No way to treat a lady! - Straight from the Hip by J Mulraj
Investing in India - Straight from the Hip by J Mulraj
No way to treat a lady! A  A  A

21 DECEMBER 2013

The main news item in the past week was about the behaviour meted out by US authorities in the manner in which they arrested and later did personal searches of, the Deputy Counsel General of India to the United States, Devyani Khobragade, for giving inaccurate data in the visa application for a domestic helper. Compared to the kid glove treatment meted out, just about a week or two earlier, to 11 Russians, who had actually defrauded the US medical system (which Khobragade had not), and who were let off, on the basis of diplomatic immunity (which Khobragade was equally entitled to), it was no way to treat a lady. When US civilian Raymond Davis, who was not even diplomatic staff but a private security firm employee, shot dead two Pakistani citizens on the streets of Lahore, the US Government swooped in and flew him out, on the ground of diplomatic immunity. Exposing double standards for which it is known.

But the lady in question in my title is Mother India, and the manner in which this Government is treating the country, and its economy, is appalling.

At the root of the issue of poor governance is the fact that politicians are self serving. Their first priority is themselves. The good of the nation comes low in the pecking order. One had expected more from a Government led by Manmohan Singh, but he has proven himself incapable of stanching the corruption that results from putting self before country.

There are several examples of how this affects the economy adversely. Let's start with the sugar industry.

A decades old piece by Rajiv Lall on the state of the industry remains as valid today as it was then, a sad commentary on how inflexible the system is when it comes to protecting the turf of the policymakers. Governments, both at the Centre, who declare a statutory minimum price for cane, as well as at the States, which declare a minimum state advised price (SAP) to be paid, pitch a price which is related to their political ambitions and not grounded in economic reality. They pitch it higher, in order to get votes of the sugar cane farmers.

Some mills in Uttar Pradesh, the largest sugar producing state (India is # 1 sugar consumer and # 2 sugar producer in the world) have threatened to keep shut and not to crush cane in the season started mid December. The SAP is uneconomic. They will be unable to pay it and it will result in arrears of cane dues to farmers piling up. Since it would be a bigger political calamity if the mills do not crush cane (depriving farmers of income) and do not thus produce sugar (depriving consumers of sugar) the politicians felt their interests being threatened, and decided to take action.

The policy rabbit pulled out of their hat was that the sugar industry be given interest free loans with a 2 year moratorium on payment.

But of course banks would not agree to granting an interest free loan. So the 12% interest is to be paid for by the Sugar Development Fund. This fund is built up through a levy on sugar consumers. So, ultimately, it is the consumers who are paying for the political parties to get the votes of the sugar farmers.

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In Maharashtra the production of sugar is largely done in the co-operative sector, which is controlled by a handful of politicians and some large farmers. These sugar mills are running on the financial largesse of co-operative banks, and are actually unviable. The wastage of water (sugarcane is a water intensive crop) is criminal; cane is grown on 4% of land but uses 70% of water! Yet there are sugar factories, running at a loss, with a colossal waste of water (several people struggle to get drinking water) simply because a handful of co operative sugar factory owners are milking the system.

No way to treat a lady!

We have seen how the telecom sector, which was a showcase of the success of economic reform, was ruined, simply because of coalition politics. Coalition partners needed to be kept happy by sharing the "benefits" of being in Government, and their shenanigans had to be overlooked. The process of sale of (cheap) spectrum was corrupted, the successful allotees got a rentier income, and ultimately the Supreme Court had to jettison all recently granted licences, including some which were genuinely obtained. The sector is still struggling. The Government is only now taking one small corrective step, viz. permitting the sharing of spectrum. This step was so obvious and commonsensical, and had been suggested so many times, that the only reason it took years to take it was because the priorities of the Government were wrong.

No way to treat a lady!

The issue, at core, is retention of control. Politicians love to have levers of control in their hands, which yield them benefits. Take the oil and gas sector. The price of oil and gas is controlled. The Government first stepped into pricing of natural gas when the battle royal between the Ambani brothers broke out. It was later doubled. It's now been quadrupled! Now the issue is whether or not Reliance Industries (RIL) is entitled to the quadrupled price or merely the doubled one. The Finance Ministry wants that RIL first clear the fall in gas production due to geological reasons, before it gets the quadrupled price. RIL wants it to be effective immediately, or else it will not invest more money in developing the field.

At root, again, is control. And what the priorities are. If the priority is the welfare of the country, then it would, one supposes, be simple for the Government to tell RIL, and other operators, that their share would be X % of the output, to be sold at their discretion and at whatever price they wish, to whomsoever they want to, and that the Government's share was Y %, to be sold at its discretion, to whomsoever it wanted to. But if the intention is to be able to retain a hold over others, for some other benefits, then the consequences are different. The Government has now allowed RIL to produce (and invest more to do so) gas, and to sell it at the quadrupled price, if it provides a bank guarantee.

The oil and gas sector has been a victim, again, of poor priorities. For decades, the Government foolishly followed the policy of controlling the prices of petro products, including petrol, diesel, kerosene and LPG. The last two are used for cooking, so, perhaps, a case could yet be made out for subsidising them. The first two are for transportation, and cannot be justified to qualify for subsidy. Since the subsidy had to be borne by someone, and the Government wanted its budget to look fair and lovely, it forced public sector companies to bear the brunt, especially Oil and Natural Gas Corporation Ltd. (ONGC), OIL India and Gas Authority Of India Ltd. (GAIL). Now, because of this drain of monetary lifeblook from their balance sheets, ONGC finds itself unable to invest the required Rs 10,000 crores to upgrade its Bombay High field.

No way to treat a lady.

The Government deems itself to be especial! Which is why it is all set to nullify the order of the CIC (Central Information Commission) which stated that political parties also come within the ambit of the RTI (Right to Information) Act. The political parties deem themselves impervious to this. Political animals are more equal than others in this Animal Farm.

The Government has also put itself and its coalition partners' interests ahead of investors, in the case of the NSEL (National Spot Exchange Ltd) imbroglio. The reason action against the Financial Technologies group, and Jignesh Shah, in the Rs 5,500 crore financial swindle, has been slow is because Jignesh has friends in high places. In coalition politics the Congress does not want to appear to offend partners with whom it has shared power, if you know what I mean. That the whole NSEL was a fraud in the first place and that Jignesh Shah was not 'misled' as he claims to have been, is evident from the assertion of the EOW (Economic Offences Wing of the Mumbai Police) that the MD of NSEL had paid bribes to the tax authorities and others.

Part of these bribes were apparantely paid by the 'borrowers'. This explains, partly, the discrepancy between the amounts NSEL says they owe to it and what the borrowers accept they owe. So, basically, it is the investors who have footed the bribe amount because of which the culprits are still free and they continue to suffer as the recovery drags on for want of commitment.

No way to treat a lady.

It is even more galling to read that Jignesh Shah plans to relocate to Singapore. If the Government permits this without him having settled 100% of the dues, with interest, of NSEL investors, then surely it points to its dirty involvement in this matter. And that, surely, would be something these investors would note in the coming general elections.

Or take the example of the auto industry. The high interest rates, which affect loan demand for cars, together with rising prices of petrol and diesel, has caused demand for automobiles to falter. The auto companies are offering some attractive discounts to car buyers. If it continues, they fear a loss of 9 million jobs. Has the Government thought about where the jobs are coming from, as any responsible Government ought to be doing? The manufacturing sector, where a large chunk of jobs are expected to come from, faces a plethora of hurdles, from the myriad clearances sought (time and money consuming) and, now, the Land Acquisition Bill, which makes it mandatory to get a clearance from 70% of land owners, and then to have an impact assessment. So, if political posturing takes precedence over sensible economic decision making, where will the jobs come from, to feed to a growing and literate population? And, without adequate jobs, where will social peace come from?

No way to treat a lady.

Last week the stock market got a pre Christmas gift from Santa Rajan! The RBI Governor did not raise interest rates. The market was expecting a 25 basis points hike. When the rates were left unchanged, the markets rejoiced. The BSE-Sensex ended the week at 21,079, up 384 points, (of which 364 were contributed due to Santa Rajan's munificence). The NSE-Nifty ended the week at 6,274, up 96.

Meanwhile Santa Yellen in the US has stated that the taper would begin in January but that the soft interest rate policy would continue. Global markets were enthused.

Another indication of the apathy of our policymakers towards the country is in the statistics of performance of the Lok Sabha. The current Lok Sabha spent a mere 15% of its time making laws, compared to 48% by the first Parliament. It has 335 sittings, less than half the 677 sittings of the first Lok Sabha.

Ultimately the economy responds to correct policy decisions. One hopes that the next Government learns the proper way to treat a lady.

Editor's Note:
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If there's anything in particular you'd like me to cover in these articles... please send in your suggestions to

Best Regards,

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Roving Reporter
Equitymaster Conference 2014

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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Equitymaster requests your view! Post a comment on "No way to treat a lady!". Click here!
3 Responses to "No way to treat a lady!"
Dec 23, 2013
The sugar industry will continue to suffer mainly due to the stronger lobbying by soft drinks manufacturers, confectionary and buiscuit makers etc dominated by multinationals, who will not allow raising the import duty and the liquor lobby which will not allow the mixing of Ethanol with petrol, whether at 5 or 10%
With regards,
India's Richest Family
Dec 23, 2013
"US deputy spokesperson revealed in a press briefing that the Indian Embassy in New York was aware about the arrest of Indian Deputy Counsel General Devyani Khobragade, on charges of fraudulent visa document and misleading statements, in September " itself -how is it?
Noshir H. Gundevia.
Dec 21, 2013
Excellent comentary on the current situation in the country.Keep on hitting them. in the hope that they will listen to the voice of economic reason one day. Keep it up as there are people supporting you in your fight. Like 
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