How obstructive can our polity be? - Straight from the Hip by J Mulraj
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Investing in India - Straight from the Hip by J Mulraj
How obstructive can our polity be? A  A  A

PRINTER FRIENDLY | ARCHIVES
3 DECEMBER 2011

For the past week the Indian Parliament has not worked a single day.

Opposition politicians are opposing the policy decision to allow foreign direct investment into the retail sector, upto 51% for multi brand retail. Arun Jaitley, senior member of the opposition BJP party, says that 'now is not the right time'. This indicates that there is no objection to the policy, which would be announced at the 'right time' viz. when the BJP is in power. No politician wants to look at national interest, only at party interest and self interest.

A study by retail consultant, Asipac points out the various benefits of opening up the organised retail sector. It states that there is going to be an explosive growth in new urban citiesr, to which the FDI policy will apply to (only cities with population of over 1 million would be opened to FDI in retail). It estimates that over 10 million jobs would be created, would generate huge indirect tax revenues through GST for the Government and would lead to foreign direct investment, which would be positive for the falling rupee. It will also help millions of farmers get a better price for their produce, especially of fruit and vegetables, which, in the absence of investment in storage, results in a wastage in transit of 35%. Fears of its driving out of business the local grocer, or kirana stores, are unfounded and, just as Indian food chains like Haldiram or Nirula have grown, rather than be wiped out, its likely that the kirana stores will grow than be wiped out.

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The logjam in Parliament is thus a case of extreme politicking by all parties, for myopic and selfish interests. The opposition, because it sees an opportunity to perhaps bring down the Government. And the ruling party, because the more attention is diverted away from the Lokpal bill, which is now diluted more than the milk delivered by the local milkman, the better its purpose is served.

Not only the MPs but the bureaucracy too, is paralysed, and is scared, after the outbreaks of corruption scandals and the investigations by CBI and other agencies (its a free for all now), is preventing any bureaucratic decision. Consider reports about the delay in approving the capex plans of Reliance Industries, whose output of natural gas has fallen in the KG6 basin. It needs the plans approved to make additional investment to increase gas output by 10million cu.Metres/day, which are, as per newspaper reports, stalled due to bureaucratic delays seeking things like the audited results of BP (a Fortune 500 company), the telephone and fax numbers of its India representative and why BP is mentioned in third, instead of fourth place, in the application!

This, at a time when, thanks largely to the huge import bill of crude oil, we need to be able to reduce it through domestic output of energy source. RIL has initiated arbitration proceedings against the Government, perhaps the only way, given the likelihood of inquiry if any bureaucratic decision were to be passed in its apparent favour, of a self created mess.

The world's resources are limited and unable to cope with 'economic growth'. Fossil fuels are running out, and environmental issues are causing concerns on availability of electric energy to power growth.

Science, in the form of nano technology solutions, is providing an answer (must see video). Instead of hurling abuse, and chairs, at each other, our politicians should concentrate efforts on finding such solutions.

One can also compare the political reaction in India with that in USA.

American Airlines, which is far larger than either Kingfisher or Jet, filed for bankruptcy proceedings last week. President Obama did not intervene. But in India the Prime Minister is intervening in an attempt to address the problems of some airlines. Government owned Air India gets continuous infusion of funds as it keeps making losses and, last week, had a restructuring of its debt. It ought to be sold loss, shock and quarrel, err....sorry, lock, stock and barrel.

Last week the anticipated rally occurred. The BSE-Sensex gained a whopping 1151 points over the week, to end at 16846. The NSE-Nifty added 340 points, to close at 5050.

The rally was due to a technically oversold market and lots of investors waiting on the sidelines for confidence to return. The concerted action of several central bankers, including the US Fed., to assist Europe, gave them the confidence. China lowered reserve requirement by half a percent, to pump in money to boost the economy.

This coming Thursday the Bank of England as well as the European Central Bank are meeting; it is expected that England will go in for more monetary easing.

If this is to happen, the rally would continue for another week. The next levels of resistance for the BSE sensex are 17500 and, if that is breached, 18,900. Whether 17,500 will be breached would depend on the quantum of monetary injection by central bankers in the coming weeks.

The monetary injections would be, however, merely palliative. The eruption of yet another crisis would quickly evaporate investor confidence, and another crisis is certain to erupt.

In India, Anna Hazare is to re-commence his agitation against corruption from Dec 11, and this could lead to investor nervousness.

Especially of foreign investors, who have been selling aggressively in 2011. They are not inspired by the way in which FDI in retail is progressing, if that's the right word.

It is time for political leaders to think about the country rather than self. What would it take for this to happen, one wonders?

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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13 Responses to "How obstructive can our polity be?"
Sureka
Dec 4, 2011
Re: allowing FDI, Mr. Ajit Dayal had sometime back in his column referred to a report of Swamy Associates to show how the costs will go up for the consumer.In the loud din of protests and support by the respective vested interests, it would help all concerned if a paper setting out the pros and cons could be put out for an informed discussion in the matter. Like 
Satyajit Gupta
Dec 4, 2011
The WalMarts would be sourcing directly from farmers who produce bigger varieties which can happen only from higher quality G M seeds, which will be expensive. Also our scientists have rejected the GM seeds.
India lacks corporate farming. To decrease the number of purchasing points for corporate buyers, the number of small/marginal farmers have to be eliminated to ensure faster negotiations and easy buying. Will this not lead to unemployment, assuming that aged farmers are difficult to retrain/redeploy?
Lastly, the MSPs support a large number of middle-men since when the small/marginal farmers get to the mandis, the agri ministry staff shoos them off. Who will ensure earnings for these middle-men?
Your feedback eagerly awaited.
Thanks
Like 
Amir
Dec 4, 2011
Thank you, Mr. Mulraj for the weekly dose of sanity.

loss, shock and quarrel, err....sorry, lock, stock and barrel.
Too good....

But one question....the 10 million new jobs in the retail sector that will be created due to FDI, seems a bit of stretch. Entirely agree on GST collection & help to farmers (the last point is big enough to justify the FDI on its own).

As one already converted to "Peak Oil", your words are music to my ears. "The world's resources are limited and unable to cope with 'economic growth'. Fossil fuels are running out, and environmental issues are causing concerns on availability of electric energy to power growth."

Like 
surajit som
Dec 4, 2011
india has wonderful leaders. they take decision in democratic manners . in usa,europe ,greece they dont listen to 99%.they print money and divide the booty among themselves(1%),never mind the convoluted routes and technical jargons.it ultimately lands up in their pockets. comparatively, our leaders are saints !!! our democracy infinitely better . even zimbabwe's mugabe is better . he probably prints less money. Like 
D.L.Narayan
Dec 3, 2011
"American Airlines, which is far larger than either Kingfisher or Jet, filed for bankruptcy proceedings last week. President Obama did not intervene"

Maybe in this case the Government did not intervene but this is an exception to the rule. The American Government has intervened several times to bail out corporations like AIG, GM, Citibank, Goldman Sachs and others. Their TARP (Troubled Assets Relief Programme)has literally spent hundreds of billions of dollars of taxpayers' money.
Like 
pravin.thakrar
Dec 3, 2011
FDI as promoted by Equitymaster would be boon in short term. However it would kill eventually small businesses,
corner and Kariana shops. Further lobbying will take place for broadening their reach.

Here in UK when Multiples were give freehand and power, all small businesses have been closed. Those remained are struggling to keep going by opening seven days a week,24 hours a day.

Only benefit will be that it will open up competition, India has never seen before and many large multiples will be taken over in due course.

India needs to investigate and discuss the impacts fully
both short and long term independently, keeping politics and infighting aside
Like 
Hasit Hemani
Dec 3, 2011

Why you have no facility of simultaneous display of comments on Facebook and other networks of contributor's choice ?
Like 
Hasit Hemani
Dec 3, 2011

Why our government is not allowing Indian companies, right to deal directly with farmers, while all the gates of permits are open to foreign investors ? Why our own companies are discriminated and MNCs are given all the facilities ? Once upon a time our government had mooted a plan to allow foreign fishing companies to fish in Indian territorial waters and suggested to give them Diesel at subsidized rate. But why the same facility was never considered for Indian fisherman ? I bet if the same opportunities are offered to Indian companies no Walmart or any supermart will be able compete or succeed in India.
Like 
J N MAMTORA
Dec 3, 2011
The business model of these retailers is simple: Buy at lowest price (price reducing from year to year), and sell at the highest price.

This has led to US and UK farmers getting less for the same produce. Even American jobs went to China because China supplied the cheapest goods, quality or otherwise. If BIG RETAIL has done nothing good for their own countries, do you think they are going to do good to India?

Sorry, Jawahir, you are absolutely off the mark on this one. If not, try and give me one example of a country (except China) which has benefited from them.
Like 
ajit potnis
Dec 3, 2011
Why FDI ? Why not India Inc do it ? Mukesh Ambani spoke about putting big sum in developing cold chain and then later developed cold feet instead. What is so great about the technology that nuclear power like us cant employ/develop ourselves. Please refrain from blaming only poloticians for everything, although the present environment is quite right for it. Like 
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