Who will pull Raja's 2G string? - 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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13 NOVEMBER 2010


India's three pillars, viz. legislature, administration and judiciary, all seem to be in cohoots with each and seem to have no rules to govern themselves. Telecom Minister A Raja has been indicted by the CAG (Comptroller and Auditor General) for causing a revenue loss of Rs 1.8 lac crores when he allotted cheap 2G spectrum yet blithely continues in office, because the UPA Government is scared of being pulled down should its political ally, to which Raja belongs, pull the rug. Even the Prime Minister, with his reputation for honesty, remains a mute spectator. Someone should petition the court asking why ordinary citizens should pay taxes? If the revenues are eaten up by the likes of Raja or Kalmadi or Chavan?

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The administration is involved in the mutual back scratch. Witness the negligence in gathering sufficient evidence in the molester cop Rathore's case allowing him to walk free on bail. A crying shame. The recent scandal in the Adarsh (which, ironically, means ideals) Society misallotment of flats, has even tainted the army; a very scary thought with a hostile neighbour bent on terrorism.

Finally the judiciary. A Kolkata high court judge has been found guilty of misuse of funds and may be impeached.

Even when action is taken, the worst that can happen is the guy loses his position. No attempt is ever made to recover the money and put it back in the Government kitty. The fiscal deficit would vanish if the amounts were recovered. But politics is a mutual back scratching game so the tab for these shenanigans fall on the taxpayer, who really ought to protest. In the Adarsh Housing Society, the officials who cleared the proposals at various levels, who tweaked allotment norms, who broke environmental rules etc. are never going to be brought to task. Instead, the building is going to be demolished, so even a legitimate owner would be punished, though not the guilty administrator.

This sort of criminally poor governance ultimately tells on economic performance and hence stockmarket performance. The Sep IIP growth is only 4.4%, the lowest in 17 months. One has seen how the policy of subsidising petro products is severely denting the profitability of ONGC, OIL and GAIL and destroying the balance sheets of IOC, BPCL and HPCL. Not only destroying balance sheets but also the environment, as recently (and very belatedly) pointed out by Minister Jairam Ramesh. He correctly points out that the subsidy on diesel goes more for gas guzzling SUVs than for diesel pump sets.

This can be easily remedied by the Finance Ministry. As these columns have suggested, there could be an excise structure that encourages fuel efficient cars (by having lower excise taxes) and punishes guzzlers (by having prohibitively high ones) in a tax neutral manner, so that the auto buyer who settles for a fuel efficient vehicle, sacrificing space or speed, is recompensed for his sacrifice by the buyer of an obscene SUV.

Failure to address this now only worsens the problem because the world is running out of fossil fuels and one day these on road SUVs will be an inventory disposal problem. SUVs also make us more dependent on oil imports, which amount to 70% of the requirement.

The market is sensitive to companies whose results do not match investor expectations pushing down prices of stocks, such as Bharti Airtel, which did not meet expectations (Bharti's net profits were down 27%, as its African acquisition is taking time to settle though it ultimately should). The Tatas have successfully integrated their acquisitions of Corus, by Tata Steel and of JLR by Tata Motors and results of both have exceeded investor expectations.

Some of my readers feel that I have a bias towards the private sector. This is incorrect. There are excellent public sector companies and it is thanks to conservative management of public sector banks that the global financial crisis did not impact India significantly. There is, however, continued interference in the management of public sector companies, to their detriment and, sometimes, downfall. Air India went in for a fleet acquisition it could not afford, for reasons best known to those who ordered it, and is now in dire straits. BSNL, once a duopoly in telecom, has been so badly interfered with that it is now thinking of selling spectrum!

The developed countries are pumping money to prop up their economies. Most of the 50 State Governments of the US are broke due to pension liabilities. These are on a 'defined benefits' basis whilst private sector have moved over to 'defined contribution'. The 50 State Governments are unable to fund the shortfall. The pension assets need to earn 8% but do not, resulting in a shortfall which has to be made good by the Government. They would thus be buyers of bonds which give them that return.

India is considering a $10b. bond issue to finance infrastructure. Given that our infra needs are $1 trillion, and given that there is a huge market for any bond offering close to 8%, this is a highly unambitious target.

The sensex lost 848 points last week, most of it in the last two days, to end at 20156 and the Nifty dropped 240 to end at 6071. The correction is healthy for the market and long overdue. Should it continue, perhaps if the Prime Minister suddenly discovers he has a backbone, after all, and sacks Raja, it would be a good time to buy. Most certainly it would be a good time to buy if the Government actually locked the rascals who have stolen money and recovered it! But that would be a dream!

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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24 Responses to "Who will pull Raja's 2G string?"
shrikant p kulkarni
Nov 24, 2010
It is appeal to Indian citizens, in the next budget, if any taxes are imposed/increased , before passing it send
the letters to F.M and ask the explaination from him what about this 1.80lcs/ crores. If there is any deficit it should be recovered from Congress party. It should be on the same line like recovery of amount of damaged caused to public property during morch/procession by any political party as it happened in the case of Party in Maharashtra
Like 
deepak
Nov 21, 2010
First G is Sonia G
Second G is Greed
Like 
KR CHETTY
Nov 16, 2010
When I over see the rampant corruption, I pity the people involved. Too much of democratic rights, yellow - press freedom, uninterrupted corruption at all levels, compulsions of political unethical weddings and I feel very much about the future generations . People at all levels must raise to the occasion to protect the very socio fabrics of this great nation for the benifit of all. Can we do it? My assumptions are very much negative side. Hope a second revolution may do the justice. Like 
jayasreeprasad
Nov 15, 2010
excellent revealation sir!!. it's quite sometime since got to see one of this kind. Really forceful, i pray, it should reach out to the common man also to make them awake.Let's not make the same mistake of electing the wrong leaders again and again there by digging our own graveyards.

jai hind

Jayasree prasad
Like 
Basavanand
Nov 15, 2010
This is nothing but a mockery of democracy. All those who benefited must be made to return the money and also face penalties as per law. Yata Raja tata Praja. Like 
RS Yadav
Nov 15, 2010
With massive corruption the development is lop sided.It is one step forward and three step backward.I do not understand why the formula suggested by Swami Ramdev can not be followed. Rs 1000/& Rs 500/notes should be abolished.Govt. by not taking harsh action against such corrupt persons is making others to follow the same path. Like 
PYLUR
Nov 15, 2010
You are abosultely right.
Unfortunately we are governed by scoundrels and rascals.DMK has institutionionalized it to such an extent that there is no redemption.What is the point the PM being Mr Clean when he is a weak /inspid leader.The shocking silence of the influential figures in the Country to this mayhem is a sad reflection on the state of affairs.
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Anand Kumar
Nov 14, 2010
This sort of poor governance will lead India & Indians only to more unequal distribution of income.Any corruption if found as such in case of A.Raja should be severely dealt which is the only solution .Unwillingness of corrupt bureaucrats and politicians to create strict law is only worsening the problem. Like 
Vaidyanathan.T.R
Nov 14, 2010
The godfathers of Raja's and Kalmadi's are the czars of the system who bend it to their advantage whether it be your legal or police. The sad part of the Indian political environment is that we do not have a clean opposition also with Karnataka government manifesting an equally corrupt system. It is high time that privatization sinks into the searching of right managers of governance. In coming years, we can see a public-private partnership for searching of ministers which will minimise this type of corruption. Like 
Bhaskar Iyer
Nov 14, 2010
Raja and his cohorts would have made about 1000 Crores. The congress would have made about another 5000 Crores. Just cancell the allocation and call for fresh auction. The loss is notional. Go after the actual beneficiaries who were the telecom companies Like 
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