? The amnesty scheme seems to be the only large source of fresh revenue. The Government will also phase out the 2% excise reduction it had made earlier, as part of the stimulus package.

Yet this approach, of doling largesse as a method of including the poor in the economic wellness of the people, would be the old, time tested approach. It would be far better for the Government to create an environment that would create new jobs. It hasn't. The index of industrial production fell to 1.6% in December, the lowest in 20 months, dragged down by a 13.7% fall in capital goods. Industry is not investing enough, as it is uncertain about the future. It has been clamouring for a change in labour policy by introducing one that gives it more flexibility to shut down if economic conditions so warrant, with adequate compensation to labour in the eventuality.

In the world of finance too, we are hobbled by our old ways. Look at the changes sweeping the world of exchanges. Last week Deutsche Bourse announced a merger with NYSE Euronext, to create a veritable giant that will dominate both stocks as well as futures & options markets in US and Europe. Deutsche Bourse shareholders will control 60% of the merged entity and NYSE Euronext shareholders 40%. The London Stock Exchange, LSE, is making a bid for Canadian TMX and the Singapore Exchange, SGX, is in talks with Australia's ASX. Yet, in India, we are mentally constrained by the notion of control of majority ownership and the Jalan Committee has recommended that no group should hold more than 5% in new exchanges, barring public financial institutions like banks, which can hold more. This, in effect, means that, over time, a lot of the trading of Indian companies would move to other, larger, exchanges.

Yet another example of living in the past is the continuation of subsidies on diesel. By virtue of this subsidy, the Indian railways now carry less freight of bulk commodities (like iron ore) than do trucks by road! Not only is this a wastage of fossil fuels, but it also stems the expansion of railways. When crude oil starts to run out, as it will, making petro products unaffordable, we will not have the required railway network to transport goods for an economy growing at over 8%. What we will have is a disposal problem for all the trucks now being bought thanks to the subsidy.

In corporate news of interest, ONGC has commenced road shows for its Rs 12,000 crores follow on offer to divest 5% shareholding by the Government. The pricing for this would dramatically improve if the Government is able to renew the contract between ONGC and Cairn, under which the former pays all the royalty for the oilfields but has only a 30% stake in them. Why is nobody investigating how such a one sided agreement was entered into, in the first place? Minister of Petroleum, S Jaipal Reddy, has stated that national interests will prevail, which makes ONGC worth looking at.

The BSE sensex gained 482 points last week, to close at 18211 and the Nifty gained 148 to end at 5458. It does seem like the rally has steam left to take it to 19000 on the sensex. After that we would be close to the Union Budget, which, one expects, will be a populist one to remove, as Lady Macbeth had tried to, the black spot of corruption. Were the Government to offer an amnesty scheme, the market would cheer it, in a triumph of materialism over morality. Cest la vie!

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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5 Responses to "In a rapidly evolving world, its no use living in the past"


Mar 4, 2011

You are all taking about to tackle the corruption and black money . But we have to thought to tackle the root cause of creation black money. I think the most important root cause is giving of financial contracts by Government , like 2G or 3g or any other contract including services such as appointments to various posts which creates black money in addition to other reasons . Thus we should a very transparent system to give every contract how so small or big in which every eligible person can equally share and no discretions of any body should be there and every person can see the process of allotting the contract / and its results so that concept of such a ministry is important should automatically vanish and temptation to incur crores of rupees on the election should vanish. Only those people should come forward in Politics who really wish to serve the society not as a business.




Feb 20, 2011

However much the misery index is In India the people in India will not rally together.there is always corruption and moral decay all round across all categories of people..we blame XYZ but abc when they raise to the same position as XYZ do the same. add to this basically Indians are not really brave and you get thwe idea why Gazni or Ghori or Babar could invade India when ever they felt like it. add to this a vast chunk of people have been treated like dirt and conditioned to obey ,you get the idea.
it also explains why a lakh of British soldiers could rule India for 300 odd years.
what happens to all whistle blowers .they are killed if they get close to them.and who gives the power to these.again the people knowing they are criminals.we will blunder through like this till the the criminals break up the country into territories of their rule.
very gloomy but the the hopes are with the vast number youngsters .let us hope these people are really more patriotic


sultan fazelbhoy

Feb 20, 2011

1 I suggest a national Govt like UK had during WW Two
2 Woman power to be recruited for a peaceful revolution in the home and family
3 sending a full length article separately
4 younger generation to be included at least 50% below the age of 55 yrs
5 religion to be given a back seat = sending separate article on this also


M C Agrawal

Feb 20, 2011

After listening to PM in recent media meet, I have no hope left with the current political class. There is more attempt to justify and find an excuse then to even think of attempting any cleaning process. Nothing short of a people's movement is required to clean the system in the larger interest of citizens of the country. The first step is to clean the current political class from leadership and decision making position. Sooner the better.

The derivative products for stocks, bullion, commodities, currency, and interest are the "weapons of mass destruction" These propducts artificially distort the physical demands and supply and create volatility everywhere. It has only given birth to casino culture everywhere. Few powerful entities(read FIIS) make huge gains at the cost of large number of small players. No body is talking about this menance, but a careful research and study will reveal that this instrument really doesnot help the country.



Feb 19, 2011

Stock Market guidance is quite a hefty task! And this is like never full proof! Thus the margin of error is always quite high! Thus increase the volume n stay safe. I am 21 years old,engineering student.But I have been a prudent follower and am ready to help private investors invest safe and make money! Email me. its all free..just trends. I foresay,u make hay!!! ;)

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