Shooting ourselves in the foot

12 JUNE 2010

The India story is good not because of good public governance, but despite abysmally poor governance. But the last week has shown the dangers of bad governance and the risks to the market of our ability to shoot ourselves in the foot. The increasing inability of Government to the threats posed by Maoist was illustrated by its calls to the Army to help fight them. The Army rightly refused, as it is needed to counter external threats. The movement has gathered steam due to official neglect of their plight and is now a big problem. In J&K a colonel was removed and a major suspended, for faking encounters. In Goa a former tourism minister is alleged to have aided in the suicide of his lady friend.

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Perhaps the biggest example of reprehensible governance was that of Bhopal in which some 15,000 people perished in Dec 1984 due to a gas leak from the Union Carbide plant. It took our legal system 25 years to close the case against local officials, giving them a relatively light 2 year jail term, and granting bail. The delay itself is a travesty of justice and the judicial system must be brought into shape for speedier dispensation of justice. Pleas for adjournment must not be entertained. No one has raised questions about why the methyl iconsynate gas was allowed to be manufactured there, especially after people had warned the State Government, for a few years prior to the accident, of the dangers. It was a failure of administration of factory inspections, which are often a good source of income to the inspectors. Warren Anderson, the then CEO of Union Carbide USA, who visited India, was let off under mysterious circumstances, probably under US pressure to which we buckle innumerably, unlike China.

We appear to be buckling again in trying to restrict penalties for suppliers of nuclear equipment, in case of an accident. Given the corruption and 'chalta hai' attitude of inspectors, we are inviting a bigger disaster.

The US has different standards for itself. Witness the toughness it is displaying against BP to pay for cleaning up the oil spill.

This poor governance reflects on companies and on stockmarkets. Consider the weakness with which the Government tackles the issue of raising petrol and diesel prices, thus bleeding the oil marketing companies, once called 'navratnas' or nine jewels. IOC, strapped for funds because of having to foot part of the bill for the subsidies, has delayed its plans to set up a refinery and petrol stations in Turkey. Unfettered by such diktats, the private sector is going global with gusto.

Bharti Airtel completed its acquisition of Zain thus becoming the fifth largest telco in the world. Africa has developed the use of mobile banking. In remote areas, the phone can act like an ATM or to make a banking transaction or to purchase stuff. Our Government now harps on 'inclusive growth', which implies making banking facilities available to all. Most villages are too tiny to set up a brick and mortar bank branch viably in. Which is why demand for gold is highest from India; without easy access to banks, the rural folk carry their wealth on them in silver and gold bangles. Mobile banking is the obvious solution, using best available technology. It is scuppered by 'security' concerns. This is hogwash! It is easy to place a monetary limit to a mobile phone transaction and fake security concerns are no reason to deny phone banking technology, not if we are honestly wanting inclusive banking. The key word is 'honestly'.

Mobile banking has to come, because logic dictates so. When it does, Bharti would be better positioned to exploit it.

Bereft of the discarded non compete agreement, RIL has ventured into telecom by buying a 95% stake in Infotel Broadband, promoted by Nahatas. Interestingly, the Nahatas had demonstrated both the vision to be the only telco to buy broadband wireless spectrum pan India, but also the ability to pay for it, and cashed in on that vision soon after it acquired the spectrum. It is to be seen whether the high price collected from spectrum sale by the Government would make the pricing of broadband wireless access affordable. When 2G started, the Government had similarly auctioned off blocks at a high price, which resulted in call charges being at an unaffordable Rs 16/minute. The telecom revolution truly started when the Government switched to a revenue sharing system, bringing down the cost of mobile telephony to the world's lowest. Will we again tread that path in broadband wireless?

RIL is also looking at acquisition of more shale gas assets in the USA, and also to enter the nuclear power business.

Another impact of poor governance or non governance is in getting the political consensus for divestment. Mamata Banerjee, whose biceps were enhanced by her recent civic poll showing in Kolkata, is opposing the planned divestment of Coal India and Hindustan Copper, which have been deferred. Naturally, if Manmohan can't take on O Mama, he would be unable to take on Obama.

Despite all this, the economy is doing well. Industry grew a whopping 17.6% in April! The net profits of 2700 companies showed a growth of an astounding 94% over Q4 of last year, admittedly a bad year and hence a low base. Net sales were up 23%, which is impressive. The LIC has increased amounts to invest in stock markets; last year it invested Rs 60,000 crores, which was 60% of the amount FIIs invested. Adding to that the likely investment from pension funds, and mutual funds, we are moving towards a dilution of the swing factor power of FIIs. FIIs holding of corporate equity may not be huge but its ability to create short term swings is.

Last week the BSE-Sensex fell sharply, on global cues, at the start of the week, then rallied, and ended the week at 17064, for a weekly loss of 53 points. The NSE-Nifty lost 16 to end at 5119. The sensex would meet resistance at around 18,000, perhaps because of another shot in the foot. Or, since the World Cup is starting in South Africa, because of our ability to score self goals.

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 "Shooting ourselves in the foot"

agarwal mukesh

Jun 19, 2010

Considering the way our govt handled Bhopal Gas Tragedy,the world's worst ever industrial disaster and let off the Union Carbide on payment of a meagre compensation of approx USD 470 million and even our Hon'ble Supreme Court;constitutionally the guarantor of justice to all
its citizens; helped the guilty by diluting charges on them from culpable homicide to criminal negligence;it is all the more important that we should oppose the Nuclear Liability Bill tooth & nail because this bill proposes to limit the liability of multinational corporations who want to put up Nuclear Power Plants in India to a paltry sum in case of any nuclear disaster.
It is quiet surprising that today when "Polluter Pays" principle is being followed world over and the latest example is BP paying a whopping sum of USD 20 Billion for the oil spill it caused ( and there is no cap on compensation which it may have to pay);we are trying to limit the liabilities of multinational companies for nuclear disasters which may create havoc not only for our generation but for our future generations also.



Jun 14, 2010

You have correctly recorded in wrong deeds in our country. A very corrupt & power hungry government ( with few exceptions), equally corrupt bureaucracy & inefficient opposition, has resulted into this apathetic situation. In fact many times I wonder, whether we, country as a whole, are fast developing or only a few of them are prospering. The situation will not change till we, common people, wake up & start asserting our rights.



Jun 14, 2010

It is naïve to think that Nahatas had vision and ability to pay for pan India broadband spectrum without Mukesh Ambani behind them at the final stage of auction itself.


Mansur Rasiwala

Jun 13, 2010

One of Indias greatest poets cum Thinkers. Rabindranath

Tagore has said: Let us take our country from darkness to light. Our political leaders unfortunately want to take us to permanent darkness.

Maybe the index will fail yet for investors there are very few options left.



Jun 13, 2010

Very clear in presenting the government for its mistakes specially with the case of union carbide,vivid picture of our standing with US.What is the fate of victims of Bhopal?



Jun 12, 2010

When US could invade Iraq and hang chemical Ali and Saddam Hussein for imaginary weapon of mass destruction. Why they are protecting Union Carbide chief for mass murder due to negligence. Time has shown that value of Asians and Africans is nothing compared to that of American souls. Also time have shown that those who do not budge with big brother is subject to sanctions and black mail.


parackal thomas

Jun 12, 2010

VERY INTERESTINg for Politacal satire than Investment advice.

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