Media and Science to the rescue

29 MAY 2010

The media was successful, where governance failed miserably, in at least three instances last week. A former top cop in Haryana, Rathore, was found guilty, and jailed, for molesting a minor girl. Sting operations were conducted on two others. The first was Pramod Muthalik, who was allegedly caught, in a sting operation, offering to stage a riot for a sum of money. The second was a sting on Dr P Chandra, who runs an admission consultancy firm, and was reportedly caught offering admission in AIIMS for a sum of money. If, indeed, the two stings are found to be true, the Government must take firm action. Lack of governance and the cosy ‘you scratch my back, I'll scratch yours' arrangement most political leaders have with undesirable elements, is a major concern to all, including investors.

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Another big, developing, concern, is that of water (see Economist, May 22), and the likelihood of peoples going to war over it. The Economist leader suggests four ways to tackle the looming water shortage problem, which is bound to occur once, with an 8%+ GDP growth rate, ever increasing number of people rise above poverty. One is by improving utilisation of existing resources through things like lining canals with concrete and like using drip irrigation etc. Two is by using technologies like genetically modified crops which need to consume less water. Three is by using technologies like desalination; the Maharashtra Chief Minister spoke about it last week as an urgent need for Mumbai (however he has placed the investment burden on oil marketing PSUs, which have been killed by the subsidy burden). And four by having market forces determine the price of water, which ought to be done but will not be, by a Government unable to even price petrol properly. Here, science comes to the rescue of a problem created by man; e.g. the electoral promise of free electricity by State ministers, in order to get elected, has resulted in the overuse of water pumps and a depletion of ground water resources.

Science is also finding a way to alleviate the existing, and looming, shortage of power. The Government is to approve 20 projects for solar power, which will invest Rs 20,000 crores over the next 2-3 years. The Government has to get the demand cycle for solar power to accelerate for, with increasing demand, prices of solar panels would come down, making the power generated by it more affordable. Germany has done this by simply announcing an attractive tariff for solar power generated by individual homes and sold, after their own consumption, to the grid. We should study the German experiment and emulate it. India is blessed with far greater sunlight than Germany is.

Stockmarkets last week were quite volatile, as will keep being the case. Global markets fell sharply Tuesday, on renewed nervousness about the Eurozone, then recovered, equally sharply, thereafter. The BSE-Sensex fell 447 points on Tuesday, but recovered to end the week with a gain of 418, at 16863. The NSE-Nifty ended the week at 5066, up 135.

Investors must be prepared for such heightened volatility. The crisis in the Eurozone is not over, and, whenever some country or bank fails, there would be nervous selling and sharp dips in stockmarkets. When investor psychology is assuaged, and confidence returned, there would be sharp rallies. The sensex may move in the sideways band of 15,500 to 18,000.

The US, being a more flexible economy, is likely to emerge faster out of the woods than most European countries, which are less flexible. US new home purchases in April hit a 2 year high and were 48% higher than home sales in April 2009. Real GDP grew at an annual rate of 3% in the first quarter which, though lower than the previous quarter, was, nonetheless, growth. Yet its finances are precarious, thanks to the amounts pumped in to bail out the economy and its structural problems continue. The UK and Italy have announced huge cuts in expenditure, to reduce their debt burdens. Greece will remain a big problem, and its debt problems will affect everyone Greece, e.g. owes France $ 511b. or 20% of the latters GDP! Even if Greece were to do all that its bailout package asks it to do and which it already finds difficult, its debt would still be 150% of GDP. Hence, for Greece to solve its problems, its lenders would have to take a haircut. Now imagine what happens to France, if it took a 50% haircut of Greece's debt - that would be 10% of its GDP! So the Eurozone crisis is serious and will take years to unwind, with lots of shocks on the way.

In corporate news, Air India faced a strike, soon after a disastrous crash in Managalore. The company has lost the goodwill of all; its employees and its customers and it is unclear why the Government keeps pumping in money when it really should be privatised. As regards the Managalore crash, it seems that an NGO had filed two petitions, one with Karnataka High Court, and another with Supreme Court, saying that the runaway was dangerously short. Both courts relied on the opinion of Airports Authority of India that it was not, with tragic consequences. A sorry failure of judicial review.

Amongst the problems besetting other countries, India remains a sea of tranquillity and growth. GDP, according to Prime Minister Manmohan Singh, is slated to grow at 8.5% this year, and inflation will fall to 5-6%. Steel output, according to steel minister, will double in 2 years. The RBI is keeping a strong hand on the monetary tiller. Last week, facing a liquidity crunch after banks lent crores to successful bidders for 3G telecom licences, the RBI reduced CRR by 50 basis points. Corporate results are, by and large, good. Lodha Developers has shown its faith in real estate by buying 25000 sq feet plot in Wadala for a whopping Rs 4000 crores! The Ambani brothers have scrapped a no compete agreement, which appears to be a precursor to some sort of arrangement to permit the supply of gas to RNRL, perhaps with RIL taking a stake in it. A speedier exploitation of natural gas reserves would, in itself, boost India's GDP significantly and also reduce the fiscal deficit by cutting down on LPG and fertiliser subsidies.

We are halfway in the trading zone of 15,500 to 18,000 on the Sensex. There is some steam left in the rally, which can take it up to 18,000. However, if any event occurs in Europe to trigger nervous selling, markets would react. The two virtues now needed are patience and fastfootedness.

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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8 Responses to "Media and Science to the rescue"


Jun 28, 2010

The NGO filed petitions long before the mishap.
Read carefully


Bahad Vijay Gangadhar

Jun 15, 2010

The views in this articla are based on misplaced conceptions.

The overuse of water due to free power is a total imgination and far from actual reality .

With 6-8 hrs to 12 hrs a day non availability of power in rural areas ( I live in such town in Maharashtra , god onluy knows the situation in other states.) , where is the questions of misusing the power and puping the excessive water ???. Its just Mr George Bush once said that the polution is going up because rural folks in india use Cow dung ???. Its a brute joke.

Similarly the assumption that ther is enough water to irrigate is also a big misconception. There is no water to drink, where is caswe of irrigation excessively ??.

The experts in India are jsut not having any feel of the actual gravity of the problem being faced by the rural and Semiurben people on Water and Power front . Unfortunately no NGO seems to be interested and these issue do nopt catch the imagination of the media.

in my opinion Judiciry is quite right in rejecting the NGO claims atht the Manglore airstrip is short . It cant become short only for on Plane all of a sudden .Where was this NGO before the mishap. Its all the publicity gimmics by these psudo intellectulas working for the NGOs thriving the freee donations .

Vijay Bahad.


skanda prasad

May 31, 2010

As usual simple, concise and precise. Keep it up and going.



May 31, 2010

Just wanted to point out a correction in the article towards the end. Lodha builders will pay over Rs4000Crs, spread over 5-6 years, as per govt policy(they only need to pay Rs400Crs, i.e 10% upfront. Balance will be paid in semi-annual installments), for 22-acres of land parcel located at Wadala & not just 25,000sqft (which is only 1/2 acres roughly). Pls note 1-acres = 4047 sqm = 43561 sqft (1sqm = 10.764sqft).Therefore 22-acres is close to 89,034sqm OR 0.96mn sqft.
You guys are in financial mkts, kindly check facts & figures before publishing articles.

Best regards
Neeraj Vashisth



May 30, 2010

I think data you have given about the Greece owning the french $511 billion is wrong. Total Greece debt $400 billion. Wrong data would lead to poor conclusions.



May 30, 2010

Mr.Mulraj is very good, as always. But, the contradiction in the concluding sentence baffles me:
"The two virtues now needed are patience and fastfootedness". Please explain how the two contrary traits can be synchronised in reality by investors.


m r kamath

May 29, 2010

reg Mangalore crash you have erroneously concluded by saying sorry failure of judicial was not,as per findings till date,length of runway which caused accident but not having made use of full length of runway for whatever reason...& then attempting to take off again for re-landing...this airport in operation since 1951 & in 2005 runway was extended to receive bigger fact,again as per reports,both pilots of illfated flight have prviously landed there 19 times(senior pilot)& 66 times(co-pilot)!!..incidentally M in my name stands for Mangalore...


m r kamath

May 29, 2010

there is lot of confusion on what Lodhas have bid it 22 acres plot of which 6 acres(approx 25000sq meters) can be developed with FSI of 20?? none of the figures mentioned in news papers(TOI) make sense...can you pl dig little deep & enlighten...( incidentally you have mentioned 25000 square feet which is little more than 1/2 acre!!)

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