Yet another scam

27 NOVEMBER 2010

The cancer of corruption spreads fast and ultimately eats into any economic gains that ensue as a result of growth; the Finance Secretary said Q2 growth was around 8.8%. It spreads because no action is ever taken, when corruption is discovered, against those responsible, because they are well connected or politically necessary.

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Last week it was a loan for real estate developer scandal which broke out, with top executives in housing mortgage companies and in banks being arrested, leading to a collapse in their stock prices. This is going to have longer term implications, as bankers will be very reluctant to approve loans. In our system, nobody gets penalised for inaction, so they would figure it better to be safe (by not granting any loans) than sorry (by granting them). Credit growth would slow, impacting growth.

We have, of course, seen a lot of rot in the legislative and administrative arm of Government. Now the Supreme Court is pointing a finger at the rot in the judicial system, in the Allahabad High Court.

The defence establishment was, hitherto, largely clean but it, too, has been implicated in the Adarsh scandal. Sadly, the authorities have decided to demolish the 31 storeyed Adarsh building, instead of confiscating flats from illegal allottees and re-allotting them to intended beneficiaries, viz the Kargil widows. The only purpose of a demolition would be to discourage, through example, a future attempt. But since no punitive action is ever taken against those well connected, it would only be a babe in the woods who would believe this to be even mildly discouraging.

Internationally, too, there was bad news. North Korea shelled an island in South Korea, making the markets nervous. It, too, being a nuclear power, is not penalised for bad behaviour, and continues thumbing its nose at international opinion and laws. The market is also nervous about the financial health of Portugal.

In policy relating to petro product subsidy too, we are making incorrect decisions. Environment Minister Jairam Ramesh has rightly pointed out that a lot of the subsidy given for kerosene, (to be used by the poorer sections of society as a cooking fuel) is actually used to subsidise gas guzzling SUV vehicles. He has, belatedly, pointed out the need for a fiscal policy that deters the use of SUVs by taxing them at punitive rates.

That would be the right way to proceed, by putting a high excise duty on gas guzzlers like SUVs or large cars and using that money to encourage small, fuel efficient cars with a low rate of duty. Instead, we impose the burden for subsidising SUV owners on companies like ONGC, which has borne a burden of Rs 1 lac crores, since 2003-4. ONGC is coming out with a 5% divestment by Government which means that it is the Government who suffers when it sells this stake at a lower price, thanks to the subsidy burden it has imposed on ONGC for allowing SUV owners cheap diesel. In contrast, Petrobras of Brazil, without any such burden, raised $ 70b. in an IPO in August, the largest ever in history.

Another subsidy, viz that for urea, a nitrogenous fertiliser, is also badly designed. Whilst urea continues to be subsidised, pottassic and phosphatic fertilisers do not, as a result of which farmers overuse the cheaper urea fertiliser, thereby causing permanent damage to their land. So a policy intended to help farmers is actually hurting them. The urea subsidy bill is expected to be higher than targeted, by Rs 30,000 crores. There goes any hope of reduction in fiscal deficit.

The way out, of course, is to better target delivery of benefits. Kerosene, for example, can be given at subsidised price, to the rural poor, whilst the price at petrol pumps would be unsubsidised. The UID project which Nandan Nilekeni is working on, is one ray of hope in this, provided vested interests do not succeed in derailing it.

Another contentious issue that needs to be tackled is to allow some flexibility in labour laws. The Prime Minister made a mention of this last week; whether he would have the courage to push through a debate on it is another matter. In a globalised world, things change very fast and a project which seems viable today may not be so tomorrow, and would need the flexibility to shut or rejig it. Not having such flexibility is, in fact, hurtful to the interests of labour.

There was also some good news, perhaps the most encouraging sign in a long time. In the Bihar state elections, Nitish Kumar and the BJP won a landslide victory. They won it on the grounds of good economic performance, and voters shunned other parties who contested on the divisive basis of caste, creed or religion. Since 2004 Bihar's economy has grown 86%, compared to 31% for India and voters recognise and reward this. Now if only politicians at the Centre heard this message and stopped playing vote bank politics and accommodative politics, India would be far better off.

In corporate news, ONGC is contemplating a stock split prior to the 5% divestment planned for 2011. Coal India's profits were up 29%, on lower production, thanks to a hike in prices. M&M took a 70% stake in South Korean Ssyongyang Motors, for $463m, including a debt component of $ 85. HCC has received a notice from the Environmental Ministry for building at Lavasa, without its clearance, at a height of over 1000 meters above sea level. One is glad that environmental ministry is alert but one wonders why it took so long to spot a violation? One suspects that, as in the recently exposed scams in Maharashtra, followed by Karnataka, the shenanigans are known by all, but exposed only on a 'you-stab-my-back-i'll-stab-yours' basis.

The overdue correction continued last week, with the sensex losing 448 points to end at 19136 and the Nifty dropping 148, to end at 5751. It looks like the correction may have run its course, except in the event of an external factor like Portugal collapse or a Korean attack, and investors could contemplate entry.

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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14 Responses to "Yet another scam"


Dec 3, 2010

it is not just yet other is yet another scam unearthed and needless to say nobody is going to be punished for it for name any institution where money is involved and it is corrupt. and for that matter even those where money is not involved ! our culture is that of corruption and that is why right and wrong concept is non-existent and instead what one get away with is the concept. being honest is too difficult in our society.



Dec 3, 2010

The defense establishment was, hitherto, largely clean?

I beg to differ. May be their clean-shaved face, clean
and well pressed uniforms and shiny boots give such an
impression. ASC (Army Supply Canteen) is so corrupt
that to get posted as the commander millions are given
as palm grease. From the smallest canteen supplier to
the top brass enrich themselves from corrupt practices.
What about the false claims for awards? The whole idea
of such an amount of good for nothings being fed on
funds which could well have gone for basic amenities and
education for the poor Indians is revolting. Can not
Pakistan, China leave us in peace so that we may not
spend such an amount of wealth of the nation on arms,
ammunitions and personnel, who end up as security for


P. Mohanty

Dec 3, 2010

How Infy bigwig Mr.Murthy exempted for such scam and 3000 core pumped to transfuge for next scandal. How much in number (s) could have struggled by the honest approach of indian government.



Dec 2, 2010

really unprecedented.......and informative essence


Shivender Negi

Dec 1, 2010

Market is so volatile these days. Investors think that they can predict market sentiments for short-term. But it is not easy to know the market sentiments even for a short time.
Last week market has shown its downside. It has been relentless for the realty sector. Market will be bullish in long term. Moreover markets sentiment depends on global and domestic facts.

Global Facts:

Last week market has demolished by global as well as domestic facts. Greece, Ireland, Spain and Portugal are facing financial crisis. Greece and Ireland have accepted bail out offer. The nation borrowing costs rose, investors are worried about there investments, while Spain limited there size of bond sale because investors asking for high interest rate.

Stock traders panicked and dumped shares across all the sectors sending Portugal stock index down to 2.2 % by the close. Spain stock index sank by 3.6 %. Euro has come down by $1.36 for the first time in last two months. Bailout for Portugal will be cost at lest euro 50 billion according to Capital Economics.
In Ireland current business tax is 14.2 % which is very low other European countries are insisting to increase its business tax for come out of debt crisis where as Ireland is not ready for it and want to solve it without increasing business tax. Government of Ireland is inviting the international business sector to make the Ireland their business arena.

Domestic Facts:

In terms of domestic verticals market has reiterated its negative behavior once again. Last week its affected debt scam. This scam has routed in Indian financial market. CBI and SEBI are poked into this matter. CBI is investing along with SEBI for the possibility of insider trading in the share including of LIC Housing finance and DB reality. There are nine firms in the list of insider trading. CBI has already arrested to Mr. Ramachandaran Nair, CEO of LIC Housing finance for bribing and passing the transactions. Seven other companies which have made their place in this list are Money matters financial services, Pantaloon, JSW Power, Central Bank of India, Religare Enterprises, Adani Enterprises and Jaypee Hydro.
CBI has also arrested to Mr. Naresh Chopra the secretary of LIC housing finance to suspect in licking the sensitive insider information to Mr. Rajesh Sharma who is MD of Money matters about the several companies including DB Reality, Jaypee Power, Religare Enterprises, LIC housing finance and Investment.
This biggest same of decade has put a gigantic impact on market specially in realty sector.

Now its become important to an investor to not only book profit but also in regular intervals.


Dhanji Mathur

Nov 30, 2010

The biggest scam was Infosys Accounting and Book keeping scam which was unearthed by CBI during the Satyam scandal . But it was saved by congress govt as narayan nurty pleaded for pardon and told govt that there were lackhs of jobs at stake . Govt. saved Infosys by injecting Rs 3000 crore into Infosys by the UID scam and to make it records healthy again . murty had to give awards to PM manmohan`s daughter and had to grease the palms of several CBI and CAG officials to get out of this.



Nov 29, 2010

a fine article on the canker of corruption, but why can't he also be suggestive about solutions;or no solution perhaps?

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Nov 29, 2010

It seems author has not understood the benefits of UID.
The best benefit of UID would be to remove all the subsidies. Government can directly deposit the amount to account of the poor identified by UID. We do not need another PDS kind of system in kerosine which we already know is full of corruption.

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Nov 28, 2010

The corruption by our policians and beaurocats is a well known fact. One scam leads to another scam. This means the scammers are aware of each others activity.
The swiss Banks are flooded with Indian money deposits which is much more than our national budget. Nobody in Government is interested to bring back that money to India which can make millions life easier to live and allow India to propser. When the Indian public shall be taking these people to task and when will the wrong doers be punished by arresting them. After some time all the scams shall be forgotten. The media is vibrant to bring out these scams to public view. However, the media should publish past records of all wrong doings by our policians and corrupt on a special issue and demad for the action in each and every case to avoid natural death of all the wrong things done by people having no shame to call themselves as Indians. The Goverment should be answerable and all these facts should be brought to the notice of the voters well before the elections to make people alert and decide their option voting only for good educated result oriented people irrestvie of party lines. Some movement has to be started by people to assert their rights and pull the government down if such things are repeated in future. The person coonected with corrution shalould arrested and their wealth should be confiscated. Politicians declare their assets but nobody questions them how these assets were aquired by them. Many people today amass wealth in immovable properties. To avoid this proper law should be enforced and to make them answerable to explain hoe the properties are purchased and from which source. For this a separate body consisting of non government agencies should be formed by citizen groups and the should be empowered by legislative laws.

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Murali Krishnan K

Nov 27, 2010

In my opinion, the 'YET ANOTHER SCAM' appears to be fake one, just to side track the attention of the world from the Raja's Spectrum Scam. Media also make a very big hype even in small matters. Chartered Accountants taking Commission for arranging finance from Banks and/or Financial Institutions for their clients in not new to anyone. Some Brokerage houses do the same thing at corporate level. Thats it.

As against the 'resignation' of Karnataka CM, the Andra Pradesh CM resigns, after spoiling MFIs growth or development. What is done by MFIs (charging very high rates of interest) was known to the Govt since beginning. Then why make a big hue and cry now. It is also a gimmick to side track the attention from the Spectrum scam. As you have rightly said 'every one has their own pie' and hence to safe guard one's own interest, these issues will never see the end.

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