The rise of arbitrariness and intolerance - Straight from the Hip by J Mulraj

The rise of arbitrariness and intolerance

14 JUNE 2014

Global economic growth has been constrained by two factors. One is a rising population, and the inability of the world to meet its demands of resources, under existing systems. The second is the plateauing of growth in labour productivity, because of which the developed world was able to raise its standard of living. The latter has led to an increase in use of machines, which, in turn, has led to jobless growth (youth unemployment in countries like Greece and Spain are over 50%).

Lack of job crisis, income inequalities, absence of opportunities, are all factors that lead to higher social unrest and, ultimately, to terror threats. Governments, in turn, respond by arbitrary decisions, often ludicrously so, and by intolerance. None of these decisions, whether arbitrary or arising out of intolerance, are good for governance or for economic growth. Nonetheless, they are taken. Examples abound.

One of the most ludicrous was the threat, by the State of New Jersey in America, to pull an 11 year old kid out of his home, and give him up for adoption, simply because (and this is where it gets wierd) he twirled a pencil in school, and a bully shouted that he was twirling it like a gun, and was, therefore, a threat!.

Competing in bizarreness with the above example is this one. Thirty three cities in America have passed, or are passing, a law, making it illegal for citizens to feed the homeless. Whatever happened to basic human values?

The American Government has been cracking down on global banks, which are being fined heavily for not following proper KYC norms, and permitting money laundering by American citizens, by drug peddlers and by terrorists. Also imposing fines for the banks' manipulation of markets for foreign currency, sometimes with unintended consequences of bringing these markets to a standstill.

It is not only the US that is in competition for arbitrariness. In an attempt to improve its debt/GDP ratio, the Spanish Government is trying to boost its stated GDP figures, by adding to GDP activities hitherto considered immoral and illegal, such as prostitution, drug trafficking and smuggling. Adding these activities, Spanish GDP growth improved from 2.7% to 4.5%. Portugal and the UK are also, similarly, boosting stated GDP by adding such activities. It seems that in the face of the harshness of economic reality, morality and ethics are somewhat stretched.

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And economic reality is harsh. Despite pumping in mountains of money through quantitative easing programmes, demand has not picked up. This is mainly because of jobless growth. One cannot expect consumers who have no job, and no security, to buy things. The money pumped in by central bankers has, meanwhile, gone to pump up asset prices, and into construction of things like homes, which are not being bought. China has a whopping 52 million unsold homes!. That represents 1 in 5 homes! And has $ 674 b. in mortgages, which, of course, will create huge NPA problems for the banks that have lent. In an effort to sell these homes, China is now doing what the US did during the sub prime mortgage crisis, viz. providing loans without any margin requirement.

China is bulldozing mountain tops to create flat land for building, apparently without a full understanding of its environmental consequences.

Excessive money supply also goes into financing stockpiling, as in iron ore stocks in China, in a state financed ponzi scheme. A probe into which has caused iron ore prices to drop the lowest in 21 months. Iron ore miners in India will be hit adversely, whilst consumers, like steel companies, will benefit.

Or take the gruesome intolerance in Iraq, where the militant forces of ISIS (Islamic State of Iraq and Al-Sham) are shooting, killing and beheading civilians and soldiers, at random, and are just 50 kms. away from Baghdad. As a result, prices of crude oil have spiked to a 9 month high of $ 115/b, and stockmarkets have come down. This situation can potentially disrupt crude oil supplies from Iraq, about 3m barrels/day, and cause an unaffordable hike in prices of crude oil, enough to negatively impact stockmarkets further.

In India, too, we have cases of arbitrariness. Mamata Banerjee, the Chief Minister of West Bengal, is willing to give concessions in property tax to those who paint their buildings blue and white, her favourite colour!. This is ludicrous and unconstitutional.

Indian stockmarkets rose to new highs last week, with the sensex hitting an all time high of 25,725 and the Nifty of 7,700. By end of week, however, there was a correction, largely due to the events in Iraq which caused a spike in crude oil prices. The week ended with the BSE-Sensex up 718, closing at 25,228 (about 500 points below the high) and the NSE-Nifty at 7,542, down 68.

A long overdue technical correction seems underway and could exacerbate if the situation in Iraq worsens. A further correction would make the market technically healthier for the next upmove.

In corporate news, Infosys appointed a new, and competent CEO and this may well make the stock a darling of the market in future if he functions as expected.

Norwegian firm Telenor is to hike its stake from 74% to 100% by buying out minority shareholders, at a cost of Rs 780 crores. Vodafone has also hiked its stake to 100%. However, DoCoMo is exercising its put option and selling its stake to its partner, the Tatas, in their JV.

Tata Motors is to shut its Nano plant in Sanand, Gujarat for about 40 days, in the wake of a slowdown in demand, and for retooling.

The auto industry will undergo a major change. This industry has been badly constructed. As these columns have pointed out, the design of the automobile results in a colossal waste of fossil fuel, used more to drive the vehicle than the passenger, in proportion to their relative weights. Moreover, the automobile is used, barely 5% of the time, in the US. Figures in India would be largely similar, but, given that its more a family vehicle, in India, than an individual one, in the US, the use is somewhat more efficient. Now shared car services like Uber have sprung up and become popular. Hence the need to own private transport, (and keep it lying unusued for, say 20 hours a day) is lowered, if one is assured of availability of a shared service, or of efficient public transport. Vehicles like google cars, built for two, and driverless, will also change the dynamics of the industry. Thus auto makers will have to rethink their strategies. Global companies have been making money from their larger, gas guzzling, SUVs, but Governments have been discouraging their use (rightly) through excise differentials.

India and Japan are to sign a civil nuclear agreement for power projects. If this agreement is based on existing uranium based technology, this would be a grave mistake. It could be looked at, if it is based on newer thorium technology, which is safer. Japan has suffered humanity's worse nuclear disaster at Fukushima, when the reactor burst in 2011, following a tsunami. The disaster is not over and the plant poses a big danger still. The cost of storing spent fuel is enormous, and the risk of a Fukushima like disaster is just too high for humanity to accept. Whatever be the safeguards.

India is being intolerant, perhaps, in threatening to cut off foreign funding to NGOs (non Governmental organisations) that oppose things like nuclear power plants and genetically modified foods. A contrary opinion is the essence of democracy, as is healthy debate. Ask the deformed children of Fukushima if they would have wanted NGOs, or anyone, to protest against the setting up of the power plant by TEPCO, whether the protests were foreign funded or not.

Why not, instead, concentrate on punishing criminals? Contrast the case of fraudsters like NSEL's Jignesh Shah, with what the US is doing in the case of Rajat Gupta. Rajat Gupta, who was a director of the best firms like Goldman Sachs and MacKinsey, was found guilty of leaking insider information. Despite his credentials, he was denied bail, last week. In India, the public prosecutor stated in court that there was no evidence of Jignesh Shah's direct involvement, despite plenty of evidence from Government appointment agencies to the contrary.

In the Sahara case, it is only now, that EPFO Employee's Provident Fund Organisation is investigating whether Sahara group paid the provident fund dues into it. But isn't that EPFO's job, as a regulator, to continually monitor? And it is only now that NSEL has thought about filing recovery suits against borrowers which should have been done a year ago.

The market will now await the Union Budget, early July.

It expects the Budget to be investor friendly. It is likely that the retrospective changes to tax laws may be done away with and a settlement arrived at with Vodafone and others. The basic tax exemption limit may be raised from Rs 2 lacs.

The Finance Minister may well consider ushering in agriculture tax, if necessary with an exemption limit of, say Rs 25 lacs, or Rs 50 lacs, or Rs 100 lacs! Surely, at these levels no small farmer's interest would be affected.

Those who would be affected would be corrupt bribe takers. Being tax free, agriculture income is the favourite route of these leeches to whitewash their income. A simple check on the tax returns filed by MPs would show amazing leaps in agricultural income over the years, which would make them the world's best farmers.

Yet the Income Tax department, in brazen arbitrariness, accepts such leaps in tax free, agricultural income.

The stockmarket appears to have commenced a correction, one which would continue if the situation in Iraq gets worse. This would, however, make the market technically healthier for the next upmove. Will the Budget contain enough encouraging provisions in it to cause it?

Buy in a decline.

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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9 Responses to "The rise of arbitrariness and intolerance"

Samir Bhatia

Jul 6, 2014

Your focus of today's article draws attention to one more instance of arbitrariness in VAT laws.

People who had religiously filed their returns on time since years were harshly woken up with demands for MST difference less than Rs.500/-, CST difference Rs.2500/-, just before their cases were becoming time-barred. Either you dig out the details of 8 year old returns or you pay up the difference with interest for the 8 years -- this amount would work out to atleast 7-8 times the basic. Why the tax-payer has has to bear brunt of inefficiency, why not concerned officers ?



Jun 16, 2014

In a market full of shifts and turmoil, your observations have always been incisively sharp and to the point, laced with a sense of humour.It would be a service to your readers if you could continue to make your special talent accessible to them.


shrirang kulkarni

Jun 15, 2014

dear jawahir
a good source of information and awareness of current situation is being written off. will miss you.
best luck and good wishes for your future venture.


Sultan Fazelbhoy

Jun 14, 2014

When I read ur examples, I am reminded of what Eistein said "There are only two universals -- the Universe and the stupidity of man; and I am not so sure of the first ,,,"
Your writings have been superbly commonsense, eye openers as well as well crafted, I am going to miss them and wish u progress towards ur aspirations at a steady pace, carrying public thought in the right direction. Will u be an advisor to the NaMo Govt? That would be wonderful for our nation ... abundant blessings Sultan


Chetan K Ramchandani

Jun 14, 2014

Your coloum will be greatly missed, for bold comments on corruption,government policies,stock market guidence etc.
I will be awaiting for the news of reappearing your coloum to any other platform.

Warm regards, and Good Luck,
Chetan Ramchandani



Jun 14, 2014

I used to run an apparel company employing about 250 staff. Even if I am blowing my trumpet we refused to pay anyone. As a result even though we retired five years ago, we still get notices to pay LATE CHARGES for payments dating back to 1997. These are for amounts like rs 2500 in a year! If they can be so meticulous about such small amounts how can they miss thousands iffy crores ?!



Jun 14, 2014

i have known jawahir for the last several years and iam confident to read his columns elsewhere. more than his erudition i like his tremendous sense of humour.



Jun 14, 2014

If a country is seeking for better economy and want to get rid from all negative issues must have better than best burocrates with in a constant state



Jun 14, 2014




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