»Straight from the hip by Jawahir Mulraj

Licensed to kill
14 SEPTEMBER 2013

For over 4 decades after Independence, India's Government relied on central planning to drive economic growth. Economic growth was, as a result, anaemic, derided internationally as the Hindu rate of growth, far too inadequate to lift its billion people out of poverty. The production of anything had to be licensed, which served to enrich those granting them, as well as those obtaining them, at the cost of the consumer (in the form of shoddy goods and abysmal after sales service) and the saver (in the form of low returns on capital saved and invested by him).

This model ultimately drove centrally planned countries to ruination. The Soviet Union was broken into several nations, China's economy was in shambles until it was opened up. It then grew by leaps and bounds after the Chinese embraced capitalism (guided by the aphorism 'I don't care if the cat is black or white as long as it catches mice'). India almost went bankrupt and had to pledge its gold to tide over the crisis. It is only in times of severe crisis that policy makers turn to common sense for economic policy making, and put ideologies into cold storage.

The ideologies ought to have been buried, instead. For, they seem to be re-emerging, in India, as policy makers are resurrecting licenses, controls, guidelines, micro management and such, so as to bring back the levers (and the moolah) in their hands. As the UPA slogan goes, 'Aapka paisa, aapkey haath'.

The UPA 1 Government realised that instead of licenses they could control the allotment of things like telecom spectrum and coal blocks and oil and gas blocks, and thus get back the levers of graft into the hands of its functionaries. Today every infrastructure project would need around 50 approvals. Each of these represents an inverse ATM machine. Put in money and the permission is ejected. It is a sad commentary when leading companies such as Shell, Cairn and Dell have to approach the Prime Minister's Office, via the Cabinet Committee on Investments, to help clear the logjam of various approvals, in order to make foreign direct investments in India. FDI is badly needed by the country whereas the power to give 50 approvals is needed by the party, for obvious reasons. Sadly, with this Government, the latter wins.

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In this Government, everybody and his uncle has the power to hold up project clearances and its a crying shame that the PMO has to intervene to get the engine of growth moving.

And so it moved last week, to clear some projects, including power projects that were stuck for want of coal. Signing an order is the easy part but does not, in itself, guarantee that coal will (a) be produced in adequate quantity or, if produced, (b) will reach the power plants. As per this article in Business Standard the Railways have increased their coal transportation at an average rate of 8% a year, during the last four years. The rate required over the next two years, to fulfil the 'order' signed by the PMO would be 53% over the next two years. The capacity of ports for handling higher quantities of imported coal is also missing. Ironically, more than 3.5 m. tonnes of imported coal are lying unclaimed in ports because importers are unwilling to take delivery.

The absence of governance is being increasingly written about in foreign press, and the European Commission Standing Committee on Global Foreign Direct Investment has not included India in the top 20 countries to which its 27 members will direct investments. This is what German press writes "India has never had it so bad. Stealing in government has never been this brazen. Government officials are now so audacious in their corrupt practices that they do not give a damn about who is watching".

"Supreme Court directives are routinely flouted. Crime rates are up and security of life including women's safety, which is the first responsibility of every government, is at its lowest ebb. India must then be more than qualified to be called a failed state."

Fortunately, the perpetrators of the heinous rape in Delhi have been awarded the death penalty for committing the rarest of rare crimes. This penalises the crime but not atone for it. Perhaps society may consider passing a law by which perpetrators of such rarest of rare crimes have to donate their body parts (kidneys, eyes) to society as atonement. The rapists showed no respect for body parts of the victim, destroying them in the most brutal and atavistic manner. Why, then, should they expect their own to be respected?

So we are now in a situation where the UPA Government has brought back permits and controls, requiring the greasing of palms, which has stymied growth and has resulted in an economy growing at under 5% a year. Social welfare schemes are introduced with the objective of getting voter support, but, because of their design and because of the leakages, have blown the Budget to smithereens. The MNREGA scheme, which is the flagship of the UPA, has no money, in the state of UP, to pay salaries to its 40,000 workers. So what, then, can the UPA claim as its achievement?

It is estimated that projects worth US $200 bn are stuck for want of permissions. Based on a thumb rule of US$10 m per new job created, this means that 2 m jobs which would have been created, have not been created, because of the silent return of the license permit raaj. This is a tragedy of immense proportion, one that the Government has to answer for.

Ultimately, poor governance leads, as it has, to low economic growth and, combined with profligate spending, to empty Government coffers. It is then that the policy makers dig into their resources, and find the hidden one viz. common sense.

For years the Government was treating telecom spectrum as a sort of golden goose that was supposed to lay for it golden eggs for ever. They messed up a thriving sector by allocating spectrum out of turn. The Court frowned upon discretionary allocation of spectrum and ordered that it be henceforth auctioned. Continuing in the belief that it remained a golden goose, despite having been butchered by Raja, the Government retained an unaffordably high base price for spectrum to be auctioned. There were no takers, naturally. Last week TRAI recommended that the base price of spectrum to be auctioned should be cut 60%. Why did they not look for common sense earlier?

Similarly, faced with an unacceptably high current account deficit, the Government is planning a 3 pronged attack. One of the steps includes instructing the concerned Ministry to expedite the export of huge stocks of iron ore lying at the ports. Well, hello!! Is this not common sense? Why not use this resource?

The Government is also guilty of criminal neglect. Take the latest scam, viz. NSEL. This was an exchange that was authorised by the Government. Investors can assume that, being authorised, it would be regulated and supervised. It was not. Neither by Forward Markets Commission nor by the Warehousing Development & Regulatory Authority, which is supposed to verify that the godowns under it have got the commodities in the contracted in the quantity and quality contracted. It did not.

This makes the Government equally culpable and responsible for the losses borne by investors. As the editorial in Economic Times says, the Government must come down hard on everyone concerned who was negligent. This includes the Exchange, its promoters, and also Ministry of Consumer Affairs, the FMC and the WDRA. Why is the Government, instead of penalising, agreeing to extend the license for MCX-SX, to operate for another year? Also, will SEBI grant Financial Technologies, the parent of NSEL, permission to raise Rs 1,000 crores?

Who says crime doesn't pay?

The UPA Government has to realise that ALL investors would protest if it does not take prompt action to bring the perpetrators of the NSEL fraud to justice and to reimburse investors. It is not just the few thousands but the millions of investors who would take notice of this, and their anger would spill over in the coming elections.

With such low standards of governance, it is not surprising that the global press has poor things to say about our country.

Last week the BSE-Sensex surprisingly flared up a whopping 727 points on Tuesday, and ended the week with a gain of 462 to close at 19,732. The NSE-Nifty added 170 to close the week at 5,850.

This week two global factors are worrying investors. One is the Fed meeting in which it could announce the start of the tapering off, of the quantitative easing programme. Some optimists are yet hoping that job growth data is not as strong as it ought to be, and the tapering may be, ah well, tapered.

The second worry is that the US may have a 'no boots on the ground' engagement with Syria. Technology now permits countries which have them the advantage of military force without boots on the ground i.e. loss of life. But, as this blog points out, Pearl Harbour also started with a 'no boots on the ground' attack by the Japanese, but led to WWII. So also, 9/11 was also a 'no boots on the ground' but led to the invasion of Iraq and of Afghanistan. The US Administration has proof that chemical weapons were used but not about who used them and it could, in this crazy world of strange geopolitical bedfellows, one doesn't know if it was the Syrian Government or the rebels who did. A country cannot be attacked without such proof.

In the event of a taper and/or of a Syrian attack by remote military technology, stock markets would react negatively.

J Mulraj is a stockmarket columnist and observer of long standing. His weekly column on stockmarkets has run for over 17 years. An MBA from IIM Kolkata, he has been a member of the BSE. He is now India Representative for Institutional Investor. 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 stockmarkets yet being a reader of his columns. His other interests include reading, both fiction and non fiction, bridge, snooker and chess.

Disclaimer:
The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The authors, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same.
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