Modi Government starts economic angioplasty - Straight from the Hip by J Mulraj

Modi Government starts economic angioplasty

7 JUNE 2014

The UPA II was headed by a Prime Minister who feebly permitted its coalition partners to dip their grubby hands into the country's till, and led to corruption scandals in areas such as Telecom, Coal, Commonwealth Games and others. These were exposed by an alert Comptroller & Auditor General (CAG) and led to the opening up of several files, and investigations into bureaucratic decision making. The bureaucrats stopped clearing files, for fear of subsequent inquiries, leading to a policy paralysis, and a stagnation of economic activity. Which, in turn, led to a sharp fall in industrial production and thence to a fall in GDP growth, absence of jobs, and rising inflation. And, ultimately, since all of this affects the people, to the ousting of the UPA Government.

The new, BJP Government under Narendra Modi, has started the task of unblocking the choked economic arteries through economic angioplasty. The initial steps are very encouraging and bode well for the nation.

Thus the Cabinet Secretary has asked all bureaucrats to review archaic laws and to have a maximum of four layers for decision making. They have also been asked to shorten the application forms, preferably to a single page, for any clearance. Wonderful! Modi has assured bureaucrats that they would not be persecuted for honest decision making, and for honest mistakes in taking them. One can thus expect faster decision making and a declogging of choked arteries.

There are several archaic laws that urgently need to be reviewed. Its not as if the previous Government was unaware of the loss of their relevance. It was simply that the UPA was either too unconcerned to make the effort to cleanse the system of deadwood, or too spineless to take the necessary tough decisions, perhaps both.

There are plenty of laws relating, for example, to how agricultural produce is sold. These laws, which were meant to protect the small farmer from being exploited, actually work against his interests, and protect the larger farmers and the middlemen. They need to be reviewed and modified urgently. A situation where 50% of the population dependent on agriculture get 14% of the national income is inherently unfair and unstable. The laws need to be changed so that the farmers earn more, but the consumers do not pay more; instead it is the middlemen who are sucking the lifeblood of the system, that have to be truncated. Such changes will, of course, provide a boost to agriculture and, hopefully, to GDP growth.

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Or take rent control. The danger of losing an apartment if rented out, despite valid contracts, has led to a paucity of rental accommodation, especially in cities where jobs are available. This deprives a citizen of his fundamental right of movement within India, and of jobs. A simple solution would be to make the change prospective; simply abolish the Act prospectively, whilst affording protection to existing tenancies and allowing the efflux of time to sort out the problems. A prospective amendment hurts no vote bank, the reason why the law is retained, in the first place. Again, a prospective discarding of this legislation, (it was introduced during the Second World War as a temporary measure to provide accommodation to British officers but was never reviewed subsequently), would help companies provide accommodation to senior executives, help junior ones find rental accommodation allowing them to move wherever their job demands, and create economic activity around a rental market.

The Environment Minister has also planned to speed up clearances in a transparent manner. In a few months the entire process would be online, and would not require visits to the Ministry. Which presumably cuts down on the demands for palm grease. This is also great news.

The Modi Government also plans to link rivers, an overdue and excellent idea which, again, was well circulated but not pursued by a moribund Government. River transport of goods is far cheaper than road or rail transport, and friendlier on the environment, as it consumes less fossil fuel. People transport on interlinked rivers will add to economic activity and tourism revenue. It only needs a modicum of common sense, an integrity of purpose and a will to implement, to get this done. One wonders which of these factors was missing earlier?

Francis Fukuyama, a Japanese thinker, writes 'The biggest single problem in societies aspiring to be democratic has been their failure to provide the substance of what people want from government: personal security, shared economic growth and the basic public services (especially education, health care and infrastructure) that are needed to achieve individual opportunity.'

Modi's Government will have to tackle these three basic issues, personal security (the incidence of rapes and other violent crimes is rising), shared economic growth and basic public services mentioned above. Since law and order is a State subject, it is upto the State Government to control it. The callousness and arrogant nonchalance in statements made by political leaders in UP after several rape incidents betrays a loss of touch with the public mood. A similar loss of touch with the public mood over issues like corruption led to the drubbing of the UPA.

What Modi should try doing is to curtail the powers of arbitrary transfer of people. It is this fear of being transferred to insignificant outposts that makes law enforcement agencies beholden to the bidding of political masters and prevents them from doing their duty to the citizens. They would be diffident to hold, for questioning, perhaps a terrorist, for fear that he may be 'politically connected' and so detaining him may lead to the officers' transfer. Is it possible to curtail this power?

The only action taken by the UP State Government after several gruesome rapes and murders was to transfer a bureaucrat!

This is what Fukuyama says about events in Ukraine "This was the failure of the 2004 Orange Revolution in Ukraine, which toppled Viktor Yanukovych for the first time. The leaders who came to power through those protests-Viktor Yushchenko and Yulia Tymoshenko-wasted their energy on internal squabbling and shady deals. Had an effective democratic administration come to power, cleaning up corruption in Kiev and making the state's institutions more trustworthy, the government might have established its legitimacy across Ukraine, including the Russian-speaking east, long before Mr. Putin was strong enough to interfere."

Mr Modi would need to strengthen India's institutional framework, and he has the vision and capability to do so. He also has to take measures to speed up India's judicial system, that is clogged with far too many disputes. Changing the rent control act, as suggested above, would help in stanching new cases.

He would also do well to come down hard on white collar criminals. A lot of the disputes clogging up the judicial system emanate from the absence of protection against fraud, to the individual consumer or the individual saver. Consider the NSEL scam where 13,000 investors have been made victims of fraud and are depending on the Modi Government to help them. The UPA Government is suspected to have colluded with the fraudsters. The promoter of the FT group, which owned the NSEL, Jignesh Shah, who had hitherto proclaimed that he knew nothing of the happenings at NSEL, has been found by the EOW to have known all along about the scam and is fully liable and responsible.

The game plan for such fraudsters is to artificially boost transaction volumes on the exchange, which induces a prospective buyer of a stake in the Exchange to pay more, based upon such fake transaction volumes. This benefits the sole owner, FT, and thus Jignesh. In the wake of undeniable evidence, why does it take so long to nail fraudsters?

The Government is making changes in the SARFESI Act and the Debt Recovery Act, so as to recover loans given by public sector banks to wilful defaulters easier. This is good news. The Government should act strongly against wilful defaulters. But why restrict such actions only where the Government is involved, as in PSU banks? Why not in cases like Sahara, NSEL and Saradha, where the public is involved? All animals should be equal.

Another decision of the Modi Government soon to be taken is regarding the new price for gas to be paid to ONGC and RIL. Stock prices of both shot up after it was announced that the decision would be made by the end of this month.

ONGC, particularly, is a victim of poor corporate governance by its majority about rights of its minority shareholders, and have compelled ONGC (and GAIL and OIL) to bear a significant part of the cost of petro product subsidies. To put this in perspective for investors, ONGC has paid Rs 272,721 crores by way of subsidies, out of its P&L, since 2004. If it were not for this, its net profits would have been higher by Rs 157,000 crores! This is loot of shareholder funds which Arun Jaitley would do well to review.

Venezuela's former President similarly dipped into the coffers of its state owned oil company, which then did not have the funds left to invest in discovering new energy sources, and is now in dire straits.

What is worse is that the Government has been digging into efficiently run, and profitable companies but has been providing funds to inefficiently run, and unviable companies such as Air India. Air India has, again, gone for funds to the Government. Why should it be given them? There is no compulsion for any Government to own an airline. Lots of Governments do not have a national carrier owned by the State. Why is India different?

The Modi Government is also contemplating mergers of banks. It owns a majority stake in far too many. As a result, none of our banks are large enough to finance corporate India's growing needs, especially for big ticket acquisitions. The Government is contemplating a merger of banks to make a handful of larger, global size, banks. Such mergers would be good with one strong caveat. The merger would create lots of human resource issues, and the process of integration of the workforce, of senior management, as well as of technology platforms, is very challenging. A part of the problems of Air India today is to do with the difficult process of integrating Air India with Indian Airlines, both of which had different cultures.

The Government needs to create an environment where foreign investors do not feel unwelcome. The UPA Government had vitiated that environment with things like a retrospective amendment to tax laws, in a bid to bring Vodafone under the tax net, after it lost an appeal to do so in the Supreme Court. The Modi Government is contemplating a repeal of retrospectivity of taxation proposals. Vodafone has gone in for international arbitration against the retrospective change, and its possible that the Modi Government, displaying far more common sense than the Manmohan one did, is not wanting to risk an adverse decision in international arbitration.

The actions taken for economic angioplasty have enthused investors, both foreign and domestic (mutual funds are seeing an inflow from the retail investor, who had been absent), and the BSE Sensex crossed the 25,000 mark for the very first time. It ended the week at 25,109, for a weekly gain of 892 points. The Nifty ended at 7,474, for a gain of 244 points.

Globally things are not hunky dory, though. In the US, Q1 corporate profits have tumbled most since Lehman days and, it seems, the Government is fudging figures to hide a whopping 75% drop in fuel consumption. These are not signs of a growing economy.

India's market cap. has risen to a new high and is now 2.2% of global market cap. Yet the market cap/GDP ratio is less than global averages. If the Modi Government succeeds in removing blockages through its economic angioplasty, the GDP can grow at a rate India is capable of. The long term prognosis is bullish for India. Buying on dips is advocated.

Note: This column will not appear on from next month. I thank my readers for their support and valuable comments. I would request Equitymaster to inform my subscribers as an when the column appears on another platform.

Message from Rahul Goel: On behalf of all the readers, and members of Equitymaster, thank you Jawahir for giving us the opportunity to host this very prestigious column. We wish you the very best of luck! To the readers, don't miss posting your farewell message for Jawahir here!

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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21 Responses to "Modi Government starts economic angioplasty"


Jun 17, 2014

Every sentence in your report makes sense and is deemed to be near perfect.
Except for the First line - which could have been drafted in a different way. Irrespective of what the facts were it is rather humiliating even to quote 'him'.
After all you are an organisation that appears to have some merits but than such sentences erases the opinion drastically.


Jossie Mendonca

Jun 13, 2014

Dear Mr. Jawahir,
Your columns have been THE essential ingredient to complete my week. I always look forward to your column because it summarizes the econo-political situation of India, gives us your analytical view & also your subtle recommendations. In short, spending 15 mins reading your column every week makes us much smarter individuals. You do the hard work and we reap the benefit.
Wishing you all the best in your next endeavor & look forward to continue to benefit from your expertise in the next forum.

cheers. Jossie Mendonca


Noshir H. Gundevia.

Jun 9, 2014

Dear Mr. J.. Mulraj,
I have enjoyed reading your independent column earlier in Times of India and presently in Equitymaster. Infact I have been looking forward to your columns every Sunday/Monday. Every week You have been picking on certain policies of the Government and suggesting commonsense solutions which would help the country's development. However, our politicians have been more interested in short term political gains and mixing politics and economics with disastrous results.

I would like to read your column in future also. Let us therefore, know where we could access you in future.

Thanks again.
Noshir H. Gundevia.


Ajit Kumar

Jun 9, 2014

Have always looked forward to your views and am very disappointed to know that you are parting from Equitymaster. Do keep me informed about the next medium where I can continue to get your very relevant,informative and unbiased reports.


Satish Dabholkar

Jun 9, 2014

Thank you Mr Jawahir for your column where I always agree 100% with your views expressed in the column.


J Mulraj

Jun 9, 2014

Thank you dear readers for very kind comments and continued support.

As mentioned in my column, I would ask Equitymaster to inform you if it starts to appear on another platform.

Warm regards to all.


Bankimchandra Shah

Jun 8, 2014

I could not recognise Jawahir. But I have been a keen reader(if i recollect correctly, , he wrote for a long time in The Times of India first page, bottom with name J Mulraj) and as such learnt abc of stock market when I had not a penny to invest. Great depth. Where do we read you hereon....

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Jun 8, 2014

Dear Sir,
You are a sensible writer. I am appreciative of your critical, matured, logical approach in writing. Your views very much synchronizes with that of a common man on street. Your conclusions and judgements from somewhere in Mumbai(or so)feels appealing to me at Palakkad, Kerala. Best wishes. . .

Growth breeds Greed ! Are you sure, merger of Public sector Banks good for Indian Public ? When I say Indian Public, I mean about the 99% and not the infamous 1% !

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Jun 8, 2014

Dear Jawahir

Will miss your your newsletter which is written in a simple and highly readable manner and also with lots of passion. Your voice comes through loud and clear and directs investors to issues which we would otherwise not know or care about. If one cannot think then the next best thing is to have someone teach us how and what to think and this has been the major service rendered by your column. looking forward to your next column on the new platform.

Like (1)

Prof. N K Jain

Jun 8, 2014

It was a pleasure reading this column. Best wishes for future.

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