Who will pull Raja's 2G string? - Straight from the Hip by J Mulraj

Who will pull Raja's 2G string?

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?"

the innocent

Nov 13, 2010

PEOPLE HAVE LOST THIEIR FAITH ON COURT/CBI/ POLICE.UNLESS&OTHERWISE SOME REVOLUTION TAKES PLACE THE SAME THING WILL CONTINUE

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Merchant M S

Nov 13, 2010

Mr J Mulraj is a senior editor. I had been reading his columns since he was business correspondent in Mumbai Samachar. Sir, I request you to please knock the door of courts and put the corrupt officials and politicians behind bar. It is easier said than done.

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bpshah

Nov 13, 2010

I fully agree with Mr.Mulraj. It is so frustrating to see the evil enjoy everything while honest suffer.. My cousin used to say that in Ramayan, ShriRam almost always was in Jungle & suffered & when he returned to Ayodhya, Ma Sita had to go to Jungle again.While Ravan enjoyed the Golden Lanka & also died at the hands of the Lord, so went to heaven.
Todays Ravans (Babus,politicians & corrupt industrialists coupledwith corrupt judiciary) enjoys all the fruits while majority suffers.
To lump Mr. Ashok Chavan with likes of Raja is improper.
Raja & karunanidhi are totally shameless.We have such many politicians & babus in our country.

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A. P. Singh

Nov 13, 2010


I think Jairam Rameshji is absolutely correct. Criminals use SUV, and so it is a crime to use SUV too! First of all why there is a craze

for a big car, why a single man going alone in big car? Reason: Bigger the car bigger the "EGO". He is not using the car because he

needs it, he is in the Big Car to Show how "Big" he is. I always say why not these people become a Truck Driver? Trucks are huge

and trailers are huger!, can cover larger space on a narrow road, can take lot of time in moving in and out of small roads, wasting his

and others time, occupying costly parking space. So, I feel there must be an EgoUtilityVehicle, EUV made available to those SUV

lovers, which runs on Pedal, so that when they sweat then they should know the value of fuel efficiency. Let them watch how the "fat"

burns!

More to Tutu Dhavanji, I admire your knowledge but don't be defensive, see the projection for 10 years production of SUVs, and within

a year how many kms. each SUV runs, then have a total of litres of Diesel consumed and further compare with small diesels, which

are running less. After 10 years how much diesel would be needed for SUVS? If you say about Taxis, and Trucks then they are

feeding a families and contributing to economy, what contribution is of SUV while running, of course bolsters EEEGGGOO!
First important question WHY SUV IS NEEDED? when a Nano and Maruti can do job economically with least hurdle!

Lone Long Live Jairamji, and be remain in Politics for Good causes only.

Jai Ramji kee,

Arun

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A. P. Singh

Nov 13, 2010

I think the one line answer is a Democratic System like America, so that fear of leg pulling and scoundrels can be reduced!

Best regards,

Arun

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K g subramanyam

Nov 13, 2010

To eradicate corruption all the people of the country shoul do their bit, In democracy for a condidate selection also there should be peoples participation and all the beurocrats who are working with the ministry also should be held responsible to any wrong doing and each wrong doing should have a punishment. I am dreaming one day people will wake up to this.
Jai Hind.

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Chandresh Jariwala

Nov 13, 2010

You are correct. Politicians should be sent to jail and all money should be recovered from their family members. Every 15 days one or another politician get down from his post and walks free. He/She becomes innocent after 3 months. Is this Democracy????

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Sachin Wagal

Nov 13, 2010

Well Prime Minister Manmohan Singh needs to answer why letters sent to him by Raja were not replied back, thus clearly telling Raja not to go ahead.
Infact the proofs presented by Raja clearly show PM too played a role in spectrum selling business.
Suprising no one from the media is seeking answers from the PM!!!

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Nabin Kumar Dash

Nov 13, 2010

Dear Sir,
Thank you so much.I had not read such a forceful and truthful article since long.
We are a country full of hypocrites at the highest level and such causing losses to the State Fund. Is there any practical and remedial solution for such lapses ?

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Suresh Aithal

Nov 13, 2010

Why our honer able P.M don't kick out Mr.Raja. Please do it and book him sir? you fear the fall of govt

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