Admitting, and correcting, past mistakes is our biggest weakness - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
Admitting, and correcting, past mistakes is our biggest weakness A  A  A

19 MARCH 2011

One doesn't know why it is so, but one of the biggest weaknesses of Indians is to admit, and then correct, past mistakes. We continue defending them ad nauseum, while the world moves ahead, and waste precious time in correcting them. Other nations are quicker to admit mistakes, and then move on. The slowness of the judicial system only compounds the problem.

Last week, the custodian of Harshad Mehta's estate finally paid out Rs 2000 crores to the IT Department, and the SBI - after 20 years! Why on earth should it take so long?

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The removal of subsidy on petrol, an inexplicable decision in the first place, took decades, and we are still struggling with how to phase out subsidy on diesel, even after Government officials have been gruesomely burnt to death seeking to prevent its adulteration with cheaper (through subsidised) kerosene. It is only now that the Government is giving the desired push to deliver subsidies directly to beneficiaries, using available technologies, and bringing in Nandan Nilekani to perform the task.

The removal of subsidy on urea is another political hot potato. When Yashwant Sinha, the BJP Finance Minister, sought to hike the price of urea by just Rs 1 per kilo, the Congress, in opposition, booed down his budget speech. Now the tables are turned and a BJP in opposition would rant and rave if Congress, in power, were to move to phase out the subsidy. So is sensible economic policy only a matter of political negotiation? Greater use of subsidised urea, more than required, simply because it is cheaper than the other phosphatic and pottasic fertiliers, whose subsidies have been removed, is actually degrading the soil and hurting farmers, instead of helping them. This, at a time when the world is struggling with the problem of how to feed the expected rise in population, by 2 b., by 2050. Are political leaders not one bit concerned about how their children and grandchildren will be fed? Or do they feel they will have amassed enough illegal wealth not to worry?

Talking of amassing wealth, how is it possible, as CAG is claiming, for Hasan Ali, to have increased his income from some Rs 540 crores to an unbelievable Rs 54,000 crores ($ 12 b), in 5 years? The claim he did not file his returns is ludicrous - ask any ordinary, honest, tax payer what happens to him if he delays filing returns. Honest work cannot result in an income of $ 12 b. - not even Carlos Sim, Bill Gates, Warren Buffet, LN Mittal or Mukesh Ambani make that. It has to be illegal, and, since the non-filing of return has gone hitherto unquestioned - with high level political backing.

Similarly the rent control laws which were passed as a temporary measure during world war II, to help soldiers find rental accommodation, remains on the books. The result? Buildings collapse, as one did in Mumbai last week, killing people, because the frozen rents cannot maintain buildings in proper repair. The 'pagdi' system, by paying black money to take a rental property, is encouraged, helping generate more black money. Politically no Government is willing to abolish it because there are more tenants than landlords, never mind if people die in collapses, and never mind if those who get jobs in big cities cannot take them because of unaffordable housing. It would be simple to remove the rent control prospectively, thereby hurting no one's existing interests. But we cannot accept our mistakes and so cannot correct them.

Global investors are worried about the consequences if there is a nuclear explosion in Japan. The world is hungry for energy, which is why nuclear power plants will be built, never mind what happens in Japan. One of the reasons why there is a thirst for energy is the way the automobile has been built, at a time when crude oil was plentiful and cheap. Readers are encouraged to download the chapters in a book 'Natural Capitalism' from the site The authors explain: "The contemporary automobile, after a century of engineering, is embarrassingly inefficient: Of the energy in the fuel it consumes, at least 80 percent is lost, mainly in the engine's heat and exhaust, so that at most only 20 percent is actually used to turn the wheels. Of the resulting force, 95 percent moves the car, while only 5 percent moves the driver, in proportion to their respective weights. Five percent of 20 per-cent is one percent not a gratifying result from American cars that burn their own weight in gasoline every year."

Just 1 % of the energy in oil is used to move people! No wonder we are running out of oil. Cheap oil and the automobile had their impact on urban planning - people could stay far away and commute to work in their large cars driven by cheap oil. Modern urban planning, such as the GIFT project (Gujarat International Finance Tec-City) encompasses a 'walk to work' concept and energy efficient public transport.

It would be far better if political leaders spent their time in Parliament discussing and preparing for the future, by promoting smart cities, renewable energy, public transport and such, instead of just maligning each other and scoring cheap political points. But we do not admit our mistakes, nor learn from them.

In corporate news of interest, the sensex on Friday was dragged down by the fall in the stock price of RIL, a heavyweight in it, after news filtered out that the company had communicated to the director general of hydrocarbon, that gas production may fall from the current level of 50-55 mmscmd to around 30 mmscmd, if its investment plans were not approved. This seems to be a pressure to get the plans approved faster more than a genuine concern over a drop in output, judging by the recent deal with BP for the latter to acquire a significant stake in the block. Using BP's better technology, the hope was for gas output to increase from 50-55 mmscmd to 80, rather than reduce to 30. So it is possible that the stock, and with it the market, would bounce if either the threat of the drop is discounted, or the investment plans approved.

The RBI last week raised, as expected, both repo and reverse repo rates by 25 basis points, in its continuing efforts to tame inflation. Global food inflation is because of several factors (see previous SFTH column) including changes in weather due to global warming and stupid policies in the US to mandate the use of ethanol for driving cars, diverting the corn used for human consumption. The solution to the food crisis will be provided by science not by a change in human behaviour.

The Finance Ministry accepted payment of 9.5% interest on employee's provident fund. This is a victory of politics over economics, as always. The EPFO is bankrupt and the payment of 9.5% is borrowing from the future. It has been made with an eye on the elections in 5 states.

On the other hand, the corporate sector is performing, with advance tax collection up 30%. This suggests that the Indian economy is chugging along faster than Mamta's express trains.

Last week the sensex fell 295 points (208 on the last day) to close at 17878 and the Nifty fell 80 to end the week at 5373. Thus both have breached their psychological support levels of 18,000 and 5,400, respectively.

The next support level for the sensex is 17,500 and if this does not hold it would fall to 16,000. The scenario under which this could happen is that Japan is unable to contain an explosion and, needing far more money, decides to sell the $ 860 b. holding of US Treasuries. In the absence of buyers, the US Government bond prices take a tumble and China, which holds $ 1.2 trillion, joins in the selling to contain losses. This, in turn, severely curbs the US Government's ability to borrow to fund its deficit and it tightens on imports. These are some of the concerns of global investors.

Hopefully there will be no such doomsday scenario and the market finds support at 17,500 which is not far away. So perhaps its time to take a deep breath and accumulate stocks, for the long term, of fundamentally good companies which are well managed. The market is in a sideways movement, and would not be running away soon.

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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11 Responses to "Admitting, and correcting, past mistakes is our biggest weakness"
Ganesh K
Mar 23, 2011
The government has increased EPF interest rate to 9.5% to please organized sector salaried people. But what about PPF, it was devised for people who are not salaried. The interest on PPF is stagnant at 8% and limit of investment in PPF are stagnant at 70K for many years. This needs to be corrected immediately. Like 
rajesh somani
Mar 21, 2011
indian market seems to go,down with such reason

1. fly money will out from india in phas manner . only this type of money is in this market. fundmental of company built in india in balancesheet.thatswhy common people lost there money . so please shut down this game foe shake of common people only few indians corporate house is good.otherwiseeverbody is doing the same play to take the money of commompeople.
Mar 21, 2011
best advices given tothe govt in this artical. but you know very well comprasion and follow the idea is different thing. first of all all all indians mera hindustani people take the march to delhi and take controlover praliment house. tahn ask every single poltical people do u live in this world forever. thy told no. than take the constitioution.chane totally. we need the knew savidhan in which people have the more power and leader has the more responsibilty. than any thing can be changed. so who took the first step. mera bhart mahan somain nabe baiman. Like 
Mar 20, 2011

Mar 20, 2011
It is a good article,which everyone should read and know!It is up to the people to persuade to do what ,at least, is obviously right. Even simple things like building storage godowns are neglected resulting in huge loss of grains. This is unacceptable in the age of food inflation.Now India has quietly moved up to No1 arms buyer .This will drain the resources needed for Education and Health. The scarce resources cannot be further frittered away by populist noise.The two big parties should behave responsibly and not get bogged down by sheer opposing the other party,just for the sake of politics
sulltan fazelbhoy
Mar 19, 2011
To err is human; all parties in and out of power need to accept this dictum. Only targeting errors when in Opposition in order to dethrone the current leadership is being short sighted because the focus is not on contribution to welfare and long term growth. It is time for a national Govt like in UK to battle Hitler during WWII. Will our politicians have the vision? Like 
sultan fazelbhoy
Mar 19, 2011
It is always enlightening to read your column. Our politicians as a tribe need to be shot -- they have forgotten their prime purpose is welfare and growth for today and tomorrow, not just for self and ego filled lust for power. MY VIEW IS A NATIONAL GOVT LIKE IN UK TO MEET THE WWII CRISES SUCCESSFULLY. OUR MEDIA TOO NEEDS TO FOCUS MORE ON NATION BUILDING BY YOUTH Like 
V S Gurumani
Mar 19, 2011
This same comment has been made many times over. What is clear is that unless the key opinion makers and so called Netas come together, there is no way we can move on as a nation. In one area after another, whether it is public health, environment, gender, social development... every other country is moving ahead (look at South Korea, Sri Lanka, Bangladesh, even Pakistan and Nepal). The one question I have is this: Why is it that opinion leaders choose to by standers to this nonsense? Why cannot folks like Deepak Parekh, Narayan Vaghul, Rahul Bajaj, Azim Premji, Narayanamurthy come together and seek a meeting with Manmohan Singh, LK Advani and other political leaders and help them bury their differences and craft a national agenda by recasting the rules of engagement? Today, all debates whether in Parliament or elsewhere, even in the media, end up as Zero Sum Games: you have our Gujarat, we have your Sikh killings; you have our 2G, we have your Yedurappa..these are only the two latest ones. The Indian political system does not lend itself to agreement, only arguments. By the time the arguments are over, everyone is exhausted and there is no energy left for action. In a parliamentary democracy, the pillars (judiciary, legislature, executive, media, business) have to lead the course. It will be sobering for each of these constituents to ask: are we playing the role we have been mandated by the system we have given ourselves? Like 
Mar 19, 2011
There is nothing wrong in admitting and correcting the mistakes but it should be corrected as quickly as possible to avoid further repercation Like 
Mar 19, 2011
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