Uncommon wealth shames - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
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7 AUGUST 2010


It is an abject failure of governance that despite several allegations of brazen loot the Government has not asked the Organising Committee (OC) of the Commonwealth Games to step down until investigations are over. This gives the not untrue impression that there are two sets of rules, one for the well connected and others for the rest of India. Surely an honest Prime Minister such as Manmohan Singh cannot countenance that. The cost of the games has been severely inflated by hiring stuff for 15 days at a far higher cost than purchasing it (6 high altitude trainers hired for Rs 2.8 crores for 15 day which reportedly cost Rs 44 lacs each....why do they need high altitude trainers in any case?)

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One can't help comparing this with two other episodes. Private sector executives are incarcerated or hounded when they do crimes or run afoul of politicians. Satyam's former CEO Ramalinga Raju is behind bars. Nimesh Kampani was forced to stay abroad for years, ostensibly because a company in which he was director, but had resigned, failed to repay depositors. The OC is still running the show!

Also the IPL episode, where Lalit Modi, who established it, made it a global brand and delivered profits for all stakeholders, BCCI, the team owners and the sportsmen, is in limbo whilst, again, the OC is still in the driver's seat.

This makes one wonder whether India will, as the Prime Minister's Economic Advisory Committee says, be able to grow from a $ 1.3 trillion economy now to a $ 2 trillion economy by 2013-14. Unless the rules are the same for everyone, it cannot happen.

The rules are also different for law abiders and law breakers; harsher on the former. There has been no closure on investigations into tax evasion by people like Telgi or Khan, whilst Vodafone is being slapped with a $2b tax bill for failing to deduct tax at source from the payment made to Hutch when it bought a controlling stake in Hutch-Essar. This was in an offshore transaction, in a country which has a double taxation avoidance treaty.

A similar inequity in application of rules is seen in the ones made for foreign investors, especially through P notes (participatory notes) and through DRs (Depository Receipts). SEBI is, rightly though belatedly, investigating the end ownership of DRs. It suspects, rightly so, that some Indian promoters are using their own funds stashed abroad, to invest in their own companies through DRs. This is wonderful for them. Swiss banks are not giving interest and are being prised open for secrecy. What better mode of investing the money lying there than in their own companies' DR, which yields them tax free income. The domestic retail investor, who is a law abider, has to pay tax on capital gains which, from next year, would be at the marginal rate rather than the current lower rate.

The good news is that the economy continues growing despite shoddy public governance. Direct tax collections are up 15.5%, giving additional tax revenue to the Centre. Interestingly, Bihar shows a 93% jump in tax revenue, showing the impact of improved governance.

The bad news is that the Centre already wants to spend it all in additional schemes. It is seeking to spend another Rs 54,000 crores in various things, the largest of which is a Rs 14,000 crore recompense to oil marketing companies for the subsidy burden they have been forced to bear because petrol prices were kept lower. There is an absence of fiscal prudence; an individual saves during good times to be ready for bad ones. Governments don't. They spend more on welfare schemes which leak more than swiss cheese and on which reports show only 20% of the funds reach their destination. Bad governance, yet again.

What action would the Government take? Set up a committee! They have cupboards full of committee reports on which no action has been taken. The Government has set up yet another committee, for example, to investigate the Rs 40,000 crores lost in transmission and distribution of power. It has no guts to catch the corrupt officials who allow power theft to take place and hide behind the fig leaf of investigating committees to prove they are serious. When will this farce get over?

SAIL, like JSW, is seeking to form a JV with a Japanese steel company for obtaining the latest steel making technology. JSW had sold an equity stake to a Japanese company, which would allow it access to special steels made for the automobile sector. SAIL is setting up a 50:50 JV with Kobe Steel of Japan to set up a plant using the pioneering steel making technology ITmk3.

RIL is picking up a 60% stake in Marcellus shale gas assets, for $ 392 m., its third shale acquisition. The Tata group is looking for a successor to Mr Ratan Tata, who retires in December.

The BSE sensex rose 275 points last week to end at 18143, and the Nifty rose 71 to close at 5439. As in the past weeks, it has been the FIIs (foreign institutional investors) who are driving the rally; they were net buyers throughout the week. Domestic mutual funds were net sellers on all days, except Monday.

The developed world economies are not growing or having low growth. In the US, job losses were double expectations. Forty six of the fifty states are in crisis. Pension liabilities of these countries are increasing, as their population ages. They need to invest more in longer term assets. The BRIC countries, who are building up their infrastructure, and who have a better demographic profile with younger populations, are building such long term assets, such as roads, ports, power plants etc. There will thus be an inevitable increase in allocation to emerging markets. We must be ready to absorb the increased flow, because we need it to build the neglected infrastructure.

Being ready means we have to have equal and fair rules. And weed out corruption, to the extent possible. It is time to act. Does the Government have what it takes?

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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20 Responses to "Uncommon wealth shames"
Dolly Sandhu
Sep 7, 2010
Martin Luther Jr. Once famously said "It is not the violence of the few that scares me, it is the silence of the many" Thank you for putting things in perspective. Hope you can set an example for the many Like 
ashish tiwari
Aug 19, 2010
I object to your stating 'our honest Prime Minister'!!
In fact he is the gang leader of the corrupt. If he was honest either he would have used to reduce corruption or quit.

India is a country of fools who elect the Corrupt party of India..every now and then
Like 
Himachal
Aug 14, 2010
This Govt. has neither sincerety nor political will to weed out corruption for the reason the ruling party itself is known as CORRUPT PARTY OF INDIA.

NO RAY OF HOPE.SORRY FOR THE GLOOMY OUTLOOK.
Like 
tushar shsh
Aug 9, 2010
I salute you for correctly identifying India s problems and also giving solutions but collective Aam Admi is not able to force our burecracy and politicians to fall in line and impliment simple and effective policies Like 
sumit parakh
Aug 8, 2010
Corruption India is big problem and it increasing day by day due to bad governes or bad goverment policies.There is no incentive to honest tax payer but their is relief for tax evadgrs.A pocketmar faces only one officers that is policeman but a bussinessman faces 10-15 officers. Like 
Jal
Aug 8, 2010
Unless we have a tough no-nonsense person at the helm, you and others may keep on writing reams, nothing will change in India. People themselves are to blame, as everything is forgotten with the episode/scandal and the crooked and corrupt will continue to rule.Don't see a change which would make one proud to be a citizen of this pathetic place, for another 100yrs. Like 
Pylur S
Aug 8, 2010
Sorry these jokers are not upto it.Spineless nation with worthless leadership Like 
aayush shah
Aug 8, 2010
respected j mulrajji very good article on bad governance but how do you put it across the government is the moot point otherwise no use.I think we are at the cusp of a big upmove in India but shoddy scams halt us.keep up the good work sir. aayush Like 
Sathish
Aug 8, 2010
The only way india can escape from the so called leaders is that when the entire political establishment is wiped out and rebuit. Like 
umesh rakhra
Aug 8, 2010
Hi Jawahar,

This personally honest Prime Minister cannot be absolved of all the corruption that is occurring under his watch. e is honest for sure but then he has never won an election and therefore he looks the other way when the rape of the country happens under his watch.

Two chief Ministers under his watch looted and murdered and he saw the other way. The congress bought MPs to save the governmrnt and cash was shown in Parliament yet we had a PM showing the victory sign after the the great Parliament fudge!

Like 
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