Welcome to the blog of Rajesh Gajra a living being on the Earth plane.
I hope you find it worthwhile to observe the parts of my journey this lifetime that I share here.
The posts on the articles as a journalist in this blog are mostly the raw copies I submit. These undergo vetting and editing before getting published. Hence, these raw copies must not be attributed to the companies I work/worked for.
Time and again, the government ministries and industry bodies forget that they can not sustain the attitude of having the cake and wanting to eat it too. It might be easy to manoeuvre the system in our country but not when you trade with other countries. This is particularly in the area of imports and exports where India trades with the world at large.
The commerce ministry is seriously concerned about the widening gap between a fast-rising imports and stagnating exports. This is the same ministry that had gone to almost obscene level to create the Special Economic Zones Act (SEZ Act) and provide SEZs with massive tax waivers. So, despite the large amount of cash saved in the form of tax waiver, the SEZs have not been able to increase the total exports of the country.
The government statistics tell us that India's imports is expected to shoot up by 16.20 per cent from $288.3 billion in FY 2009-10 to $335 billion in FY 2010-11 while exports will likely grow by a lesser quantum, 11.92 per cent, from $178.7 billion to $200 billion. This will raise the trade deficit (imports minus exports) from $109.6 billion to $135 billion. A
sharp rise in crude oil imports is the reason behind the total import increase in the above figures.
So, lets come back to SEZs that are supposed to be export hubs and particularly those which use imported raw material in their production. The classic example is that of Reliance Industries (RIL). Its super-large petroleum refinery in Jamnagar, Gujarat is a SEZ and income earned from the sales from this SEZ is perhaps not taxed. This SEZ processes crude oil most of which is imported. We do not know the exact import and export figures of this SEZ but we do know the total raw material imports by RIL and its total exports of refined petroleum products.
In FY 2009-10, the company imported raw materials worth Rs 152,083 crore \, or in US dollar terms roughly around $33 billion But its total exports of refined products was lower, at $20.9 billion as per its annual report for FY 2009-10. Exports don't match imports. Unsold inventory might be the reason.
This is just for one company which though contributes to about 10 per cent of the country's total imports and total exports. The commerce ministry not only worries about the deficit but along with the finance ministry it also worries about a stronger rupee hurting exporters or a weaker rupee hurting importers. They have to realise that they can not have it both ways. Someone will benefit, someone will hurt. But in the long term the market forces will even things out.
"....The first step towards reimagining a world gone terribly wrong would be to stop the annihilation of those who have a different imagination—an imagination that is outside of capitalism as well as communism. An imagination which has an altogether different understanding of what constitutes happiness and fulfilment. To gain this philosophical space, it is necessary to concede some physical space for the survival of those who may look like the keepers of our past, but who may really be the guides to our future. To do this, we have to ask our rulers: Can you leave the water in the rivers? The trees in the forest? Can you leave the bauxite in the mountain? If they say they cannot, then perhaps they should stop preaching morality to the victims of their wars."
... is how Arundhati Roy concludes her insightful write-up in the latest issue of Outlook magazine.
Arundhati Roy has articulated very well and very firmly the thoughts that are concerning any just-minded Indian today. Here are some more excerpts from her write-up:
The Trickledown Revolution
The answer lies not in the excesses of capitalism or communism. It could well spring from our subaltern depths.
Arundhati Roy
....
In his seven years in office, Manmohan Singh has allowed himself to be cast as Sonia Gandhi’s tentative, mild-mannered underling. It’s an excellent disguise for a man who, for the last 20 years, first as finance minister and then as prime minister, has powered through a regime of new economic policies that has brought India into the situation in which it finds itself now. This is not to suggest that Manmohan Singh is not an underling. Only that all his orders don’t come from Sonia Gandhi.
....
Over the years, he has stacked his cabinet and the bureaucracy with people who are evangelically committed to the corporate takeover of everything—water, electricity, minerals, agriculture, land, telecommunications, education, health—no matter what the consequences.
Sonia Gandhi and her son play an important part in all of this. Their job is to run the Department of Compassion and Charisma and to win elections. They are allowed to make (and also to take credit for) decisions which appear progressive but are actually tactical and symbolic, meant to take the edge off popular anger and allow the big ship to keep on rolling. (The best example of this is the rally that was organised for Rahul Gandhi to claim victory for the cancellation of Vedanta’s permission to mine Niyamgiri for bauxite—a battle that the Dongria Kondh tribe and a coalition of activists, local as well as international, have been fighting for years. At the rally, Rahul Gandhi announced that he was “a soldier for the tribal people”. He didn’t mention that the economic policies of his party are predicated on the mass displacement of tribal people. Or that every other bauxite “giri”—hill—in the neighbourhood was having the hell mined out of it, while this “soldier for the tribal people” looked away. Rahul Gandhi may be a decent man. But for him to go around talking about the two Indias—the “Rich India” and the “Poor India”—as though the party he represents has nothing to do with it, is an insult to everybody’s intelligence, including his own.)
The division of labour between politicians who have a mass base and win elections, and those who actually run the country but either do not need to (judges and bureaucrats) or have been freed of the constraint of winning elections (like the prime minister) is a brilliant subversion of democratic practice. To imagine that Sonia and Rahul Gandhi are in charge of the government would be a mistake. The real power has passed into the hands of a coven of oligarchs—judges, bureaucrats and politicians. They in turn are run like prize race-horses by the few corporations who more or less own everything in the country. They may belong to different political parties and put up a great show of being political rivals, but that’s just subterfuge for public consumption. The only real rivalry is the business rivalry between corporations.
A senior member of the coven is P. Chidambaram, who some say is so popular with the Opposition that he may continue to be home minister even if the Congress were to lose the next election. That’s probably just as well. He may need a few extra years in office to complete the task he has been assigned. But it doesn’t matter if he stays or goes. The die has been rolled.
In a lecture at Harvard, his old university, in October 2007, Chidambaram outlined that task. The lecture was called ‘Poor Rich Countries: The Challenges of Development’. He called the three decades after Independence “the lost years” and exulted about the GDP growth rate which rose from 6.9 per cent in 2002 to 9.4 per cent by 2007. What he said is important enough for me to inflict a chunk of his charmless prose on you:
“One would have thought that the challenge of development—in a democracy—will become less formidable as the economy cruises on a high growth path. The reality is the opposite. Democracy—rather, the institutions of democracy—and the legacy of the socialist era have actually added to the challenge of development. Let me explain with some examples. India’s mineral resources include coal—the fourth-largest reserves in the world—iron ore, manganese, mica, bauxite, titanium ore, chromite, diamonds, natural gas, petroleum and limestone. Common sense tells us that we should mine these resources quickly and efficiently. That requires huge capital, efficient organisations and a policy environment that will allow market forces to operate. None of these factors is present today in the mining sector. The laws in this behalf are outdated and Parliament has been able to only tinker at the margins. Our efforts to attract private investment in prospecting and mining have, by and large, failed. Meanwhile, the sector remains virtually captive in the hands of the state governments. Opposing any change in the status quo are groups that espouse—quite legitimately—the cause of the forests or the environment or the tribal population. There are also political parties that regard mining as a natural monopoly of the State and have ideological objections to the entry of the private sector. They garner support from the established trade unions. Behind the unions—either known or unknown to them—stand the trading mafia. The result: actual investment is low, the mining sector grows at a tardy pace and it acts as a drag on the economy. I shall give you another example. Vast extent of land is required for locating industries. Mineral-based industries such as steel and aluminium require large tracts of land for mining, processing and production. Infrastructure projects like airports, seaports, dams and power stations need very large extents of land so that they can provide road and rail connectivity and the ancillary and support facilities. Hitherto, land was acquired by the governments in exercise of the power of eminent domain. The only issue was payment of adequate compensation. That situation has changed. There are new stakeholders in every project, and their claims have to be recognised. We are now obliged to address issues such as environmental impact assessment, justification for compulsory acquisition, right compensation, solatium, rehabilitation and resettlement of the displaced persons, alternative house sites and farmland, and one job for each affected family....”
Allowing “market forces” to mine resources “quickly and efficiently” is what colonisers did to their colonies, what Spain and North America did to South America, what Europe did (and continues to do) in Africa. It’s what the Apartheid regime did in South Africa. What puppet dictators in small countries do to bleed their people. It’s a formula for growth and development, but for someone else. It’s an old, old, old, old story—must we really go over that ground again?
Now that mining licences have been issued with the urgency you’d associate with a knockdown distress sale, and the scams that are emerging have run into billions of dollars, now that mining companies have polluted rivers, mined away state borders, wrecked ecosystems and unleashed civil war, the consequence of what the coven has set into motion is playing out. Like an ancient lament over ruined landscapes and the bodies of the poor.
Note the regret with which the minister in his lecture talks about democracy and the obligations it entails: “Democracy—rather, the institutions of democracy—and the legacy of the socialist era have actually added to the challenge of development.” He follows that up with the standard-issue clutch of lies about compensation, rehabilitation and jobs. WhatWhat solatium? What rehabilitation? And what “job for each family”? (Sixty years of industrialisation in India has created employment for 6 per cent of the workforce.) As for being “obliged” to provide “justification” for the “compulsory acquisition” of land, a cabinet minister surely knows that to compulsorily acquire tribal land (which is where most of the minerals are) and turn it over to private mining corporations is illegal and unconstitutional under the Panchayat (Extension to Scheduled Areas) Act or PESA. Passed in 1996, PESA is an amendment that attempts to right some of the wrongs done to tribal people by the Indian Constitution when it was adopted by Parliament in 1950. It overrides all existing laws that may be in conflict with it. It is a law that acknowledges the deepening marginalisation of tribal communities and is meant to radically recast the balance of power. As a piece of legislation, it is unique because it makes the community—the collective—a legal entity and it confers on tribal societies who live in scheduled areas the right to self-governance. Under PESA, “compulsory acquisition” of tribal land cannot be justified on any count. So, ironically, those who are being called “Maoists” (which includes everyone who is resisting land acquisition) are actually fighting to uphold the Constitution. While the government is doing its best to vandalise it. compensation?
Between 2008 and 2009, the ministry of panchayati raj (village administration) commissioned two researchers to write a chapter for a report on the progress of panchayati raj in the country. The chapter is called ‘PESA, Left-Wing Extremism and Governance: Concerns and Challenges in India’s Tribal Districts’. Its authors are Ajay Dandekar and Chitrangada Choudhury. Here are some extracts:
“The Central Land Acquisition Act of 1894 has till date not been amended to bring it in line with the provisions of PESA.... At the moment, this colonial-era law is being widely misused on the ground to forcibly acquire individual and community land for private industry. In several cases, the practice of the state government is to sign high-profile MoUs with corporate houses and then proceed to deploy the Acquisition Act to ostensibly acquire the land for the state industrial corporation. This body then simply leases the land to the private corporation—a complete travesty of the term ‘acquisition for a public purpose’, as sanctioned by the act....
There are cases where the formal resolutions of gram sabhas expressing dissent have been destroyed and substituted by forged documents. What is worse, no action has been taken by the state against concerned officials even after the facts got established. The message is clear and ominous. There is collusion in these deals at numerous levels....
The sale of tribal lands to non-tribals in the Schedule Five areas is prohibited in all these states. However, transfers continue to take place and have become more perceptible in the post-liberalisation era. The principal reasons are—transfer through fraudulent means, unrecorded transfers on the basis of oral transactions, transfers by misrepresentation of facts and mis-stating the purpose, forcible occupation of tribal lands, transfer through illegal marriages, collusive title suits, incorrect recording at the time of the survey, land acquisition process, eviction of encroachments and in the name of exploitation of timber and forest produce and even on the pretext of development of welfarism.”
In their concluding section, they say:
“The Memorandums of Understanding signed by the state governments with industrial houses, including mining companies, should be re-examined in a public exercise, with gram sabhas at the centre of this inquiry.”
Here it is then—not troublesome activists, not the Maoists, but a government report calling for the mining MoUs to be re-examined. What does the government do with this document? How does it respond? On April 24, 2010, at a formal ceremony, the prime minster released the report. Brave of him, you would think. Except, this chapter wasn’t in it. It was dropped.
.........
Justice, that grand, beautiful idea, has been whittled down to mean human rights. Equality is a utopian fantasy. The word has, more or less, been evicted from our vocabulary. The poor have been pushed to the wall. From fighting for land for the landless, revolutionary parties and resistance movements have had to lower their sights to fighting for people’s rights to hold on to what little land they have. The only kind of land redistribution that seems to be on the cards is land being grabbed from the poor and redistributed to the rich, for their landbanks which go by the name of SEZs
......
During the Emergency, the saying goes, when Mrs Gandhi asked the press to bend, it crawled. And yet, in those days, there were instances when national dailies defiantly published blank editorials to protest censorship
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This time around, in the undeclared emergency, there’s not much scope for defiance because the media is the government. Nobody, except the corporations which control them, can tell it what to do. Senior politicians, ministers and officers of the security establishment vie to appear on TV, feebly imploring Arnab Goswami or Barkha Dutt for permission to interrupt the day’s sermon. Several TV channels and newspapers are overtly manning Operation Green Hunt’s war room and its disinformation campaign. There was the identically worded story about the “1,500-crore Maoist industry” filed under the byline of different reporters in several different papers. Almost all newspapers and TV channels ran stories blaming the pcapa (used interchangeably with “Maoists”) for the horrific train derailment near Jhargram in West Bengal in May 2010 in which 140 people died. Two of the main suspects have been shot down by the police in “encounters”, even though the mystery around that train accident is still unravelling. The Press Trust of India put out several untruthful stories, faithfully showcased by the Indian Express, including one about Maoists mutilating the bodies of policemen they had killed. (The denial, which came from the police themselves, was published postage-stamp size hidden in the middle pages.) There are the several identical interviews, all of them billed as “exclusive”, with a female guerrilla about how she had been “raped and re-raped” by Maoist leaders. She was supposed to have recently escaped from the forests, and the clutches of the Maoists, to tell the world her tale. Now it turns out that she has been in police custody for months.
The atrocity-based analyses shouted out at us from our TV screens is designed to smoke up the mirrors, and hustle us into thinking: “Yes, the tribals have been neglected and are having a very bad time; yes, they need development; yes, it’s the government’s fault, but right now there is a crisis. We need to get rid of the Maoists, secure the land and then we can help the tribals.”
......
Not many analysts and commentators who were pained by the Maoist killing of civilians in Dantewada noticed that at exactly the same time as the bus was blown up by the Maoists in Dantewada, the police had surrounded several villages in Kalinganagar in Orissa, and in Balitutha and Potko in Jharkhand, and had fired on thousands of protesters resisting the takeover of their lands by the Tatas, the Jindals and Posco. Even now, the siege continues. The wounded cannot be taken to hospital because of the police cordons. Videos uploaded on YouTube show armed riot police massing in the hundreds, confronted by ordinary villagers, some of whom are armed with bows and arrows.
The one favour Operation Green Hunt has done ordinary people is that it has clarified things to them. Even the children in the villages know that the police works for the “companies” and that Operation Green Hunt isn’t a war against Maoists. It’s a war against the poor.
There’s nothing small about what’s going on. We are watching a democracy turning on itself, trying to eat its own limbs. We’re watching incredulously as those limbs refuse to be eaten.
.......
In Orissa, for instance, there are a number of diverse struggles being waged by unarmed resistance movements which often have sharp differences with each other. And yet between them all, they have managed to temporarily stop some major corporations from being able to proceed with their projects—the Tatas in Kalinganagar, Posco in Jagatsinghpur, Vedanta in Niyamgiri. Unlike in Bastar, where they control territory and are well-entrenched, the Maoists tend to use Orissa only as a corridor for their squads to pass through. As the security forces are closing in on people and ratcheting up the repression, they have to think very seriously about the pros and cons of involving the Maoists into their struggles. Will its armed squads stay and fight the State repression that will inevitably follow a Maoist “action”? Or will they retreat and leave unarmed people to deal with police terror? Activists and ordinary people, falsely accused of being Maoists, are already being jailed. Many have been killed in cold blood. But a tense uneasy dance continues between the unarmed resistance movements and the CPI (Maoist).
......
People who live in situations like this do not simply take instructions from a handful of ideologues who appear out of nowhere waving guns. Their decisions of what strategies to employ take into account a whole host of considerations: the history of the struggle, the nature of the repression, the urgency of the situation and the landscape in which their struggle is taking place. The decision of whether to be a Gandhian or a Maoist, militant or peaceful, or a bit of both (like in Nandigram), is not always a moral or ideological one. Quite often, it’s a tactical one. Gandhian satyagraha, for example, is a kind of political theatre. In order for it to be effective, it needs a sympathetic audience which villagers deep in the forest do not have. When a posse of 800 policemen lay a cordon around a forest village at night and begin to burn houses and shoot people, will a hunger strike help? (Can starving people go on a hunger strike? And do hunger strikes work when they are not on TV?) Equally, guerrilla warfare is a strategy that villages in the plains, with no cover for tactical retreat, cannot afford.
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Since the government has expanded its definition of “Maoist” to include anybody who opposes it, it shouldn’t come as a surprise that the Maoists have moved to centrestage. However, their doctrinal inflexibility, their reputed inability to countenance dissent, to work with other political formations and, most of all, their single-minded, grim, military imagination makes them too small to fill the giant pair of boots that is currently on offer.
(When I met Comrade Roopi in the forest, the first thing the techie-whiz did after greeting me was to ask about an interview with me published soon after the Maoists had attacked Rani Bodili, a girls’ school in Dantewada which had turned into a police camp. More than 50 policemen and SPOs were killed. “We were glad,” she said, “that you refused to condemn our Rani Bodili attack, but then in the same interview you said that if the Maoists ever come to power, the first person we would hang would probably be you. Why did you say that? Why do you think we’re like that?” I was settling into my long answer but we were distracted. I would probably have started with Stalin’s purges—in which millions of ordinary people and almost half of the 75,000 Red Army officers were either jailed or shot and 98 out of 139 Central Committee members were arrested, gone on to the huge price people paid for China’s Great Leap Forward and the Cultural Revolution, and might have ended with the Pedamallapuram incident in Andhra Pradesh, when the Maoists, in its previous avatar as People’s War, killed the village sarpanch and assaulted women activists for refusing to obey their call to boycott elections).
Vodafone Group is in the news in India due to the Bombay High Court disallowing its petitition against the Indian Income Tax Department's claim of Rs 123 billion (Rs 12,300 crore) for capital gains tax on Vodafone's about Rs 900 billion (Rs 90,000 crore) cost of acquiring Hutchison Essar 2-3 years back.
How much does Vodafone earn from India? Vodafone Group, the London-listed company, had a total turnover of Rs 3,318 billion (Rs 331,800 crore) for four quarters up to the quarter-ended June this year, according to Bloomberg data. But how much of this is earned from Vodafone's operations in India is not known.
The Bloomberg data gave a geographical break-up of the revenues only for select quarters. The latest two quarters for which such a break-up was available were the quarters-ended December 2009 and June 2009. The analysis of the sum of these two quarters provides an interesting insight. In these two quarters, the global telecom revenues of Vodafone, across its voice, messaging and data businesses, aggregated to Rs 1,401 billion (Rs 140,100 crore). Of this, India contributed Rs 106.30 billion (Rs 10,630 crore), or 7.59 per cent.
I have written earlier (my blog post of 29 October 2008) and I will say it once more: Many editor-in-chiefs of Indian media organisations are often under an unhealthy influence of large Indian companies and large Public Relations companies. Whether they are aware about this facet about themselves, I can't say. But I know for sure that almost all of them claim that they are among the very best editors in Indian media.
The whole thing is highly unfortunate and an impediment to good journalists. But there is always a ray of hope. Like in every profession and every sphere of life, the unhealthy influences do not sustain continuously and indefinitely.
Here is a reproduction of my 29 October 2009 blog post:
{Update, 1 Nov '08: In the post below I wrote about elements in corporate India using some of the top media editors to plug their agenda. I just came to know that one of the Chandra brothers of Unitech is using 1/2/3 top editors through their obnoxiously close connection with a notorious PR agency (that handles accounts of the several companies of largest corporate group in India, and is now pitching for Unitech's account or already got Unitech's account) to pressurise Sebi to haul up the imaginary short sellers. Unitech, a real estate company, is in deep shit with regard to its finances. A large chunk of its properties are currently lying mortgaged with Indiabulls. There is much more going on in these connections. Its very very ugly. Its a shame on Indian media as well, particularly on these top editors who are batting for Unitech shamelessly}
Elements in India Inc are playing their dirty games in the financial marketplace yet again. This time they are on a witch hunt against sellers, including short sellers, in the market by attributing the motive of market manipulation to them. Unitech's promoters, the Chandras, have already complained to Sebi to probe the fall in their stock's prices. Others are doing it subtly and one of their tactics is to use some of the top media editors to play up their agenda.
With their market capitalisation down they are finding it difficult to raise funds to repay earlier debts or fund committed expansion plans. A brokerage firm official from UK called up his friend in an Indian brokerage firm to tell him that some of Tata Steels debt issues were going for an effective yield of above 20% per annum in the UK market. That meant Tata Steels is not able to raise debt without having to offer a 20% effective rate of interest to lenders.
Through their confederations/associations they made the finance and commerce ministries they even got Sebi to direct FIIs not to lend shares abroad, with effect from 20 October, through offshore derivative instruments that was otherwise not prohibited.
When excessive leverage and massive long buying took up the markets to unrealistic heights then these very companies were silent because they could tap funds from the market (through new issue of shares from the public in the primary market) at any price they deemed fit. The DLFs and Unitechs of the Indian corporate world raised capital at absurd valuations during the 2005-07 bull run.
Witch hunts, says this website, "According to American Heritage Dictionary, a witch hunt is a political campaign launched on the pretext of investigating activities subversive to the state." In the context of the Indian stock market, it is a corporate campaign launched on the pretext of investigating short sellers and other sellers of stocks in the equity market. It is similar to the McCarthyism in the 1950s in the US when almost every Tom, Dick and Harry in the US was alleged to be a communist and anti-American.
I did some analysis of (i) world markets movements that showed Indian market being in sync with others in the world, (ii) trading pattern of FIIs, domestic institutional investors (DIIs), brokers proprietary accounts and retail+NRIs+non-institutional corporate investors and it showed the dominance of FII selling but also showed the buying by DIIs and retail-plus category, and (iii) the amount of shares lent by FIIs abroad before they were stopped from doing so from 20 October and after they were made to disclose their lent shares positions from 10 October. The three visuals below bring these out. Click on each one of them to enlarge and see clearly.
A few weeks back, in mid-May, I wrote an editorial for the publication I work for presently. It was on the dangers that lurk around the use of contraceptive pills by women.
Here is the write-up:
Dangers lurk around the liberating pills
The evolution of the pill could not be—nor should it have been-avoided. Like rapid development in every profession, the medical sciences could not but rapidly come up with the three kinds of pills that are available to be used by women today—regular contraceptive, emergency contraceptive and abortion. But a very critical question to be asked concurrently is: have awareness levels of their usage and the disclosure levels on their packaging been as speedy and efficient?
Like many kinds of consumer products and services, the pill should not be seen or used as a ‘one shoe fits all’ product. The abortion pill, for instance, carries with it the risk of the woman catching a pelvic inflammatory disease that is nothing but the presence of precarious physical effects such as reduced fertility, chronic pelvic pain, future abnormal--usually ectopic (where the foetus implants itself outside the uterine cavity--pregnancies and painful intercourse. Similarly, the emergency contraceptive pill whose purpose is to prevent unwanted pregnancies, if used frequently, say more than once in 3-4 months, can cause disruptions to the woman’s menstrual cycles such that it can even lead to real infertility problems in the future.
What this means is that the side effects of any of the three kinds of pill have different repercussions for different women. The emergency pill might be very attractive for a woman who already has a child and desires no more but is definitely risky for a unmarried or childless married woman who desires not to have an unwanted pregnancy after an act of unprotected sex. The emergency pill is undoubtedly liberating and emancipating for women but only if other forms of protection like condoms were absolutely impossible to use or in cases of sexual crimes where the woman has the right not to undergo further trauma arising from an unwanted pregnancy.
The potential for a dangerous misuse of the abortion pill is still higher. Not only can it cause severe health complications, as we described above, but it can be used, in countries such as ours, to kill the female foetus when the gender of the baby in the womb is identifiable. Abortion pills do away with the need for complex surgical abortion and this makes it easier for the social evil of female foeticide—a crime in many countries including ours—to continue. What makes it worse, or even outright criminal, is the easy availability of abortion pills over the counter even though it is not legally permitted to sell these without a medical practitioner’s prescription.
The issue, therefore, really is about the efforts that are being put by governments, companies, and women themselves, in highlighting the safety issues and monitoring the illegal sale and consumption of the pills. The rural-urban divide does not really exist in this matter as intensely as it does not in other consumer and health products. In our country, urban women, despite being educated and technology savvy with access to the latest and detailed information on the internet and books, are as prone to the dangers of the abuse of the pills as the poor, un-educated women.
In India, the government must ensure that the packaging of the pills carry detailed information of the hormone-altering ingredients and their side effects. The monitoring of the sale of the abortion pills also needs to be the most stringent.
Emancipate, women must. It is their every right. The pills are one useful tool to enable this. But it should be real. There is no emancipation if the men of India, or anywhere else, force their female partners to use the morning after pill purely because they don’t want to wear the condom for whatever reason. Let the pills enable real liberation of women and not add to the anti-woman bias that exists in traditional societies such as India’s.
(part 2 dated 14 november 2010 is here) In India, ugly corruption among many politicians and bureaucrats and bribing by powerful lobbying car manufacturers, particularly the ones who also manufacture trucks and buses, has led to a dangerous obsession with diesel, a fuel that pollutes much more than any other fuel. Diesel fuel is priced artificially by government-controlled oil companies at a level much lower than petrol due to the dirty lobbying by diesel car manufactuers.
Looking at the pampering being given by India's government to diesel fuel, even supposedly-respected international car companies are joining the nefarious diesel bandwagon. Toyota's Indian subsidiary launched a diesel version of its Corolla Altis sedan pricing it at between Rs 11 lakh (Rs 1.1 million) and Rs 14 lakh (Rs 1.4 million).
The Indian government is ugly and bad, but what about the affluent consumers of India? Should they be buying diesel cars, and particularly expensive diesel sedans?
Diesel vehicles pollute the environment, primarily through higher emissions of nitrogen oxides and particulate matter, more than petrol vehicles and definitely far higher than CNG vehicles. In India, diesel prices are around 25 per cent cheaper than petrol and their mileage about 90-100 per cent more than petrol. Should this be the motivation for someone having Rs 14 lakh to shell out to buy a car, any car? Corolla Altis claims to give a mileage of about 21 kms a litre. The petrol Altis gives about 11 kms a litre mileage.
Most of those who can afford a Rs 14 lakh car will be staying in up-market city areas, where homes are far more expensive and very near to their workplaces. Let's assume a two-way distance of maximum 40 kms on workdays for such car commuters. To factor in long-distance weekend travel, let's assume a 40 kms per day travel for all days of a year. That works out to 14,600 kms in a year. Covering this distance at 21 kms mileage, the diesel Altis will burn 695 litres of diesel and if you are in Bombay it will cost you Rs 29,200 at Rs 42 a litre for diesel. Similarly, at 11 kms mileage, the petrol Altis will burn 1,216 litres of petrol and cost a Bombayite Rs 68,100 at Rs 56 a litre of petrol.
The savings for the diesel car owner: Rs 38,900 a year. How much great this annual savings really is for someone who pays Rs 14 lakh to buy a car? Just 2.78 per cent. The question still remains whether 695 litres of diesel or 1,216 litres of petrol pollutes the environment more. Environmentalists express more concern at the damaging properties of nitrogen oxides emissions of diesel vehicles than they do for the CO2 emissions of petrol vehicles. Diesel prices are still kept subsidised as compared to petrol, otherwise the savings in a diesel car will be much lower and less litres of diesel consumed adding to less pollution in the air. In fact, CNG cars works out as the best alternative, both in terms of cost of running and harmful emissions released.
To get an emerging markets exposure do you need to necessarily invest in companies in these countries? What if some of the companies in these markets are exporters (therefore, connected more to global economy rather than local) or have a significant/increasing revenue base outside their home markets?
Conversely, a company in Germany or US may have more revenues coming in from their sales in emerging market countries rather than their own country.
Here is an interesting insight from a pension investors magazine on emerging market investing:
There is no rule that says emerging market securities are the only – or even the best – source of emerging market exposure. Martin Steward looks at access points closer to home
We all know that we want exposure to emerging markets. But what exactly does that mean? Buying a Chinese widget manufacturer – even if those widgets are sold to Europeans? What about a British mining company selling copper to that manufacturer? Or a German cement maker selling to the Chinese government? Or should we really be focused on Danish brewers selling beer to Kenyans, or Spanish banks selling mortgages to Brazilians? And doesn’t a European manufacturer selling to Europeans but outsourcing costs to India offer a kind of emerging market exposure, too?
“We live in a globalised world,” observes Thomas Beevers, pan-European equities manager at Newton Investment Management. “There are plenty of globally-competitive companies in Europe. The country of incorporation or listing is less important.”
Recent Morgan Stanley research suggests that European companies now source 23% of their revenues from emerging markets – almost doubling in a decade. By contrast, sales to North America represent 16% and falling, while sales within developed Europe have also fallen. Go to stock markets like Finland’s, Austria’s, Sweden’s or Spain’s (while underweighting Belgium’s Ireland’s and the Netherlands) and you concentrate that effect – they all get more than 30% of revenues from emerging markets.
But there are revenues and there are revenues. That British mining company selling to the Chinese manufacturer selling to the European consumer offers European economic exposure, ultimately. The consumer is not the be-all-and- end-all. Firms like Cairn Energy and Vedanta are clearly selling into the emerging market infrastructure boom as well as to Chinese exporters. And as L&G Investment Management equity strategist Georgina Taylor points out, if they sell to a low-cost Chinese manufacturer they are likely to benefit from that manufacturer’s growing market share against the US manufacturer that patronises their less globalised competitors – so even that is a distinct emerging markets exposure of sorts.
But if by emerging market exposure we mean exposure to emerging market growth, there is no doubt that the consumer is – or will be – the purest form of that growth. “That’s why we prefer to target consumer staples, generally, and beverages and tobacco in particular,” says Charles Dautresme, a strategist with AXA Investment Managers, who reveals that his sales force in Hong Kong is designing “a Europe fund with emerging market exposure”.
However, while there are consumer businesses like SABMiller and British American Tobacco that are successful in emerging markets, very few source more than half their revenues there. Morgan Stanley’s ranking of the top 50 European companies by emerging market revenues put seven energy and mining companies in its top 10 (the other three were banks). Swedish cosmetics firm Oriflame came in at number 11, but most of its exposure is to emerging Europe rather than the action-packed markets of Latin America and Asia.Regionally things look better. IT and materials dominate European companies selling into Asia. Morgan Stanley’s China-specific top 50 contains no less than 43 industrial, materials and consumer discretionary stocks (with the latter being mostly auto and luxury goods makers). So there is little day-to-day consumer exposure, and it is difficult to tell how much of the final demand for the industrial and materials companies is really Chinese. But the top 50 sellers into Latin America sees cyclical exposures like materials and consumer discretionary balanced much more by staples, utilities, telecoms and healthcare (see figure 1).
Portugal Telecom and Endesa both make the top 10. This is no doubt why a concentrated, cap-weighted basket of the Latin America top 15 exhibits lower volatility than all the other sources of revenue – even lower than an equally-weighted basket of the global emerging market top 50 (see figure 2).
So it is possible to get that exposure in Europe. Is it desirable? Comparing the valuations of developed market stocks selling into emerging markets with their local equivalents, the story seems clear. Dautresme put a basket of 74 European names together for his colleagues in Hong Kong and found that its trailing P/E of 15 times compares well with the MSCI Europe index (19 times), let alone MSCI Emerging Markets (21 times). In the consumer sector this is magnified: Indonesia’s Indofoods trades at 47 times, making Danone (42% of revenues from emerging markets) look like a snip at 15 times. The steady stream of IPOs is changing things, but emerging stock markets remain tilted away from consumers and towards materials, energy and banks. “That means many consumer-facing companies in emerging markets attract a scarcity premium,” says Richard Turnill, head of global equity at BlackRock.
Furthermore, many argue that global companies (with their long track records and high corporate governance standards in shareholder-friendly cultures with robust legal frameworks and international accounting standards) are better positioned to tap into this growing consumer base. “Part of joining the aspiring middle class is wanting to buy branded goods, after all,” says Turnill. The consumer discretionary names that have made it in China are the likes of BMW, Audi, Peugeot, Swatch, Bulgari and Burberry. This is high-end stuff right now, “but as the Chinese consumer moves above the $6,000 per annum mark, brand aspiration may start to go through food products as well,” suggests Dautresme.
The beverages sector, especially SABMiller, has shown the way. Ann Gilpin, a senior stock analyst and consumer sector specialist at Morningstar, relates how the Brown-Forman Corporation’s advertising for Jack Daniels in China emphasises themes of modernity and sophistication – a million miles away from the posters we see in European metro stations, showing pensive old blokes sitting about on rickety chairs. “Being rural is not something one aspires to in China,” she observes. She also singles out Avon as a very different unexpected play on emerging market demand – its direct-selling model seems outmoded in its home market but in Brazil, where not everyone has access to department stores or online shopping, it is “huge”. Sweden’s Oriflame is an interesting European equivalent.
Moreover, the marketing, distribution and infrastructure needed to tap into these consumers can be capital intensive, while margins can be relatively small. “Nigeria is right at the top of the key markets for Guinness already,” says Gilpin. “Part of that is the brand, but it’s also about Diageo’s huge war chest dominating the smaller players. They take the cash they’re generating from the huge, but non-growing US market and invest it in emerging markets.”
This interesting angle takes what might be perceived as a weakness – only a fraction of these revenues come from emerging markets – and turns it into a positive. European consumers may not be gorging on credit cards anymore, but their consumption is at least entrenched and stable.
Taking the long view is important. China is the glittering prize, and while Morgan Stanley estimates that European companies’ Asian revenues are rising faster than those from other emerging markets, as we have seen, Latin America’s consumers are easier to crack than China’s. Consumption represents less than 30% of China’s economy and extensions of the social safety net that might change the savings mentality are a long-term project. The artificially depressed yuan is great for the exporter but inflationary for Mr and Mrs Li. “When I ask people living in China whether keeping growth at 8.5% is more important to the authorities than diversifying that growth, they tell me that all they care about is the 8.5%,” says Taylor at L&G. “That suggests they’re not focused on moving away from exports.”
All of this begins to delineate the two stories of emerging market exposure: already-happening beta and forward-looking alpha themes. “For instant gratification the companies selling into the infrastructure boom are seeing earnings coming through right now,” says Taylor. “Gaining consumer market share will be a slow burn.”
Morgan Stanley identified one in five European companies with major expansion plans in China. Some will be SABMillers, some Cokes. Even sources of current revenues are difficult to pin down with publicly available information (much of the Morgan Stanley research quoted here is analysts’ best guesses), so extrapolating earnings out over years is a true stockpicker’s game. As Beevers at Newton suggests, that can be about recognising the role that private healthcare will play in the lifestyles of new middle classes, and then identifying that Novo Nordisk, for example, already has a growing insulin-production franchise in Asia. It can be about recognising that, while “emerging markets sounds like an attractive theme”, as Pioneer Investment’s head of European equity Andrew Arbuthnott reminds us, “we also have to look for business models where the trade off between valuations and future growth stand up”.
It can even be about assessing the relative quality of a European firm’s domestic revenues, which will provide the free cashflow to fund emerging market expansion.
“Just buying emerging market exposure is unlikely to work as well as it has in the past, simply because that story is now so widely accepted,” says BlackRock’s Turnill. “The stocks to own are the ones that can surprise by taking market share with a winning strategy.” That is a simple but important observation: stockpicking alpha is about stockpicking. “There are an awful lot of companies in emerging markets whose business models simply can’t be duplicated by other, developed-market companies,” he reminds us.
The same applies vice versa, as we have seen. Which takes us back to our starting point: the best emerging market exposure is not about emerging market companies or developed market companies, but about the best truly global companies.
Governments can lie. Before WW2 started, very very few in the then-mainstream media, worldwide, were inclined to understand that Adolf Hitler's Nazi government was very adept in spreading falsehoods. In this ugly game, Jews, Gypsies etc were used as the favorite whipping boys of German authorities.
In India, at present, the same deadly, ugly game is being played out. Almost every tragic incident in the eastern states of India is being attributed to be the causation of Maoists (Left extremists). To be sure, Maoists are involved in quite some of them. But there is absolutely no surety that they are involved in all of them or even 60-70% of them.
The latest is the tragedy that struck the passengers of a train in West Bengal that derailed in the early morning hours a few days back. All television channels and print media companies were quick to attribute the train derailment to Maoists. Proof is, of course, hard to come by. Maoists have not admitted to being involved.
Forget wrong attribution. Governments can, at times, even create incidents and then wrongly attribute to their favorite whipping boys. Many records of the Nazi government that came to light in the late 40s and early 50s clearly brought this out. The 11 September 2001 attacks on New York and the US, I have very little doubt about, could have not happened without active participation by insiders in the George Bush Jr. regime.
Anyway, since Manmohan Singh, Sonia Gandhi, Montek Singh Ahluwalia, P Chidambaram and Kamal Nath do not resemble Nazis in style and looks, it is very easy to get swayed by their subtle attribution of anything and everything dangerous in India to Maoists, or the other one, Islamic extremists from Pakistan (the latter though, in my view, are indeed deadly and criminal in their acts).
But looks can deceive.
I was reading a news story in a latest issue of Tehelka weekly newsmagazine that emanated from ground zero (an area where Maoists are fighting a dirty war against the state and the state is fighting the whole tribal population with still-dirtier tactics).
Fish, Rice, Blood A CIVILIAN BUS IS BLOWN UP. SIX MEN ARE ARRESTED. BELOW RADAR, A MINDLESS CYCLE OF VIOLENCE ROLLS ON IN DANTEWADA. TUSHA MITTAL REPORTS FROM GROUND ZERO
Mood shift A civilian bus is blown up by Maoists in Dantewada, with 15 SPOs on board Photo: AFP
The mangled remains of a charred bus lie on an empty road in Chhattisgarh. On may 17, an ied blast trigged by the Naxals blew up a private bus travelling between Dantewada and Sukma. 31 died: all ordinary people with ordinary lives. Yet, distinctions emerged. There were 15 SPOs — special police officers, one CRPF constable, and 15 civilians. Rummage amid the debris, where blood stained clothes have already begun to mix with earth — and the distinctions seem to melt. All you find are leftovers of lost lives. There is a diary page that rips at ‘I love V’, a wedding invitation to Shri padmbhan Thakur, an audio cassette of Gautam Kumar, a photo of durga, a ruled book with English Lesson 9: Whom does the sunshine wake up every morning? In many ways, the distorted wreck tells the story of Chhattisgarh — a zone of escalated conflict, where it is becoming impossible to create any categories of hero and villain, victory and defeat, oppressor and oppressed; where everyone seems to be a victim first. There are the nine Adivasi women of Durvaras village — all were on that bus, returning from Malaiwara with mahua fruit crushed into oil. Miraculously, all of them survived. Sodi Deva, 8, had crawled out the bus window to help the women. The incident has left many in the village scared of bus rides. “I’ll never again go on the same bus as the security forces,” says Sodi Huva, a farmer in Durvaras. “I’d rather walk for miles.”
The SPO says, ‘The Naxals have nothing. They loot because if they don’t, how else will they eat?’
There is the 25-year-old SPO, one of many survivors recovering at Jagdalpur hospital. He joined the Salwa Judum 5 years ago and earns Rs 2,150 a month. “I became an SPO to protect my country, but we have achieved nothing. The salwa Judum hasn’t solved the problem. The government has everything. The Naxals have nothing. They loot because if they don’t, how else will they eat?” There is a CRPF jawan huddled in a tent outside a salwa Judum camp, which he is convinced the Naxals will attack in 25 days. “I’m counting down,” he says. “10 days up. I’m prepared to die.” And yet he reverts to the Mahabharata when you ask what he thinks of his enemy. “They are like Krishna,” he says with a long sigh. “There was a yug during which even Krishna had to kill the Rajas. It’s inevitable.” There is Madvi Pojje, an Adivasi woman in Mukram village. Last week, an SPO threw her on the ground and tried to shove her into an irrigation sewer pipe. A few kilometres ahead, Madkam Deva was also hurled down, stripped and beaten so hard he limps now. Only days earlier, the cRpf had asked villagers from Mukram for fish from the pond. There weren’t enough to distribute even among the villagers, so none were sent to the CRPF. The anger resurfaced as Deva was being dragged to the camp. “Is our money any different from the Naxals. You give them fish. Why not us? You are with them,” the jawans bellowed.
Victims all Sodi Dhule, one of the bus survivors. PHOTOS: TARUN SEHRAWAT
Oyem Aitte, mother of Oyem Hirma arrested as a Maoist
Ever so often, a major event brings Chhattisgarh back into the national public gaze. Yet below the radar, a lowintensity conflict continues to simmer — a senseless cycle of violence and counter violence. Each local incident can be traced back to another, sometimes as micro as the outrage over fish. It is as if the Adivasis of Chhattisgarh have become pawns in a dangerous game of chess where every move is a trigger, an action and a reaction at the same time. THE MOST recent move has come from the security forces, who have been on the back foot after a recent surge in Maoist violence. on April 6, the Maoists ambushed a CRPF patrol team in Chintalnar, killing 76 security personnel. It was the biggest Maoist attack in India. A bus explosion only a month later came as a major embarrassment. The report of the EN Rammohan committee highlighting procedural lapses in the Chintalnar incident and calling for the dismissal of both CRPF and police top brass only added to the disgrace. On May 21st, CRPF’s Deputy Inspector-General Nalin Prabhat, was transferred out of Chhattisgarh. On May 24th, the Chhattisgarh Police announced a major breakthrough — the arrest of six Naxals — a “self-styled” Naxal commander called Barse Lakhma and five others — responsible for the Chintalnar attack. Only Lakhma was presented before the press. Police identified the five others as Podiyam Hidma, Oyam Ganga, Durga Joga, Oyam Hidma, Kawasi Budra, arrested from Minapa village on May 23. “The six arrested were part of a 150-strong jan militia. Along with Barse Lakhma, the five men planned and executed the Chintalnar attack. They were arrested during recent search operations,” says Dantewada SP Amresh Mishra. TEHELKA travelled to the village to verify police claims. The locals say that these five men were picked up a month ago and have been in police custody since.
Each incidence can be traced back to another, sometimes as micro as the outrage over fish
A rugged pathway through the forests leads to the remote village of Minapa, about five kilometres from the sight of the CRPF ambush in Chintalnar. In Minapa, the huts are smaller and spread further apart; the women are skeletal, the children are mostly naked, and even many men wear nothing but a patch of cloth. There is a sense of bareness, even the usual flutter of chicken and wild boar is absent. The only sign of government is a pDs ration shop, 10 km away in Chintagupha, where Adivasis get 25 kilos rice monthly. Nothing else is available. It is this Chintagupha market from where locals allege the men, excluding Oyam Hidma — were picked up. This is the version of their families: On April 10, the four men — aged 22-25, left for Gunjaigunda village in Orissa. It was haldi farming season during which locals customarily go to Orissa. Podiyam Hidma, the village sarpanch’s nephew and Oyam Ganga, an ordinary farmer, had consecutively visited Orissa the last two haldi seasons. For the others, it was their first visit. The four boys returned from Orissa on April 14 and stopped at the Wednesday bazaar in Chintagupha. Forces arrived for random search and picked them up. Since the incident, the village women have protested at Chintagupha thrice, only to be turned away each time. Meanwhile, Oyam Hidma, 20, studies at a local school in Sukma town. His father alleges that Hidma was picked up from his rented room in Sukma. After being held for 10 days in the Chintagupha station, the locals claim that on April 24, all five men where flown out on a helicopter from the Chintagupha camp. They say they received this information from other villagers living nearby. While it is impossible to independently corroborate either version, travel through the Chintalnar forests and there is a sense that the security forces are escalating operations, under pressure to show results. MUKRAM VILLAGE, around three kilometres from Chintalnar, has become the epicentre of another cycle of violence. This village is significant because it is here the 82-strong CRPF patrol party lost their wireless set. The security forces reportedly ate dinner here on April 5, hours before they were ambushed. for several days post the April 6 incident, the villagers of Mukram had abandoned their huts fearing a backlash. Enter Mukram a month later and there is still an eerie sense of desertion. The first thing you see is a local school blasted by the Maoists, their signature scrawled across its broken walls: Sabhi Chunavi party dokhebaz hai. Dushman ke hathiyar hamare hathiyar hain. (All electoral parties are traitors. The enemies’ weapons are our weapons) Walk on and a silent row of locked huts greets you. They are abandoned, but not by choice. On May 22, villagers say security forces entered Mukram at around 10 am and barged into the first few houses they found. Four Adivasis — Nuppo Bhima, Nuppo Hadma, Madvi Kosa, Iama Nanda, and the village Sarpanch Iama Ganga were picked up from their homes. “I saw them beating my father. I don’t think they knew he was the Sarpanch,” says his son Keshav, a security guard in Raipur home on vacation. “When my brother and mother tried to save him, they were also beaten with sticks. I was too scared to come out.”
Police have arrested five Maoists this week. Families say they are farmers in custody for a month
While Nuppo Hadma’s wife is able to produce his voter ID, others cling to newly made plastic cards. After the on-set of Operation Green Hunt, several villages including Mukram got together and trekked into town to have photos clicked and private IDs made. All have listed their occupation as “farmer”. Though the ID is not considered legitimate by security forces, it is telling of the fear psychosis the war has triggered. Travel along the Dantewada-Sukma road, on which the May 17th bus attack took place, and every turn yields a potential trigger. There is Gumyipal village, where the security forces had conducted search operations on May 16, a day before the bus attack. Police claim to have killed two Naxals. But villagers claim they were innocent Adivasis. “Malla and Aituram were sleeping at home,” says Gujjo Bai, the sarpanch. “They were woken up and killed. Their houses and fields were burnt. They are not Naxals.” While these claims cannot be independently verified, the incident is significant because it resurfaced in CPI(Maoist) leader Ramanna’s statement about the May 17 incident. he claimed it was revenge for the Gumyipal killing, and other such encounters. Then there is Bhusharas village — the SPos at Jagdalpur hospital have told TEHELKA they were on a search operation here immediately before they boarded the bus to Sukma. Stop at Bhusharas at you will meet a frail a 30-year-old widow, Hidme Mandal. On April 21, at around 10:30 pm, the Naxals barged into her hut. Threatening Hidme into silence, masked men sliced a knife through her husband Manoj Mandal while he slept beside her. After the killing, they fired three shots in the air and disappeared into darkness. Mandal had been murdered for being a police informer, but villagers say he was an ordinary farmer.
Hunter, hunted Kawal Singh Nar, 21, in Jagdalpur Hospital, an SPO who survived the latest Maoist attack
MURLI KUMAR, a local teacher in the area is no stranger to such killings. it was the mid 1980s, Kumar’s family lived in a remote village in Bijapur district, where the Naxals ensured the local patwari and the local contractor could not overcharge villagers. “We thought it was a good thing. Everytime the Naxals called a baithak, we went for it.” Things changed in the 1990s, when his father, an Adivasi farmer, was accused of being a police informer. “Some Maoist cadre started this rumour because of personal rivalry,” Kumar says. his father was called for questioning by the Maoist top brass — Ramanna and Ganesh VK. They found no evidence of guilt and let him go. Yet, a few months later, Kumar’s house was attacked, his family beaten and his father killed by the Maoists. Aghast, Kumar wrote a letter to Ramanna asking why his men had killed an innocent man. Within weeks, the reply came. An apology and an offer of compensation. “We did not know our comrades killed him. We are sorry. Come and meet us.” Kumar refused the money and left the village with his family. If you travel the remaining 80-odd km up to Sukma town, the microcosm of violence becomes more evident. Mediyum Bandhi was shot inside Sukma Police Station on May 19, two days after the bus attack. Sukma Sho Sandeep Chandrakar confirmed the death of Bandhi, 25, but said he was shot while trying to flee from the police station. According to Chandrakar, Mediyum Bandhi and Pariyam Kosa were picked up from Neelavaram village, a few kilometres from the station. “We found them randomly in another village. When asked why they were visiting, they could not answer, so we brought them for questioning. Soon after we received a message from the Sho of Gadhiras that they are wanted in other criminal cases,” he told TEHELKA. “on May 19, we brought them out of their lock up to have dinner. At around 7:15 pm, the Naxals fired at the station. The police took up their positions and began firing in return. Bandhi escaped from behind the policemen. he was shot by a police bullet while trying to run away.” Bandhi and Kosa belong to the Aitpal village in Korra block. “Around 300 security forces came to Aitpal on the morning of May 16 and dragged them from their houses,” Korra deputy sarpanch Mooya told TEHELKA. “There are ordinary farmers like the rest of us. We feel helpless.” Again, the counter narrative.
A lot of debate has been stirred by the recommendations in a recent report of a Sebi-appointed group. The group basically wants the present minimum amounts of net worth requirement for various market intermediaries such as stock brokers, mutual funds and debenture trustees be raised significantly (2-7 times).
Now, what is net worth? Essentially, a firm's paid equity capital plus cash reserves makes up for its net worth. Intermediaries in the financial market normally act as agents of investors although there are some that execute transactions in their own firm's name.
I think the Sebi committee has made a grievous mistake in not de-linking the networth requirement of those who act as agents for others in their business and those who do business in their own proprietary name. The net worth requirment should be jacked up significantly only for the latter, that is, for those who register themselves as intermediaries (brokers etc) but the trades that go through their memberships include proprietary trades.
The intermediaries who only act as agents should not be made to suffer the burden of arranging for high capital. It disincentivises brilliant and efficient entrepreneur firms who may have the intelligence and the zeal but not too much of capital of their own, at least in the beginning.
With regard to the impact of a potential increased net worth requirment on mutual funds I present below a hard-hitting, excellent write-up by Ajit Dayal, the CEO of Quantum Mutual Fund in its regular newsletters.
Here is Ajit Dayal's write-up (first few paras have been deleted by me for space reasons):
......But while the mutual fund industry re-groups around a new set of ethics and business practices, a SEBI-appointed sub-group to look into the eligibility norms for setting up (and maintaining) a mutual fund business have come out with a swatter to knock off all us ants, cockroaches, and other irritants that threaten the regime of the elephants.
So, while SEBI is trying to clean up the industry and ensure that the rogue elephants are sent packing, the sub-group wants to extinguish the ants.
In 1993, one needed to have a Rs 3 crore net worth to set up a mutual fund business. Now it takes a net worth of Rs 10 crore. The sub-group wants to raise this minimum net worth to Rs. 50 crore.
Table 1: Hi, Doctor, how rich are you?
Name of the AMC, mutual fund house
Quantum
Reliance
Birla Sun Life
Fidelity
HDFC
Franklin Templeton
Year ending data available
30-Jun-09
31-Mar-09
31-Mar-09
31-Mar-09
31-Mar-09
30-Sep-09
Net worth (Rs cr)
12.08
842.33
92.08
49.55
284.64
321.03
AuM, March 2010 (Rs cr)
102.67
111,819.33
69,531.84
7,795.22
94,702.79
34,911.90
Net Worth / AuM (%)
11.77%
0.75%
0.13%
0.64%
0.30%
0.92%
Source; SEBI, web sites
The sub-group was headed by Ms Roopa Kudva, MD & CEO, Crisil. The other Members of the sub group were:
Mrs. Chitra Ramakrishan, DMD, NSE - a stock exchange
Shri S. H. Bhojani, Sr. Partner, Amarchand Mangaldas - a law firm
Shri Paresh Sukthankar, ED, HDFC Bank - a bank with a distribution business
Shri A. Balasubramanian, CIO, Birla Sun Life AMC Ltd - a large AMC
Shri Sanjay Shah, MD, Morgan Stanley India Securities Pvt. Ltd. - a broking house,
Shri Milind Barve, MD, HDFC AMC Ltd. - a large AMC
Shri Nilesh Shah, DMD, ICICI Prudential AMC Limited - a large AMC
In their questionable recommendation, the sub-group members note that capital is not really a significant factor in determining who gets - or does not get - a license to manage money in Singapore, UK, Europe, and USA.
They also recognise that the "operations of the AMCs are in the nature of a pass through". In plain English what this means is that, as a fund manager, Quantum Asset Management Company Private Limited does not any time own the shares that it buys.
The money in the Quantum Mutual Fund belong to you, the investors; and the shares, gold, or government bonds in the Fund all belong to you. The fund managers only decide where to put your money, how much to buy, how much to sell, when to buy, when to sell. At no point is the ownership of any of the underlying assets passed on to the fund manager.
Like a doctor or a lawyer or a CA, fund managers provide a professional service. When you visit your doctor, do you ask him: how rich he is? No. You want to know how good he is.
When you hire a CA to write your accounts, do you ask them what their net worth is? No, you want a knowledgeable CA with a good track record to do your work for you.
Table 2:How good are you at your work, Doctor?
Name of largest equity fund of that fund house
BSE 200 Index
Quantum Long Term Equity Fund
Reliance Growth Fund
Birla Sun Life Frontline Equity Fund-Plan A
Fidelity Equity Fund
HDFC Equity Fund
Franklin India Bluechip Fund
Size of largest diversified equity fund (Rs cr, as of April 2010)
N.A
52
7,346
2,103
2,871
6,025.42
2,954.86
Returns from March 31, 2006 till May 20, 2010 for growth option
10.08%
16.31%
16.64%
17.07%
14.19%
16.35%
13.17%
3-year Ranking based on Value Research as of May 20, 2010*
18/175
17/175
32/175
57/175
13/175
47/175
Source: Value Research
But now, to get a fund manager, the sub-group recommends that they have a net worth of Rs 50 crore. That is the entry ticket to enter the sweepstakes of an industry that has, in the past fifteen years, shovelled thousand of crore of money from your pocket into the distributors’ pockets.
Capital solves all crimes.
Why would such intelligent people - and believe me they are - come out with such a morally bankrupt recommendation of hiking the net worth criteria after recognising that it is a "pass through" business?
Is this an attempt to keep a closed club closed?
To increase the barriers of entry so that a select group of mutual fund houses can reap the rewards of growth in the mutual fund industry?
We have often argued that net worth is not a legitimate criterion for setting up an AMC. As custodians of your hard earned savings, the mutual fund industry has to comply with various norms to ensure there is no fraud.
But, as we all know, intent is in the heart and in the DNA of organisations.
You can be big - and still be the biggest crook in the world.
You can be small - and still be a big crook.
Size and net worth is not a determinant of crookedness or working in the best interest of investors.
I know for a fact that Quantum Mutual Fund is small, yet we work in your interest. All the AMCs represented on the sub-group have been built on the opaque distribution model. That is their choice and their business plan, our DNA would never allow us to compromise your interest and leave you hanging by the relationship of a distribution commission.
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And neither is size or net worth a determinant of how good a fund house is at risk assessment and risk control.
UTI was big and they went bust.
CanBank Mutual Fund was big and they, too, had to be bailed out.
The largest mutual funds were the one’s who did not assess the risks of the Fixed Maturity Plans (FMPs). When faced with the severity of the Lehman crisis, they had to be bailed out by the actions of the RBI and/or their parent companies.
Their fear and obsession with that is apparent and referred to in the report. The dates they had their 3 meetings coincide with the dates of the depth of the crisis, suggesting that fear - and not rational thought - may have dominated their minds.
Table 3: Fixed Maturity Plans became unfixed.
Name of the AMC, mutual fund house
BSE 200 Index
Quantum
Reliance
Birla Sun Life
Fidelity
HDFC
Franklin Templeton
Amount of money in FMP type products in September 2008 (Rs. cr)
N.A
zero
21,790
7,935
402
12,308.84
4,468.64
Source: Value Research
In fact, showing their state of shock at their own lack of risk assessment, the committee writes: "The liquidity squeeze in the last quarter of 2008 resulting in redemptions from a number of debt schemes, the difficulties that they faced, and the subsequent change of ownership of some AMCs have brought these issues into immediate focus."
Hogwash! The mutual funds and their marketing teams mis-sold FMP debt products linked to real estate developers as safe products (probably backed by good ratings from the rating agencies). Their larger AuMs probably got them high salaries and bonuses in 2007. Then their fiction of the safety of real estate loans caught up with them and they - and their investors - were in trouble. No, they went pleading for help to the RBI. And they got it. Yes, they got to keep their fat bonuses and rewards, too. Just like Wall Street did.
Now they sit in judgement as members of the sub group and feel that all AMCs need more net worth to protect themselves from their own greed? For a "pass through" business?
We are in the business of managing your savings to give you sensible, risk-adjusted returns over the long run. The elephants and the distributors have made it into an asset gathering business.
Should wrongdoings disqualify a mutual fund?
The solution to ensure that sensible people manage your money is not to have a high net worth (not that Rs 50 crore can save such risk-taking of an FMP business) for staying in the business.
The focus of the subgroup was on "eligibility norms" for being in the AMC business. This got translated into (i) minimum net worth; (ii) infrastructure and manpower required to run the business; (iii) other function that can strengthen and smoothen the functioning of these intermediaries.
One of the crucial aspects is missed out: the moral and regulatory right to remain in the mutual fund business after you are caught doing not-so-nice things.
Should companies that have paid thousands of crore of their investors’ money (without disclosing this) to various distributors have the right to remain in the business? Should mutual fund houses that have violated their own stated investment objectives be allowed to stay in the business? Should mutual funds that have mis-sold products have a license to continue functioning?
The recommendation of a higher net worth is a direct challenge on the regulator’s attempts to bring in more investor-focus in the mutual fund industry. Over the past year, SEBI has tried to build a more transparent mutual fund platform which widens the access to mutual funds at a lower cost. This sub-group is focused on limiting the choices available to investors and reversing SEBI’s focus on investor-friendliness.
Higher capital needs can only hide bad business models for a longer period of time. Just a little longer. Eventually a bad business model shows its weakness.
Rather than raising the capital needed to start a mutual fund business, the sub-group should have recommended dropping the net worth criteria to Rs 1 crore so that hundreds of new, smaller asset managers can set up. And they should be allowed to compete for the assets shovelled by distributors to the elephants. We need a lot of ants to get the mutual fund industry moving forward, the elephants have had their days of blocking the sun.
