There is, justifiably, a palpable anger at the political leaders for failing miserably in governance. Democracy, as practised in India, is more about survival of politicians, guarded by a bevy of commandos whom they don't pay for, and not about the people. The terrorist attacks in Mumbai have revealed the disdain and insensitivity of our political class for the people who have put them in power.
Witness the crass imbecility of Kerala Chief Minister who, seeking to pay a condolence visit to the bereaved father of a slain hero, had the gall to say that not even a dog would enter the house were it not for the heroism of the son. Well, perhaps only a dog would visit Achutanandan's house once he loses political power, for humans would be loath to. Witness the puerile insouciance of (now resigned) Maharashtra Home Minister R R Patil that such 'small incidents' happen! Witness the (now resigned) Maharashtra Chief Minister Deshmukh's indifference to public opinion in taking his actor son and a film producer on an inspection of the Taj.
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Witness the thoughtlessness of our President, Prathiba Patil, in engaging an army of cops on her visit to Mumbai, whose sole function is not to provide her protection (else they could have taken care of the terrorist problem, right?) but to speed her travel. The next day an unexploded bomb was defused at CST; when asked to explain the delay the cops stated it was because of 'other duties'. Read 'escorting politicians' for their photo ops! The enormous costs of such ego boosting conveniences to VIP travel could easily be diverted for better bullet proof vests, for example, to save lives of people.
To even start setting up a proper infrastructure to fight terrorism politicians ought to start by thinking of themselves as being above the law. The Prime Minister, President and Sonia Gandhi must set an example by insisting on security checks, for exemptions for select persons do nothing for perception or for morale. There should also be a user charge payable by them for the security provided. Mahatma Gandhi went unescorted into riot areas to quell them without a vest, far less a bulletproof one.
The best people for setting up a security infrastructure should be appointed, be they ex- army chiefs or police chiefs, far more qualified than P Chidambaram. It is not likely that terrorists would agree to pay fringe benefit tax on his grenades! Obama has appointed as Defence Secretary the same person who was the Republican party's defence secretary, and his opponent in the primaries, Hillary Clinton, as Secretary of State. They care about the country, not only for themselves so they appoint the best person for the job and not the best person out of a political coterie.
What would be the consequences for the economy and the stockmarket?
For one, costs would increase all round, for increased security. Productivity would reduce because of security checks, airline passengers, e.g. have now to reach the airport 3 hours prior to the flight. The global slowdown is starting to have its impact on India as it inevitably will. Exports in Oct fell yoy for the first time in five years. The trade deficit for the 7 months to Oct was $ 73 b, against $45b in the same period last year. Quarterly results for the third quarter to Dec will show the effect of a slowdown.
The Government is expected, as this column is being written, to come out with a stimulus package for the economy, which is expected to include a sharp reduction in bank rates and in CRR to release more liquidity into the banking system, cuts in excise duties, lines of credit for housing and infrastructure and measures to promote exports. Hopefully this would cause a rally, which should be taken as exit opportunities.
This is because the global economy is in a huge huge mess. A brilliant article by James Quinn, senior professor at Wharton, analyses the factors that led up to the mess After the 2001 9/11 attack, President George Bush exhorted Americans to counter terrorism by consuming more. He was aided by Alan Greenspan who, as Federal Reserve Chairman, cut interest rates down to 1%, pumping enormous liquidity into the system to encourage consumption. Household debt, as a result, shot up to $ 13.8 trillion (of which $ 10.5 t is mortgage debt), amounting to $ 46000 per person! Household debt is now 122% of GDP!
People went into a 'keeping up with the Jones' syndrome and banks encouraged them with lax lending standards (100% financing, limited documentation, no recourse loans etc). When house prices were rising, in 2004 and 05, US homeowners ate $800 billion of their home equity, which is their stake in the property with the remainder being borrowing. Now that house prices are falling, and are now at an average of $ 200,000, they are simply returning the keys to the lenders as these loans are no recourse loans ie. without recourse to other assets. The author feels the prices should fall to pre-attack 2001 levels, which would be around $ 125,000. So there is lots of pain ahead.
This is reflected in the job losses of 533000 in November, the highest in 34 years, with the US having an unemployment rate of 6.7%. Since Americans have not much saving other than their homes (whose prices have not stopped falling) or equity (whose prices have further to fall) an income stream from a job is what keeps them going. Their retirement 401K accounts are also down 40-50% and unable to support them. Little wonder that the pledges so far made by the American Government for all liabilities is $ 8 trillion, more than half its GDP.
In corporate news, Tata Steel came out with good numbers for the quarter ended Sep, with profits up 213% to Rs 4791 crores, on a 36% increase in sales, to Rs 44,199 crores, but its margins will come under pressure in Q3 and Q4 and its output cut. Vodafone has had an adverse decision in a Bombay High Court case, and faces, if it loses in appeal at the Supreme Court, a potential liability of $4 b. The Tax authorities took a view that it ought to have deducted tax at source when it bought over the shareholding in Hutch from Li ka Shing in an offshore transaction as the underlying assets were in India.
The BSE-Sensex ended the week at 8965, down 127 points and the NSE-Nifty ended at 2714, down 45. Should the economic package to be announced on Saturday enthuse the market, investors may consider getting lighter, even if they need to grit their teeth to do it. Indian politicians need to show that democracy is, as elsewhere where it works, of the people, by the people and for the people. And not only for them!