Manmohan's legacy, a decade of misrule - Straight from the Hip by J Mulraj

Manmohan's legacy, a decade of misrule

14 MARCH 2014

Manmohan Singh has wasted a decade in his two terms as Prime Minister.

The stockmarket had cheered when he was appointed the first time, ten years ago. It is cheering now because he is leaving, in the hope that things can only get better.

The country's GDP was growing at 8%. It is now struggling to achieve 5%.

He inherited a current account surplus. He leaves a current account deficit. The Indian Rupee has fallen from mid '40s per US $ to early '60s.

The fiscal deficit was coming under control. It is now uncontrolled, and has been 'managed' through accounting jugglery of postponing payments to the next year (such as petro subsidies), faking sale of Government holding in public sector companies (its holding in IOC has been sold for Rs 5,340 crores, to ONGC and OIL simply because these two companies are under Government control, breaching all tenets of good corporate governance), and pushing on the burden of welfare payments to states.

Savings rate has come down. Capital formation has been stalled due to policy paralysis after numerous corruption scandals. Manmohan did nothing to prevent such scandals or to punish those found guilty. The perpetrators are all free to enjoy their freedom, and some have even got tickets to fight in the forthcoming general elections.

Foreign investors were being welcomed. They have had rude shocks by unwelcome steps, such as changing the tax law retrospectively, in the case of Vodafone, in order to collect a capital gains tax not from the seller, who is in Hong Kong, but from the buyer, who is in India and hence amenable to such pressure. Now the CCI (Competition Commission of India) has levied a $ 5 b. fine on Google for unfair practices

In its chase for tax resources to cover a fiscal deficit caused by profligate spending on welfare schemes that don't deliver, tax authorities are making wild claims. The IT Apellate Tribunal has dismissed such a frivolous tax demand, castigating the officer for making it, against Bharti Airtel.

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Manmohan came with a reputation of honesty. It is now in tatters.

These columns had referred to the Teflon coated elites, on whom no charges stick. Sadly, this is true globally as well. Below is a chart of the distribution of wealth in the US.


The bottom 80% of people have 7% of financial wealth. The policies of the Fed have reduced employment (hence demand) but have increased corporate profits.

An example of this is HJ Heinz, one of Warren Buffett's favourite investments. A former CEO got a $110 m. bonus even as the company downsized 3,400 jobs.

How does this misgovernance and bad policies, affect investors and savers?

Ultimately, when banks have no money left, having lent to bad borrowers (sometimes after being directed to do so by their cronies) it will be depositors who pay. The Government of Cyprus had ordered a bank 'bail in' (as opposed to bail out, in which the Government rescues banks with a financial package). Under the bail in, depositors lost 40% of their deposits overnight (and more, later). Now, Ukranians are queueing up outside ATMs to try and withdraw as much as they can, before a bail in. The former President splurged the money on an extravagant life style.

Or, as in the case of Fannie Mae and Freddie Mac, the two US housing and student loan financing agencies, it will be the shareholders who will get nothing, if a proposed Senate banking committee plan goes through.

The Government of Spain has modified a bankruptcy law. Under the new law, if 60% of creditors agree, they can force a borrowing company to convert debt into equity.

So, in short, global leaders have been pursuing growth, using monetary easing. The growth is, however, jobless growth which has boosted corporate profitability and stock market valuations, and has not increased demand. For example, stocks of automobiles in the US are 1.32 times annual sales, the highest in 22 years. Auto sales are, however, buoyant in China, causing unprecedented levels of pollution, levels that threaten auto demand. China is using the technology of drones to fight the pollution

The monetary easing policies are not working in Japan, which has revised its GDP downwards or in the case of the EU, which legendary investor George Soros feels is in for a 25 year stagnation, like Japan faced.

China has used monetary policy far more aggressively than even the US, leading to an unsustainable growth of its banking industry. The assets of Chinese banks have grown by some $ 15.4 trillion, since the 2008 global financial crisis, compared with $ 4.1 trillion of US bank asset growth. But are these real assets? For example, a company called Magic Property has borrowed from CITIC Trust against property which has been mortgaged several times. This is reminiscent of what Harshad Mehta did with BRs in the mid '80s! It does, though, point to a massive problem in China's banking sector which faces huge non performing asset problem. With the sector being at some 135% of GDP such a problem can affect the economy badly.

In India the best news was the Supreme Court diktat that cases of criminal charges against MPs and MLAs ought to be concluded within one year. Thus far, these Teflon coated elites had continued to nonchalantly continue in office, even if a lower court had found them guilty of a criminal charge that would disqualify them, by simply filing an appeal in a higher court, and ensuring the case got postponed indefinitely. One hopes that the Supreme Court follows up on this. This would go a long way in cleansing our polity.

In corporate news in India, shares of Crompton Greaves shot up on news that Avantha was considering a sale of its stake in it.

Institutional shareholders are getting active in India. They have objected to, and are now seeking legal recourse, in the case of Maruti Suzuki, which, under a plan with majority holder Suzuki Motors, threatens to convert Maruti from a manufacturer of cars to a distributor of them.

Kudos to Bharat Forge for having developed a field gun (like Bofors) entirely indigenously, that would be at a far lower cost of $2 m. and be ready in two years. If there is honest bidding for the next purchase of such guns, and if the gun succeeds in the parameters set, India would gain a lot by having a domestic supplier at a reasonable cost. So we should hope for a more honest Government after May 16.

The UPA Government has done little to protect investors, and prefers to give fraudsters a long rope, for reasons best known to it. Despite reams of evidence of all sorts of misuse and misappropriation, the UPA Government has only now, nearly a year after the scam broke, ordered the CBI to raid Jignesh Shah, the holding company Financial Technologies and others in the case of NSEL, where 13,000 investors have been duped of Rs 5,600 crores. Why does it take so long for a democratic Government, supposed to be for the people, of the people and by the people, to act swiftly against perpetrators of fraud against the people who have voted it in?

This is part of the decadal legacy.

Perhaps the UPA Government prefers to protect financial interests of a coalition partner, than those of thousands of small investors who have been duped.

Last week the BSE-Sensex dropped 109 points to end at 21,009 and closed at 21,809. The NSE-Nifty dropped 22 to close at 6,504.

Foreign investors are investing heavily into India in the hope that there will be a cleaner, and more stable Government, post elections, which is less dependent on coalition partners and less corrupt in its ways to accommodate their demands.

Let's hope that the electorate delivers such a verdict.

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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7 Responses to "Manmohan's legacy, a decade of misrule"


Mar 18, 2014

Manmohan came with a reputation of honesty. It is now in tatters.He is dumb & being a Teflon-coated Elite walks with a straight-Face and Rahul is made to blbbaer lies about UPA Achievements!


G S Apte

Mar 18, 2014


It is very difficult to understand that, when all global economies have done well in past 8 years, why Indian economy is struggling?

We may have to draw the conclusion that, there was absence of good economic decisions, slow pace of promoting new infrastructure, lack of vision and high turn around time in government offices to clear the workload, as possible reasons for derailment of Indian GDP from 8% to 4.5%, in last 8 years or so.

We have to now choose the next government which has 20 year road map for the country, which can boost the infrastructure growth, bring in more accountability, remove hurdles in decision making, reduce time taken by government agencies to approve new projects, more investment friendly culture and efficient work culture in government offices.

I would say, ideally government offices should function much superior than private sector, since they have stable pay scales, higher work force, and stable rules and work policies.

Some of these things can certainly help India to come out of current situation and become one of the fastest growing economy in the world.



Mar 18, 2014

very well written. still cant fathom why the government did all those things when they seem so obviously wrong and a lot of noise was made about them. either they are incompetent or blatantly telling us that they dont care


Sanjeev Kumar Singh

Mar 17, 2014

The opinion expressed ignores the achievement of last ten year and only shows the bias of writer guided by the failures of last two years . I feel a balanced assessment is required and not coloured opinion of somebody.


anupam garg

Mar 15, 2014

Glad to c that the writer has modified writing style a bit to provide inputs on stocks which made need in the week soch as maruti, Bharat force etc

as always, another good piece of hard hitting writing...really hope that a better govt is former so that the author and Indians get some peace


Parmod Bhalla

Mar 14, 2014

'a decade of misrule'? Well, I agree. But what is that we do not like about UPA policies. In my view, it is the application of so called developed world's economic theories to a country that cannot produce a single piece of reliable economic data. The RBI actions are based on a theory that has been supported by foreign trained economists, 'interest rates drive the inflation rates'. While in India is there any proven hypothesis that any single component of WPI or CPI is driven by Interest rates? As long as we have Governance based on unproven theories, the policy changes will produce bewildering results. You may call it misrule or simply 'idiot's dilemma'.



Mar 14, 2014

Above you state that foreign investors are investing heavily in India.
Can you provide some facts and details of these investments if you know?

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