For a few $s more - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
For a few $s more A  A  A

9 JUNE 2012

Global markets shot up on Wednesday (the BSE-Sensex went up 2.7%) after China reduced interest rates by a quarter percent, and there were hopes that the EU would provide funds to Spain, whose banks are facing serious problems. Investors cheered for a few $s more.

Prodded into action by criticism from the Congress Working Committee, the comatose UPA Government decided to demonstrate its resolve to pursue the economic reforms agenda by pushing for passage of the delayed Pension reform bill. The attempt was aborted after Mamata Banerjee, who heads the Trinamool Congress, a collision partner, sorry, coalition partner, shook her head horizontally instead of vertically. She did that not because of opposition to the pension reform bill, one that would give individuals the freedom to plan for their own retirement (and thus for the bhadralok), but because she wanted to use leverage to get a few $s more for the debt ridden West Bengal state Government.

But why was it necessary for the CWC to prod the Government in the first place? Isn't a Government supposed to govern? The reason is because the unearthing of the scams, in telecom, coal and other areas, has caused a complete policy paralysis. Nobody wants to take a decision, for fear of a later investigation. Not taking a decision is uncontroversial. The scams in telecom, coal, and other areas were, again, for a few $s more.

-------------------------------- Is the real stock market crash around the corner? --------------------------------

It appears to be 2008 all over again... Economies are slowing down. And stock markets are crashing.

Fear has gripped investors across the world. And of course, the experts on Television are now predicting doom.

Great! This throws up a fantastic opportunity for you... Why? Well, remember what happened after 2008? One of the sharpest stock market rallies we have ever seen!

Now, no one can say for sure when the stock markets will turnaround... But yes, they will. And by then a lot of wealth that would have been created.

To help you claim your share of this possibly huge wealth creation that will happen in the future some time, we have prepared a very short video...

And we recommend you watch this free video right away... (It's available only for the next 48 hours).


The fact is that the investment world has surplus liquidity; the pool of financial assets is more than three times global GDP. A lot of this money is parked, on grounds of safety, into Government bonds, primarily US Treasuries, which yield an abysmal return. It is seeking to escape from such constricting investments into other asset classes, but global investors lack confidence.

India was one investment destination that used to look good. Its economy was booming despite awful governance. However, as the latest quarterly GDP numbers show, its economy is slowing down. And largely because of the awful governance.

One has only to look at Bihar to see what change can be wrought through good governance. Bihar used to be the start of the BIMARU (BIhar, MAdhya Pradesh, Rajasthan and Uttar Pradesh), or sick, states. It now has the highest rate of GDP growth, better than Gujarat, another state that is well governed. Importantly, both state governments have been voted in by the electorate.

This suggests that voters have learnt, even though politicians haven't, that growth of the economy matters more than the erstwhile divisive factors of caste, creed and religion and the electorate is willing, and able, to change Governments that do not perform.

Perhaps the CWC learnt that lesson, and prodded the UPA Government.

Perhaps the UPA Government may also learn it.

Who knows, perhaps their collision partners, oops again, coalition partners, may also learn it.

So better governance can come either from a self realisation or from an ousting of those who do not heed the signs. Either way, it will come, and that's when the markets would take off. The underlying India growth story remains intact. There is just too much pent up demand, from a young population, for even nincompoops to mess up.

The dip in prices of crude oil gives us further hope. Brent crude has fallen below $ 100/barrel, and, if its stays there, India would have huge benefits. The current account deficit would fall between 0.3-0.5% of GDP. Inflation could come down by about 1% if the entire crude oil price fall is passed on, which it probably won't be, so by maybe 0.5%.

The Yashwant Sinha led committee is soon to submit its report on the legislative changes needed to introduce the GST (goods and services tax) which, when introduced, would collect indirect taxes far more efficiently and honestly, and is expected to boost GDP by 1-2% by doing so.

Then there are enormous savings to be had simply by stopping doing things the wrong way and starting to do them the right way. A study by IIM Kolkata and Transport Corporation estimated the cost (in terms of time and fuel cost) of Rs 87,000 crores to transporters asked to stop at checkpoints, to collect toll, the collection from which were Rs 4,300 crores. Any resident of Gurgaon who has spent two hours at the toll booth, wasting precious fuel, far more than the toll he pays, knows that. The obvious solution of electronic toll collection does not strike an obviously myopic Government.

This is because the cost of Rs 86,000 crores is borne by the people whilst the Rs 4,300 is collected by the Government who doesn't care about the cost to the people or about the effect on the economy.

But just think of what a saving of that magnitude would do. There are many other similar steps that can be taken. For example the subsidy on kerosene leads to adulteration of diesel with kerosene, and subsequent respiratory problems in a good section of the populace. The medical cost of treating the respiratory diseases of chronic cough/cold, asthma, sinuses etc. is borne by the people.

Think of the colossal wastage of foodgrains that have been procured but are left to rot, or be eaten by rodents, for want of storage space.

The Government is banking on a speedier implementation of the unique identity project, Aadhar, which would certainly help target subsidy payments in a better manner thus preventing the leakage, into corrupt and grubby hands, of subsidies meant for the poor. These vested interests are trying to scuttle the UIDAI project. There are worries that the necessary door to door scrutiny needed for granting a unique identity has not been done as meticulously as necessary, and the duplication of work between UIDAI and the National Population Register project undertaken by the Home Ministry, can lead to inaccuracies and problems later.

The policy inaction is costing the country dear. Fewer companies are making capital investment, which will hit GDP growth in the future. Foreign companies are leaving India in disgust, the latest to do so is Fraport AG, the largest but one manager of airports, which wants to sell its 10% stake in the Delhi airport. Some of the foreign telcos are also planning to quit their efforts to enter India and threatening to take legal action. Australian company Minemakers has cancelled a JV with NMDC to jointly explore scarce rock phosphate deposits (an input in fertiliser manufacturer) after the latter failed to act within the time frame.

Last week the BSE-Sensex gained 753 points to end at 16718, and the NSE-Nifty gained 218 to close at 5068. The main spurt was on Wednesday, of 435 points on the sensex, after China cut interest rates by 25 basis points (0.25%) and there was hope that the EU would pump in money into Spanish banks to bail them out.

Given that there are investible funds which would like to invest, if they have confidence in the market, India can hope to capture a lot of that inflow if we only govern ourselves well. Will the UPA realise this simple point. Or, have they outdone ostriches and stuck their heads so deeply in the mud, that they can see, hear and speak nothing? Will they change, or be changed?

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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2 Responses to "For a few $s more"
Shabbir Haidermota
Jun 10, 2012
A very succinct and appropriate commentary for the week gone by Mr. Mulraj. I am sure the Government as well as Opposition and Collision (oops Coalition) Partners well understand that reforms are the way ahead for the Indian economy but none of them seem to have the balls to go ahead with reforms and oppose the vested interests of a few of their own colleagues. As is being seen in Bihar and other places, the result of this inactivity and policy paralysis will surely be seen in the next elections. Like 
Ram Mirchandaney
Jun 9, 2012
Congress should call Mamta's Bluff & press on with Reforms before the next Elections or else they R doomed at the Hustings ,in 2014,or earlier if there is a mid term Poll ! However if they want to stick to power .& be remembered only as a Govt in Paralysis ,it is their choice . Like (1)
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