The disappearance of morality - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
The disappearance of morality A  A  A

6 OCTOBER 2012

Oh what a slide in moral values are we witnessing, from the days when we had leaders of the stature of Mahatma Gandhi to a time when we are permitting those who have been accused of crimes of moral turpitude, to become members of committees of Parliament. The tactic used is to delay conviction; so long as the judicial process permits cases to be dragged on, thus long will the farce of democracy continue. The accused, comes the glib defence, have merely been accused of crimes of moral turpitude, but not convicted.

This escape route permits political leaders of all parties to act in wanton disregard of rules and of law, satiating their extraordinary greed at the cost of the lay citizen. "Earth provides enough," said Gandhiji, "to satisfy every man's need, but not every man's greed".

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The UPA defended it by claiming it was every MPs right to be nominated to special Parliamentary Committees. It is equally every citizens right to feel offended, and disgusted, by such display of absence of morality, as it is every citizens right to cast his vote according to the dictates of his conscience. Prudence, and not jurisprudence, is what the UPA should have considered.

It was Theodore Roosevelt who said "Here is your country. Cherish these natural wonders, cherish the natural resources, cherish the history and romance as a sacred heritage, for your children and your children's children. Do not let selfish men or greedy interests skin your country of its beauty, its riches or its romance."

In several state Government too such scandals are erupting. Maharashtra saw an irrigation scandal, and the normal 'appointment of a high powered committee' was the symbolic response. Little will come out of it. Over time, public memory fades. The alleged mining scams in Karnataka, and now Goa, have not resulted in expropriation of the ill gotten gains.

Who pays for all this?

Dumb question.

The common man, of course. In terms of inflation and inevitable price increases of goods, with the insincere apology to 'kindly bear with us'.

Two opposition ruled states, Himachal Pradesh and Gujarat, go to the polls in October and November. Campaigning in them has resulted in mudslinging, and there will be more. This mudslinging does not focus on the real issues of poor governance and bad economic decision making, instead it is personal attacks.

Main stream media also diverts attention from the real issues, as pointed out in this blog. Whilst the blog talks of the serious issues facing America, viz. the debasement of its currency by continuing quantitative easing programmes, and its burgeoning debt, in India the real issues are different.

We need to first provide enough nutrition to people, for malnutrition can deprive people of the abilities to contribute to the workforce, thus negating the demographic dividend. We then need to ensure universal primary education, and to improve its quality. And then to provide jobs in industry and services, which means having economic policies and an economic environment to encourage growth of both sectors. Not enough media attention is devoted to food, primary education and job creation.

Steps to continue on the journey of economic reforms are few and far between, and, when taken, opposed for the sake of opposition, because of self interest. Last week the UPA Government passed a proposal to hike foreign direct investment (FDI) in insurance and in pension to 49%. When the winter session of Parliament opens, the opposition is sure to oppose it.

Insurance companies and pension funds collect and deploy money for a long term, unlike other financial institutions. The longest tenure for a bank deposit is 3 years. In the case of mutual funds, most of them are open ended funds, allowing the investor to exit with a day's notice. Neither banks nor mutual funds, nor even financial institutions like ICICI, IDBI and IFCI, which used to have access to long duration funds, are in a position to supply funds for a longer term than 3 years.

Infrastructure projects require longer duration funds. These can come from insurance companies and pension funds, if they are allowed to grow. We need long term funds to build roads, airports, ports and power plants. If their growth depends on foreign investment, why, it should be welcomed, for it will permit the building up of infrastructure. The pity is that it has taken us so long to accept the necessity of this action.

Quantitative easing has resulted in a surfeit of liquidity. Governments can provide liquidity but cannot direct where it will go. Less of it is going into productive assets, such as new manufacturing facilities, or needed infrastructure, more of it into other asset classes such as stockmarkets.

Our stockmarket has benefitted from this surfeit. Of course, also aided by the belated zeal of undertaking economic reforms. Last week the BSE-Sensex added 175, to close at 18,938, and the NSE-Nifty gained 43 to end at 5,746.

On Friday a trader erroneously entered an incorrect sale order, far larger than what his client wanted to sell, causing the Nifty to crash 900 points within minutes before the error was detected. The broking firm later bought back the stocks erroneously sold, but in doing so, wiped out over half its net worth. A similar episode had recently occurred in the US. It points to the systemic risk of electronic trading and the need to have systems and procedures to prevent such incidents.

In corporate news of interest, Oil India (20%) and Indian Oil (10%) have taken a 30% stake in Carizzo Oil & Gas's shale assets in Colorado. This column had given a link to the article about how cheap shale gas, whose price has fallen to $ 2.50/MMbtu, is able to allow power to be produced at 4 cents/unit.

In India, uncertainty over pricing of oil and gas has led one of the larger players, Reliance Industries Limited (RIL), to put its capex plans for further development of the KG basin on hold. The lower output of gas is impacting the fiscal deficit; fertiliser subsidy, for example, will go through the roof if a more expensive alternative to natural gas is used to produce fertiliser.

What is not going through the roof, however, is Kingfisher Airline, which has been served a notice by DGCA (Directorate General of Civil Aviation) why it should not be closed down. It has been unable to resolve a labour issue arising out of non payment of salary for six months.

What next for the stock market?

The rally is predicated on two things, increased global liquidity thanks to QE and on the sudden surge of economic reforms, which have increased investor confidence. A reversal of either, or both, would halt the rally, because the fundamentals are yet to strengthen to justify a sustained up move.

The global liquidity spigot could be turned off, or slower, by another erupting scam (and there are plenty of hidden skeletons in the cupboards; the skeletons probably outnumber the cupboards!). Or by a European crisis; Spain is a likely candidate and is seeking to borrow $ 267b. from the market but maybe it won't be able to.

The zeal for economic reform may dissipate if political judgement suggests voter apathy for them. Politicians realise they are not in an autocracy, where it is your Count that votes, but in a democracy, where it is your vote that counts.

There is still some time before Parliament resumes, during which the UPA Government could make some more reform announcements. These would lead to a further inflow of FII money, perhaps taking the sensex up to the 20,000 mark. But we are nearing a reversal and its time to tread with caution.

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 "The disappearance of morality"
K S udaya Bhaskar
Oct 13, 2012
The present Central government under series of scam and start to removing some of the members.....but still lot of members are under the scam/court cases. Like 
Suresh Kumar
Oct 12, 2012
Vijay Mallya and Robert Vadra are studies in contrast. A seasoned politician lost everything in Airlines, and a novice businessman in real estate grew his business 8500% year on year. If he follows the same business model, he would beat Bill Gates as the richest man in next 3 years, also leaving way behind veterans like Mukesh Ambani and Lakshmi Mittal. Like (1)
chander Sharma
Oct 12, 2012
It seems the present Govt. in India has adopted a policy to create multiple scams, beyond the memory limit of Indians, so that they cannot even remember. Everybody want wealth by whatever means-bribery, loot, theft, corruption. Like (1)
Oct 11, 2012
God save humanity should more likely be our prayer. Everywhere in the world the leaders are corrupted beyond redemption. For too long have we (as humans) hurt ourselves and the environment. The price that we have to pay will come naturally and be HUGE. Like (1)
sunilkumar tejwani
Oct 6, 2012
very incisive comments and I like it. The recent reforms announcements are nothing but to cut public memory short and to create euphoria in the stock markets; a la carte style of Mr. P.C.
But for how long? this is a million $ question?
The recent inflow of F I I money in the stock market is nothing but a sham to divert public attention from various political scandals which have been highlighted in the not so distant past.
Like (1)
Oct 6, 2012
It is a pity that tainted people are appointed as members of Parliamentary Committees when an honest person like Manmohan Singh is at the helm Like (1)
Oct 6, 2012
Were we better if we are under British rule today? Like (1)
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