Does the Government want investors? - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
Does the Government want investors? A  A  A

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21 SEPTEMBER 2013

It does not seem that this Government wants investors, neither indirect investors nor direct investors. Its behaviour towards investors is appalling.

Take indirect investors.

Arvind Mayaram, Secretary, Department of Economic Affairs, MoF, in charge of the special task force to look into the NSEL (National Spot Exchange) scandal, harangued investors for trading on the exchange, forgetting the fact that it was the UPA Government that had authorised the exchange and forgetting the fact that the same Government failed to regulate and supervise it.

It is a clear case of supervisory failure and the Government is equally responsible. But Mayaram wants to shirk the Government's responsibility.

How should a responsible Government, that wants to have investors and strives to protect them, behave?

Let's take some international experiences and some domestic ones.

The British investors in Lehman Brothers are expected to get 116% of the losses they incurred when the brokerage house collapsed! That's right! They will get MORE than their losses. The Government is helping the investors who suffered, not haranguing them, as Mayaram has done, in order to cover up its own deficiencies.

This is good governance.

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Take another example, that of JP Morgan. The firm has just paid a $ 920 b. fine, whilst admitting fault that it did not have proper risk control measures. NSEL too, did not have risk control measures in place. Stocks supposedly lying in its godowns were missing; only 15% are there. Borrowing companies did not have the ability to repay. Jignesh Shah, the promoter, knew all this and, as this article in Business Standard says, needs to be made accountable

Its not only international experiences. Let's look at two Indian examples.

Satyam comes to mind. After the sensational confession of the promoter, Ramalinga Raju, that he had embezzled funds, causing a panic, the Government did a commendable job by bringing in a very respectable team of people, calming the nerves of investors and customers, and sorting out the mess. The company, restored to health, was auctioned off. What stops the Government from doing this now instead of dithering, as it has been doing?

The other example is that of Sahara. In fact this is a very similar case. Like NSEL, Satyam also slipped between regulatory cracks with both RBI and CLB maintaining that regulating such firms was not under their purview. It was only later, when the issue grew too big, that the Government took action. Prior to that it had not supported SEBI's stand that any issue to over 50 persons needed to have a prospectus vetted by SEBI. This is very poor governance!

If the Government can take action, belatedly, in the case of investors of Sahara, why can it not follow this precedent in the case of NSEL?

Or perhaps there is something more than meets the eye?

That was for indirect investors. Now let's see how it behaves with direct investors.

The Government had announced a policy to open up FDI (foreign direct investment) in multi brand retail. It almost lost a Parliamentary battle in trying to usher in FDI in retail. It was supposed to usher in job growth, new technology for a cold storage chain, and bring in foreign investment. Yet, to date, this has failed to take off. Why? Because the Government is not serious about attracting foreign investment. The DIPP made far too many rules including local sourcing and limits on size of firms to source from. Well, the bureaucrats may be happy but the country is not. No jobs have been created. No $ have come in. No technologies have, either.

Similarly, the UPA Government had almost been defeated over the nuclear deal with the US Government, which also saw a sordid display of allegedly bribe cash on the floor of the house. What investments have flown from that? Zilch. Now, desperate to reward the US for supporting its nuclear ambition, the PM is going to water down the nuclear liability clause for it, in his forthcoming visit! And, should there, God forbid, be a nuclear accident, somebody in Government would accuse locals of being foolish enough to stay near a nuclear plant, a la Mayaram!

Last week two central bankers made their presence felt on global stock markets. The first was retiring Ben Bernanke, Governor US Federal Reserve, who did not 'taper' the bond buying programme of $ 85 b. of bonds every month. to the expected $ 75 b. per month.

Global stockmarkets cheered the fact that the monetary bar was still open, unmindful of the truth that one day the bar has to shut down. The sensex gained a whopping 684 points on Thursday, after Ben offered another round of global liquidity which has driven up asset prices creating bubbles that will burst one day.

Ben Bernanke's successor is likely to be Janet Yellen. One expects when she inherits the bloated Fed Balance Sheet she will be yellen still!

The second Central Banker to place his imprimatur on markets was RBI Governor Raghuram Rajan. He unexpectedly raised interest rates (the market was expecting them to b unchanged) in order to curb inflation, and the stockmarket got a hangover. The BSE-Sensex slipped 382 points. It ended the week at 20,263, for a weekly gain of 530 points. The NSE-Nifty gained 161 over the week to close at 6,012.

One of the causes of food inflation is hoarding and guess who is the biggest hoarder in the country? It is the Government! As per its own norms, the Government should have a stockpile of rice of 7 million tonnes as a buffer against shortage. It has 21 million tonnes! Its stocks of other grains such as wheat is equally, and unnecessarily, high.

Is the Government unmindful of the fact that investors are also voters? And, if they do not get the protection they deserve from a Government that has been asleep in supervising exchanges it has authorised, they would vent their ire.

Is the Government unmindful of the fact that foreign direct investors need to be wooed with sensible policies and speedy clearances? They have a vast choice of destinations. Is it unmindful of the fact that things like the retrospective amendment it brought in order to tax Vodafone for an offshore capital gains made by Hutchison, after having lost the case in the Supreme Court, does nothing to attract foreign investors. Is it unmindful of the fact that its IT officers' demands, sometimes preposterous, in transfer pricing cases, deter potential foreign investors?

Perhaps it is under the impression that, given the size of its market, investors have no option but to come to India. That is rather like the moron who entered a train with two parrots in a cage (no, not the CBI) and opened the cage door. When the parrots flew off, he was nonchalant and stated "where will they go? I have their tickets". Perhaps the Government feels it holds the ticket in the form of the licenses and approvals, and investors can't fly off. Sorry, but they can. And will.

We cannot go on trying a failed solution. Quantitative easing has not succeeded in spurring economic growth and providing employment. It has succeeded in driving up asset prices and those bubbles, when they burst, as they will, will hurt. The US is hoping that an economic boom can get started on the back of cheap energy (from technology such as fracking), and on the back of innovation such as nanotechnology, genomics, biotech and robotics. Perhaps it may. Energy intensive manufacture is already headed back to the US based on cheaper energy.

For India there is a huge upside potential from just good governance. It is hoped that the next Government will provide it. The Finance Minister is asking all ministries to tighten their belts, as a measure of austerity. One can't help but wonder if tightening of belts would affect those who wear lungis.

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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8 Responses to "Does the Government want investors?"
Dinesh Lal
Nov 15, 2013
An excellent article. The only error is that JP Morgan has to pay a fine to the US Govt. of $92 billion, and not $920 billion, as stated in the article Like 
anish poojara
Sep 22, 2013
Of course the govt. wants investors. More the suckers more the money available for looting.
anish poojara
Like 
Mithun
Sep 22, 2013
The reason the GOI behaved differently in the case of Satyam was because that company was listed in the US and had severe ramifications if US investors had lost money.The UPA is always bending over backwards to please the Americans and they couldn't risk the wrath of Uncle Sam.
As far as NSEL is concerned,it is "apna deshvaasiyon".who are mostly middle class investors(like me)who do not form part of their vote bank.So,why will they care?
They put ASHARAM in jail all right but let loose MAYARAM on us!!!
Like (1)
Naveen
Sep 22, 2013
It was interesting to read this article. I also request the author to tell some measures to common man so that we can become more free from the misdeeds of governance,and build our nation irrespective of bureaucrats, politicians and influence policies. Like (1)
hoshang dehnugara
Sep 21, 2013
the facts are very lucidly placed by you they are true and informative and intellectual too. Like (1)
Harish M. Vaswani
Sep 21, 2013
Very informative sum-up of events, written in a hilarious manner. Unfortunately the powers that be have neither the common sense, or sense of humour. They are trying to wake-up
by prodding Coal India into signing FSAs. Rajan at RBI supplied a booster dose 2 weeks back, and a whiplash a week later. Bernanke and Rajan are at a game of squash, the investor is the ball, and the govt the spectator.
Like (1)
Gandhi Surendra
Sep 21, 2013
Lungis' Belts -- Wonderful BUT besides us do these kind of highly intelligent, positioned people being given good advice even care. Isn't it a shame that the exploitation of position is all that they can think of. Like I always said & now everyone sees through, "The Aam Aadmi" never existed. It was there only to be suckled. Shame to all Harvard educated. Like (1)
Ramesh Gambhir
Sep 21, 2013
Our Honourable PM and FM are responsible to create inflation
Either they have not good advisers or they don't listen.I think there is 3rd time DA increase during this calender year for Central Govt Employees,pensioners etc.This is no way of handling the inflation.Cost of living is high for all.Govt Staff is already highly paid and known to all the "services" they give.It would have been freeze even annual increment that should have been sprit FOR 3 YEARS. BEING ELECTION YEAR MAKE THEM HAPPY TO BE WITH CONGRESS LOYAL.GOOD & SINCERE EFFORT AT THE COST WHO CAN NOT AFFORD ONE TIME MEAL A DAY. NO INVESTORS PLEASE THINK OF KICK BACKS SYNDICATES. Rgds.
Like (1)
  
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