This Government can't protect anyone - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
This Government can't protect anyone A  A  A

17 AUGUST 2013

Unlike the trio which speaks no evil, hears no evil and sees no evil, the triumvirate of Prime Minister Manmohan Singh (who, sadly, speaks no truth, despite personal honesty), Finance Minister P Chidambaram (who hears no truth) and Sonia Gandhi (who sees no truth) has run the economy aground. It is pointless, as the Finance Minister sought to do after the market crashed 4% in a day on Friday, to blame the global economic situation for the downward race between the BSE-Sensex and the Rupee; the fault lies squarely at the doorstep of the incumbent Government and its myopic policies and inaction.

On Independence Day, Thursday August 15, the Government curtailed the independence of Indian individuals and Indian companies, to buy assets abroad. For the former, the annual allowance of remitting money abroad was reduced from $200,000 to $ 75,000, but not for buying property. This, in effect, means that individuals are free to splurge on consumption, but not on investing in an asset which can appreciate in value. Hmmm.....

For companies, the ability to acquire foreign companies has been curtailed to a limit of their net worth. This, in effect, is micro management of the economy by the bureaucracy who cannot be said to be better qualified than corporate management in deciding what assets are really worth. It is a throwback to the days of over regulation, one that investors had felt were over. Hmmm....

Foreign investors panicked, fearing that the next step could be restrictions, such as those Malaysia placed a few years ago, on the amount of foreign currency they could repatriate. They sold stock and the market crashed by 4% in one day.

The thing to note is that foreign institutional investors (FIIs) sold only Rs 563 crores worth of stock, which caused the 769 point drop in the sensex! This is a small part of their holding! It just shows that there is a dearth of domestic investors able and willing to stanch the slide, if FIIs decide to sell more aggressively. If they do, then something unpleasant is going to hit the ceiling!

In a bid to talk up the market, the Finance Minister, who hears no truth, questioned why the domestic should be affected by rising jobless claims in the US. Well, for several reasons, which one could combine to write an article on what they didn't teach Chidambaram at Harvard!

For one, the stockmarket is globalised, and it has been FII buying that has raised our stockmarket to new heights. The UPA was content to take the bouquets for the new heights but not the brickbats for the fall. For another, the fall was triggered immediately after the curbs on capital outflows placed on Independence Day. For the three days prior to that the domestic market had risen on all days, with the sensex gaining 576 points. The day after the capital curbs were announced, it dropped 769 points, caused by panicky FIIs worried about more curbs.

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For a third, the UPA is blaming gold imports for the falling rupee. In a bid to stanch imports, it has hiked import duty on gold, in two stages, from 4% to 10%. This will be a boon to smugglers, instead of truly curbing imports. And from smugglers to terrorist, it is just a step away. The largest single item of import is crude oil. Why has the UPA Government, or any other, not mandated fuel efficiency norms for automobiles, to bring down consumption by increasing efficiency? Why has the UPA Government, or any other, not developed public transportation systems and discouraged the growth of private transport? Why are they still permitting inefficient, gas guzzling, SUVs, which only boost the ego whilst boosting the fuel bill? The FM hears no truth.

The PM speaks no truth. In truth, he speaks little. For a person of his honesty, it is surprising how he has allowed one corruption scandal to be followed by another, without punishing the wrongdoers.

Take a simple example of the difference between governance in China and that in India. China took action against GSK for bribing doctors to prescribe its medicines, ending with a fine of $ 3b. paid by GSK. Not a single death has been reported because of it. Compare it to the Bhopal tragedy when gas leaked from a Union Carbide plant, killing an estimate 8,000 and permanently affecting another few thousand. It was settled for $ 470 m.

Sonia Gandhi sees no truth. She and her advisors have gone on a social spending spree that India can't afford. A Joint Parliamentary panel has found that NREGA funds are diverted and misappropriated. She does not see that, and is proposing a Food Security Bill, to cover two thirds of the population, even though a recent survey shows the figure of those living below the poverty line to be far below that. These leaky schemes have resulted in a lower spend on physical infrastructure (roads, ports, airports etc) and social infrastructure (schools, colleges, hospitals) that would result in economic growth. We have been turned from a nation of entrepreneurs to a nation living on dole. It can't last.

The poor governance has manifested itself in the NSEL (National Spot Exchange Ltd) scandal. Investors are in danger of losing Rs 5,600 crores and nobody has a clue of where the money has gone.

The question that investors ask is who has authorised the exchange and who was supposed to be regulating it. The Forward Markets Commission (FMC), under Ministry of Consumer Affairs, was supposed to be the Regulator, but NOW says it had no powers! Indeed? They how was the Exchange allowed to start and to operate for years, unregulated?

The Government is complicit in this affair and cannot be allowed to wash its hand of it. The first responsibility to pay back investors in full rests with the promoters of the exchange, Jignesh Shah, Financial Technologies and the next layer of responsibility lies with the FMC and the Government. It cannot be otherwise.

What the Government needs to immediately do, therefore, is to impound the passports of the families of all concerned.

Yet the FMC is showing unexpected latitude to NSEL. Why is that so?

The FMC says it will step in IF NSEL defaults. Why not now? That is your job, is it not, FMC? The FMC says it will bring in other departments, such as Income Tax, IF necessary. Why not now? Isn't it part of regulation? The FMC says it will do an audit of stocks, IF necessary. Why this latitude?

The FMC has thus proven itself to be unwilling or unable to regulate. There are demands that SEBI, which is far better equipped and certainly more willing, to step in and that is a call the Government must, and should, take.

So, the Government is not able to protect its citizens from gas leaks or from terrorist attacks. It is unable to protect investors from being duped by exchanges it has permitted to operate in an unregulated manner. It is unable to protect its citizens from rising inflation. The price of onions, a staple whose rising price has led to falls of Governments in the past, by an electorate venting its ire, has gone up to Rs 100/kg, making one wonder whether the tears dropping from the eyes are due to the peeling of it or the purchase of it.

The week ended with the sensex down 191 points at 18,598, and the NSE-Nifty ended 58 points lower, at 5,507.

As mentioned earlier, the 769 point fall in sensex was caused by a mere Rs 563 crore net selling by FIIs. This is a drop compared to their holdings. Might they sell more?

In September the US Federal Reserve is expected to start tapering off its bond buying programme, and buy less than $85b. of bonds per month. US interest rates are rising, making them comparatively more attractive than emerging markets equity. If the foreign investors perceive that the rupee would continue falling, they would sell more, because the fall in the rupee reduces their $ return after conversion. There is no action by the Government, which is in denial, to take corrective action to reduce the fiscal deficit, control leaky schemes, punish criminals, and protect investors.

They continue to speak no truth, hear no truth and see no truth.

The healthy economy that the UPA 1 inherited from the BJP has become debilitated by neglect. It is time for a new doctor.

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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13 Responses to "This Government can't protect anyone"
Aug 24, 2013
Mr.jawaraj article always looks like comments from opposition. he never write the achievements of UPA govt.
Mr. jawaraj is fit for joining a political party
Nikhil H. Shah
Aug 19, 2013
What Bharat needs is a grass-root economist. What India got is a Havard educated economist. Result is there for everybody to see. Chaos and anarchy!

Aug 19, 2013
Instead of banning import of gold which is worthwhile asset and appreciating asset. Why cant the government, ban importer liquor, cigarettes, imported gas guzzling cars, imported shoes and branded apparels which are all depreciating worthless ego boosting assets.

The country would be much better off if the ministers and politicians took a 2 year holiday in Switzerland and left the country to run by itself.
Aug 18, 2013
For those who understand the grim economic situation our country is facing, the anguish cannot be better expressed than your informed column does. Unfortunately, as u say, there is nobody in charge of our economic affairs to hear the truth much less act to act to provide a remedy. What is their prescription passes for the best. Leaky schemes encourage doles and tend to create cripples. We need sound economic policies which give fillip to vibrant economic avtivity encouraging skillful entrepreneurs create produvtive jobs increasing the size of national cake for all to share in a really INCLUSIVE manner.

Pray, your truthful picture sticks with someone in authority and results in some positive action before it is too late.
Mukesh Shah
Aug 18, 2013
Hats off to Mr. J Mulraj .Please keep up the good work. Thanks. Like (1)
Uday Deole
Aug 17, 2013
You have pointed out issues and tried to fix the responsiblity. But I feel biggest culprit is treated with hands in glove approach by media ( you included). Why benefit doubt is given to PM. He is the most casual prime minister I have seen.
When onus comes to him he says I was not responsible (Coal Gate). Recent release regarding border issue is pointer to that. I don't why his honesty is being praised when country is being looted he has chosen to look the other way round. Such people are more dangerous than the actual culprits. Because neither he is not doing his duty nor resigning. Resignation would have shown some ethics. I hold media responsible for doing ostrich like job when it comes to PM.THey are permanently giving him benefit of doubt
Like (1)
satish s dabholkar
Aug 17, 2013
We all people are with you. We do not know how to take action against the Government.
When the court has given decision that the persons who are under trial should not be eligible to contest election and then all political parties,without any unity on the resolution for the well being of the Indian public,are coming together to amend the rules to nullify the verdict of the court.
And all of us keeping silence.
Then how any one will expect the Gove will take correct steps on economic front also.
Like (1)
Ravi Ranjan
Aug 17, 2013
Excellent article & brilliantly written, Congrats Mr. Mulraj. Like (1)
shaheen mohmad ashraf
Aug 17, 2013
mulraj ji you also see no truth developing efficient transport system , developing fuel efficient vehicles etc will take years toether Like (1)
Pradeep Kumar Nair
Aug 17, 2013
Having realized they are unlikely to win the next election (of course they will continue trying), they have decided to run the country aground, leaving the proverbial "shit" to be cleaned by others.

While the suggestion for a new doctor is driven by desperation guess nobody can take it anymore), I am unwilling to believe that the other doctors that are around or are any better qualified, have better thinking processes or have gone to a different school. Arguments like "the so called others" should at least be given a chance, is sheer laziness on our part. Am suggesting that even the patients have to wake up!

Like (1)
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