Euro Debt Crises - a discussion

This post is in continuation to my previous post "The euro area's debt crisis", below you can find a series of discussion I had with Karthick and Yeshwant.  I thought it is worth posting it for two reason, one, I could register our discussion so that it doesn't get lost, two, I felt the discussion would immensely benefit fellow readers too.  Happy reading :) as always, your comments, thoughts, questions are most welcome.

You didn't talk about the rise of Euro crisis. A Little of history of why Euro? could help. Why some countries opted out/were opted out ? I would like to know was Germany/France hesitant against Euro and if so why ?

The purpose of the write up (Euro Debt Crises) was essentially to highlight the mounting public debt by countries in the Euro zone and gross fiscal irresponsibility by the ECB.  We have discussed enough about the birth of the crises, it all started off with mortgage defaults which ultimately lead to failure of the banking system in the west, and that had a  contagion effect.  Still if you are interested, we can work on a detailed cover story analyzing the birth of the crises, well, “why Euro” is a topic in itself :), could not have done justice with just a para on it.

Well, Germany isn't opposing the Euro publicly, but somewhere the insiders want to dump the Euro as they feel it is an unnecessary financial burden, the fundamental question raised is, why the average German taxpayer should pay for making up the losses of Greece, Spain, Portugal?  which could otherwise be used to fuel their own economic growth.  Some even argue that the weak Euro is the reason behind Germany's recovery :-) (Very political and controversial).

The countries in the Euro zone wanted to leverage the financial strength of stronger Euro nations like that of the Germany and France to raise money from the international markets to fund their budget deficits (which is used for large scale bank bailouts), otherwise it is virtually impossible for Greece or Portugal to raise money at tolerable / sustainable rates of interest, given their fiscal position.

Restructuring a insolvent country's debt. What does this mean ?
 
Sovereign Insolvency is when a country is unable to service its debt obligations.  Restructuring is nothing but revisiting the rate of interest and bond tenure in order to make the debt repayable which would otherwise become a bad debt.

We cannot see this only in the light of Sovereign debts/Fiscal deficits. I guess UK, Italy too run huge deficits. The problem is unequal distribution of wealth and supply [goods, Man power]

Not just the UK, even the US runs mammoth deficits, but the US and UK have their respective dollar and pound to fall back upon.  Since the dollar is considered a global reserve currency, the global trade is dominated by the dollar and pound, hence it is easier for the US to raise money from the international markets to fund its deficits or even print money (though this would result in hyperinflation).  And the Euro was proposed to challenge the virtual monopoly of the dollar and rest is history.

This brings us to the fundamental question, how was the value for Euro as a currency determined ?  How is exchange rate determined for the first time? I understand later, it is the open market operations that determine. Still, How is china able to control it's remnibi internally ? Isn't it a violation to set currency exchanges if they were part of WTO ?

Well, there are primarily two ways by which value of a currency could be determined (This calls for a separate, more serious discussion in itself), one, exchange or market determined which is referred to as free float two, a fixed exchange rate regime also known as Pegged system.  A lot depends on capital account and current account convertibility as well.  Please be informed that interest rates, bond yields have a very important role to play in determining the value of a currency.

If a currency is free-floating, its exchange rate is allowed to vary against that of other currencies and is determined by the market forces of supply and demand (which is what is sustainable in my opinion).  A movable or adjustable peg system is a system of fixed exchange rates, but with a provision to devalue the currency.  For example, between 1994 and 2005, the Chinese renminbi was pegged to the United States dollar at renminbi 8.2768 to $1.  China was not the only country to do this, from the end of World War II until 1967, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretton Woods system.

The China is able to control remnibi internally through open market operations, i.e the Govt would buy dollar from the currency market if it wants devalue remnibi and sell the dollar if it wants the remnibi to appreciate.  This is an internal issue and the WTO has no direct control over open market operations to my knowledge. 

Even India resorts to buying and selling of dollar through the RBI in order to avoid the Rupee from appreciating.  This is much politically motivated, we can have a separate thread to discuss its wide implications.

As in how can they value and devalue their currency just by buying/selling dollars. I am sure there is lot more factors into it like Balance of Payments, etc

Indeed, a country can very much manipulate the value of its currency by buying and selling dollars in the open market, but it is not as easy as said, this is just a stop gap arrangement.  In the long term, the value of a currency is purely dependent on the demand and supply mechanism which in turn is largely dependent on the Balance of Payments.  For example, if a country has strong export growth year on year, the aggregate demand for that country's currency grows in the international market, as a result the currency appreciates and if the vice versa happens, currency depreciates.

Because if that is the case, why does India and other 3rd world countries not go for a pegged system..?

I have clearly said that a pegged system is indeed not sustainable at all, unless and until the economy happens to be export driven like that of China, or if the currency is backed by a cartel of nations like that of the Euro.

A pegged currency makes the system more vulnerable to a Currency Crises, it's consequences are disastrous and unexplainable.  Such crises may result in hyperinflation or extreme deflation.  Therefore, for a domestic demand driven economy like that of India or any 3rd world country for that matter, implementing a pegged system is without a doubt "Suicidal".

China on the other hand has a very strong hold on exports, Chinese products have become household for the West, with such strong export growth and BOP, Current account & Capital account surplus, China is able to afford a pegged system.

Investments in Purti Power & Sugar legitimate indeed..!!

 

I was baffled by the media reports that alleged 14 shell companies with fake addresses and directors having invested crores of rupees in Purti Power & Sugar ltd in which Nitin Gadkari used to be the chairman besides holding a minority stake (he resigned as the chairman after becoming BJP president).  He was accused of channelizing black money through ‘shell’ companies which amounts to money laundering.  Being a keen observer of politics and corporate scams, I decided to spend some time to understand the money laundering allegation against Nitin Gadkari and investments in the Purti group.  Ultimately I found that media has been misquoting facts and blowing issues out of proportion.  The allegations were NOT based on researched facts or investigation.  The media seems more interested in sensationalizing which only demonstrates their desperation to stay relevant in today’s 24*7 media.  Read on..

The first and the foremost allegation against Nitin Gadkari is the controversial investment of 47.34 cr in the Purti group by 14 ‘shell’ companies that have fake addresses, directors and are ownerless.  A closer look at the Balance Sheet of Purti Power and Sugar Ltd will reveal that the investment of 47.34 cr was made in 2002 and not recently as claimed by the media.  The 47.34 cr which is a little over 85% of the total share capital in Purti which is 55 cr, was made between 2002 and 2006 by a well known Nagpur based business group (The Mehta Group that manages an asset base of over 2000 cr) through 12 of its legitimate companies with real operations and NOT ‘shell’ companies as claimed.  It is worth mentioning that the IT department had conducted a probe in Purti way back in 2006 and has accepted that the 47.34 cr investment made by the Mehtas to be legitimate.            

If the 55 cr investment in Purti is lawful at the time the investment between 2002 and 2006, how come it is claimed to be illegitimate after 2010? 

A comprehensive look into the issue reveals that Mehta group, the genuine investors of Purti have transferred their shares from the 12 companies that made the original investment to 14 of its own ‘shell companies’ in the year 2010.  Please note that the Mehta group has taken ownership of these 14 shell companies and these are NOT ownerless companies as claimed.  Had only the media gone back in time to track the original source of the 47.34 cr in Purti, it would have realized that the investment is indeed genuine and not bogus.  This very fact demolishes the media’s pitch that investment in Gadkari associated Purti are made by ownerless and fake entities.  If the Mehta group decides to transfer 85% of shares in Purti to 14 of its own shell companies, the original investment of 47.34 cr made until 2006 DOES NOT become illicit overnight..!! 

Coming to the 14 shell companies, it is to be noted that these 14 shell companies were not created overnight to transfer the shares, as a matter of fact these 14 companies were owned by the Mehtas ever since 2003-04 and have even been pledged as collateral with nationalized banks as a substitute to Mr. Manish Mehta of the Mehta group.  That being the case, I do not understand on what grounds the media claims that these 14 companies are bogus and ownerless. 

Next question, why did the Mehtas transfer their shareholding in Purti to shell companies?  Read on.. 

Purti has been primarily operating in the backward areas an, as a result it had accumulated losses to the tune of 64 cr by the end of 2009.  Following which the loans sanctioned to Purti were categorized as NPA as per banking norms.  The RBI guidelines stipulate that if one loan becomes bad, all the loans given to the promoter group companies have to be categorized as NPA.  The Mehtas who manage business worth 2000 cr did not want their reputation to go for a toss just because Purti has become “sick”, therefore Manish Mehta effected a pretentious separation of his group from Purti by transferring his share holding to the ‘shell’ companies and pledged the shell companies with the banks as security for further loan.  Now this is a secretarial issue and cannot be considered as illegal or even immoral.  Though the above said restructuring in Purti might bind the Mehtas “morally”, Nitin Gadkari has absolutely nothing to be blamed of, neither moral nor legal.

Three facts are incontestable.  One, the investment of 47.34 crore by the Mehtas through 12 of their functioning companies have been accepted by the IT department as legitimate after thorough investigation.  Two, only the legitimate investment was transferred from 12 functioning companies to 14 shell companies (it is as simple as transfer of money from one pocket to another).  Three, the Mehtas are the true owners of the 14 shell companies which have been accepted by the Banks as collateral on behalf of Manish Mehta, which disproves the allegation that the shell companies are fake and ownerless.

Based on facts, any right minded individual will arrive to the logical conclusion that Nitin Gadkari is neither criminally nor morally culpable for investments in Purti.  Had only our media been a little more diligent and investigated the matter with patience, truth would not have been fabricated as it has been; nonetheless enough damage has already been done to malign the BJP and its national president which will ultimately help the Congress to counterattack the BJP when the issue of corruption is raised.  It is worth to point out that the total shareholding of Nitin Gadkari in Purti is less than a ‘lakh of rupees’.       

Let me confess, I am not a fan of Nitin Gadkari or his style of functioning, in my opinion he has a long way to go to even come close to tall leaders like Atal ji / Advani ji who have dedicated their lives in growing the party from day one and has been successful in making the BJP a viable alternative for the Congress.  However Gadkari‘s hands are clean with respect to investments in the Purti group, therefore there is no need for him to resign as the national president of the BJP just because certain sections of the media have made mindless contentions.  

Note: All the facts mentioned above are based on findings by Shri. Gurumurthy that is available in the public domain.  

Jai Hind

A commentary on Union Budget 2012-13

Let me confess, I am not all the excited to write about Budget 2012-13, I am genuinely disappointed as a taxpaying citizen of this country, and I couldn't find a better way to express my disappointments but to write a blog and share my perspective.   Let’s look at the pre budget scenario before actually analyzing the important aspects of this budget, we will in particular discuss in detail the opportunities missed by the Government to set the growth trajectory on track.

These are no normal times to have a normal ‘status quo’ budget, in the last decade, India was considered a ‘low-cost high-growth’ economy and the present Government has been extremely successful in transforming it to a ‘high-cost low-growth’ economy.  For seven successive quarters, which aggregates to 21 months, India's has recorded a steady decline in GDP, from 9.4% in Jan-Mar 2010, to 6.1% in Oct-Dec 2011, and the worst is yet to come, going by the current trend, I expect India to register a sub 7% GDP growth in 2011-12.  Cost of subsidies is set to cross 2.5 lakh crore, borrowings are expected to hit the roof at 5 lakh crore, and fiscal deficit will surpass 5.6% of GDP.  While fiscal deficit of over 5% is tolerable (given the fact that we don’t have a choice) if the economy grows at over 9% and domestic savings rate at 35% of the GDP, alas, both seem a distant dream in the current scenario.

While the Government argues that the reasons for the slowdown are exogenous and driven by global factors, truth is that the crisis indeed is a ‘self made disaster’.  The Govt states that the reason for the worrisome fiscal situation is on account of the economic stimulus announced in 2008, but the fact of the matter is, it is the political stimulus (read sops to woo voters) that accounts for the major chunk of Govt borrowings. 

Now coming to Mr. Pranab Mukherjee, I have great respect for this man, no one can level any personal allegations against him, all leaders across parties have great respect and faith in him, well is that good enough qualification to be the finance minister of a dynamic economy like that of India? Read on. 

Pranab Mukherjee is better known as the troubleshooter for Congress than as the finance minister of India, he is the fire fighter for every ally and crises in the UPA.  He is the Chairman for largest number of EGoMs (Empowered group of Ministers), he is often reckoned by the party high command to solve political differences with its allies and the opposition, well he also ‘happens’ to be the finance minister. 

A complex economy like India which is need of a full time finance minster, ironically has the busiest politician of the UPA for the post.  Every minute and hour he spends on political schema, has an adverse bearing on the economy.  There is always an ongoing clash of interest between Pranab Mukherjee the FM and Pranab Mukherjee the politician, what can Pranabda do? How does he set his priorities?  FM Mukherjee is aware of the fact that there is a pressing need to curb subsidies, but the politician in him doesn't allow him to act in that interest.  Very unfortunate, isn't it.

High cost of money..

High interest rates restrain investment activities in the Economy, but to bring down the interest rates, the Govt has to reduce its borrowings.  The startling fact is, when the UPA came to power, the Govt's borrowings stood at Rs. 200 crore a day, the figure currently stands at a whopping 2,500 crore a day!!  This is freakin alarming and the situation demands bold measures to curb revenue spending, austerity measures which are quite easy to preach are seldom practiced.  The UPA regime hiked the interest rates by 5.25% in less than 18 months, which business can handle doubling of interest rates coupled with slowing growth? 

This budget offered Pranab Mukherjee a wonderful opportunity to leverage the crises and present an agenda for good economics by way of cutting exemptions to corporate sector, to initiate phased withdrawal of subsidies and to raise new stream of revenue.  But what we got from him was quite the opposite; the Finance Minister has indeed missed yet another opportunity to set the trajectory for growth, but what more can we expect from Pranab Mukherjee the cut throat politician?

The NDA Govt had earlier enacted the "The Fiscal Responsibility and Budget Management (FRBM) Act" in order to check the raise in Fiscal deficit, as a result the Fiscal deficit declined to a low of 2.5% of GDP in 2007-08 of which only 41.4% was revenue deficit.  The very next year the fiscal deficit was allowed to go up to 6% of GDP and revenue deficit from 1.1% to 4.5% of GDP.  In percentage terms, the share of revenue deficit in the overall fiscal deficit increased from 41.4% to an alarming 75.2%, it further rose to 80.7% in 2009-10. 

Fiscal deficit can arise either on account of Capital expenditure or Revenue expenditure.  Revenue expenditure in principle is considered to be unproductive in nature, it primarily comprise of consumption expenditure of the economy.  The so-called stimulus package announced by the Govt in the wake of 2008-09 crises, largely accounted for consumption expenditure of the economy which simply cannot be rolled back unlike a Capex focused stimulus package which could be rolled back once the economy is out of crises.  This has also eroded the credibility and moral authority of the Govt to advise the State Govt's to check their respective fiscal deficits. 

The ever-increasing deficit, on the absence of solid policy measures to remove supply side bottlenecks, has only resulted in sky rocketing inflation, especially on essentials, which has forced the RBI to raise interest rates and squeeze liquidity, thereby money becoming an unaffordable commodity for the private sector, and as a result, all planned investments were stalled, so were creation of new jobs.

Hike in Service Tax and Central Excise..

We saw how fiscal deficit and reckless Govt borrowings have fueled inflation.  For nearly three years our economy has been battling inflation and slow growth, high prices of essential commodities have continuously eroded the purchasing power of an average Indian consumer, high inflation and high rates of interest have been the primary cause for decrease in consumption and private investment.  Any reasonable common man would expect the Govt to announce stringent measures to curb inflation in the Budget speech, but look at what the Govt did to address issues pertaining to inflation and growth? It imposed a mighty 20% hike in excise and service tax on goods & services, from 10% to 12%, which will further induce inflationary pressure and thump consumption in the economy which is already battling a sub 7% GDP growth.. Poor economics? Read on.  

In an attempt to pacify the taxpayer, Govt has announced Direct Tax benefits for those who earn and are in a position to pay taxes to the tune of Rs. 4,500 crore, cheap applause..? And on the other hand levies Indirect Tax across board to the tune of Rs. 45,000 crore, which will directly impact every segment of the society, including the poorest of the poor.  You might argue that raising tax revenue is inevitable to bridge the gap between Govt Revenue and Expenditure, now that the taxpayer has done his job by agreeing to pay higher taxes, has the Govt reciprocated by curbing its spending on borrowed money?  The answer is NO, the economic survey states that in 2011-12, the Govt borrowed Rs. 1,397 crore every day; in 2012-13 the Govt will be borrowing Rs. 1,560 crore each day.  Interest payments which accounts for the largest portion in Govt’s revenue expenditure, will shoot to Rs. 3.19 lakh crore from Rs. 2.75 lakh crore!!  The Union Budget 2012-13 can be an ideal case study for “poor politics & poor economics”..

Taxing Derivatives...

We saw how the Govt has completely screwed the country's fiscal situation, now that calls for innovative ways & means to raise Govt revenue and cut unwarranted spending to check the burgeoning fiscal deficit, isn’t it.  The Finance Minister is expected to look at new sources of revenue to fix the plug rather simply tampering with the existing tax rates, like it did with Excise and Service tax. 

After the introduction of service tax by the NDA, there were hardly any innovative measure to raise revenue, tampering with existing rates of service tax, central excise will only increase the inflationary pressure which simply does not solve any purpose.  There is one such area which has huge potential, but seemed to have completely missed the FM’s radar, intentionally or unintentionally is a question which I am not equipped to answer.

While there is Securities Transaction Tax (STT) on all stocks bought and sold by retail investors irrespective of whether they makes profit of loss, why isn't the Govt taxing transactions pertaining to speculative Derivatives traded on Stock, Forex and Commodities market?  The total derivative turnover in stock markets is Rs. 1,92,48,200 crore, in forex markets its Rs. 3,46,00,000 crore, and in commodity markets, it's Rs. 1,37,00,000 crore.  The sum total of the derivatives traded is Rs. 6,75,48,200 crore..!!!    

Tax of 10 paise per Rs. 100 derivative will yield the Govt over Rs. 70,000 crore!!  It doesn't stop here, it is these feckless derivative transactions that distort the value of Rupee more than the actual transactions, and it is derivatives which cause huge swings in commodity prices, the resultant of which is skyrocketing inflation which drags the economy to the vicious cycle of high interest rates, low investment and poor job creation.  Therefore taxing derivative transactions will not only be resourceful in generating additional revenue for the Govt but will also check reckless speculation by traders who trade in derivatives.  I am cent percent sure that a tax of 10 paise on Rs. 100 derivative will not burn the hands of genuine users of Derivatives who use the instrument as a tool to hedge, but this will certainly work against the speculators who make money day in and day out trading derivatives. 

If only our finance minister been a little more imaginative and announced Derivatives tax in his budget speech, it would have opened up additional stream of revenue to the tune of Rs. 70,000 - 80,000 crore, which would have been instrumental in curbing the fiscal deficit, but our beloved Pranabda has again failed to act in the interest of the economy, yet another opportunity missed..?  This is a move which no ally would dare to contest on the floor of the house, Mamata inclusive.

On the whole, the finance minister and the Govt have collectively failed to capitalize a wonderful opportunity, both to raise new stream of revenue as well as to curb discretionary Govt spending on borrowed money.  On the contrary, it has taxed consumption by hiking the indirect taxes, which will invariably kill growth and fuel inflation.  If I were to sum up the Union Budget 2012-13, it is an “Opportunity Lost” by the finance minister to have set the growth trajectory back on track.  Is anyone listening..?

Jai Hind

"FDI in retail" - a disaster in making?

The principal argument for 'FDI in retail' is that the deep pocket and know-how of the multinational supermarket chains (read Walmart) to establish supply chain will make rural India and farmers prosperous. One needn’t be a connoisseur to discard this argument to dustbins.  This only showcases the 'Impotence' of the Govt, to be relying upon Walmarts and Carrefours to develop our agricultural infrastructure.. SHAME!! After 65 odd years of independence, do we really need MNC's to install cold storage facilities for us..?  Cold storage chain is neither a proprietary technology nor rocket science.  Is it not sheer sheepishness..?  Read on.

Let us not favor our country’s food security to be outsourced to foreign giants who are nothing but crony capitalists struggling with a slowing economy, with huge investable capital which is otherwise non-deployable.  I am not saying they are wrong, as they protect their interest, shouldn’t we be protecting ours?  They can operate for loss and can afford a gestation period of even 10 years or more before they break-even, now that is a good enough period to ‘wipe off’ the competition by eliminating all the marginal players.  And the so called “organized retail” players will be bought off, if not washed off.

I would wish to remind what Pepsi and Coke did to our domestic beverage industry.  All the local bottle manufacturing companies were acquired by these giants, empty bottle supplies were refused to the local players, the soda bottles in circulation were bought and crushed, fridges were given free of cost to all shops and forced not to stock any local brands, a few best selling brands like gold spot, thumbs up were acquired and killed despite huge popularity and demand.  Is this is what you call as “market expertise”..? my foot, isn’t this bloody unethical crony capitalism?  Pepsi and Coke broke even after I don’t know how many years, may be it took them decades, can our players afford that..?  Take it from me, the same will happen to Indian retail & food chain if the Walmarts, Sears and Carrefours are let in. 

Yet another huge threat, the market will be flooded with cheap Chinese products as the FDI clause allows them to source 30% from anywhere in the world and need not necessarily be sourced locally, there will be no mechanism to track how much is being imported, I wouldn’t be surprised even if 70% is sourced from China, that will be a huge blow to our already struggling domestic SME’s.  The need of the hour is reforms in manufacturing sector to nurture local Entrepreneurship and SME’s, if not nurture, at least don’t kill them for heaven sake.  Again you might argue why can’t we compete with the multinational giants, remember, you must first ‘live’ in order to compete.

Many argue the point that since we have already allowed big local players like Reliance, TATA and Birla, why should we really oppose foreign players.  Read on.

The homegrown supermarket chains does not control the food distribution chain unlike the foreign giants who propose & intend to.  Moreover, Domestic retailers source domestically whereas international retailers operate on the principle of buying internationally at the cheapest cost (read china).

Traditionally self-employment has been the largest source of bread earning in this country.  Agriculture and retail are the largest job providers in India especially, rural India, has the UPA Govt proposed any credible plan for alternate source of employment for the millions self employed in Retail Industry..? Has the UPA Govt initiated manufacturing sector reforms to make sure that we remain competitive vis-à-vis China (so that the Multinational retailers may source domestically)..? once all this is said and done, we may accept 100% FDI in retail, why just 51%.

Now let us consider the economic consequences.  In India, agriculture has been operating as a perfectly competitive market.  In economics, perfect competition implies a market where there are innumerable number of buyers and sellers.  In a perfectly competitive market like that of agriculture, everyone is a price taker and no one is a price maker, which essentially means that the market decides the price of the goods produced and not any individual buyer or seller.  Say if the multinationals are allowed to take stock of our agricultural sourcing and food chain, farmers will be forced to sell their entire proceeds to the cartel formed by a handful of foreign retailers, eventually farmers will be forced to cultivate what the MNC's want them to.

After installing their godowns and cold chains, they will have absolute control over agricultural procurement & marketing, and they will no more be price takers but 'price makers'.  In a nutshell, the perfectly competitive agricultural economy will be disrupted to become an oligopolistic market, where the cartel becomes the price maker and consumers will be price takers (similar to oil marketing companies, I am quoting this example since there are a handful of companies selling oil, whereas there are large number of consumers).  The entire management of the food economy will be in the hands of a few wealthy retailers like Walmart, Sears, Carrefour.  In a country like India where we have marginal farmers and population exceeding a billion, (which is ever growing), we simply cannot afford our food economy to be managed by multinational retailers who are only concerned about 'private profits'.

What we brand as ‘unorganized retail’ contributes a mighty 40% to the services GDP which is 60% of the total GDP.  These people are community entrepreneurs who make their livelihood without any dependence / help / support from the Govt, not even Bank credit and yet contribute 40% to the services GDP!! Is it not criminal to brand them as “unorganized”. .?  I am sorry, I don’t buy that..  I know I would be alone on this, what can I expect from a society where even the word ‘Local’ is synonymous to ‘Cheap’!!

Jai hind.

PM's meet with Editors - An ultimate embarrassment to the Nation

Prime Minister Manmohan Singh, in his interview with television editors, has clarified his stand on many important issues.

As any responsible citizen of this country, I too was anxious so as to what our PM has to say on the series of scams which have been making headlines.  I was happy for the fact that our PM has finally decided to break his silence once for all, but after following his interview (line by line), I wish, he remained silent.  Read on.

A quite a few questions were raised regarding the allocation of the 2G spectrum, well, quite expected, as it happens to be the biggest scam in the history of independent India.  The PM was asked “why Raja was appointed as the Telecom Minister for the 2'nd consecutive term, despite the fact that the PM himself had warned Raja in November 2007 to consider auction of the 2G spectrum, for which he didn't bother to respect”.  Extremely valid question indeed, but the PM's response was outlandish.

His response goes like this "I would like to mention that we are a coalition government.  In a coalition government, you can suggest your preferences but you have to go by what the leader of that particular coalition party ultimately insists.  And Mr. Raja was the choice of the DMK party.  I did not feel that I had the authority to object to Mr. Raja’s entry".  

The PM has made it explicit, that a coalition Govt had to run with compromises.  That essentially means, though the constitution of India says that it is the Prime Minister who decides on who gets into the Cabinet, in practice, it is the coalition party leaders who actually take the final call.  And the PM does not have the authority to intervene.  The PM has also said "Licenses was not a matter which got referred to me or to the Cabinet, that was the decision exclusively of the telecom minister Raja" and that, he absolutely had no say on that matter. WOW, I am impressed, Mr. PM.

The next question was "Would you concede the fact that there are a lot of corrupt people in your government and you are not able to act against and that led you to believe that enough is enough?"  Upon taking this question, the PM did not deny the existence of corrupt people in his government, rather he said "I think in a coalition government there is a coalition dharma and obliviously the things are not entirely the way I would like them to be" which means, the PM accepts the fact that there are a lot of corrupt, tainted people in his Govt, but he cannot do anything about it.  Well, Mr. PM, I thought that the Prime Minister of India is the Head of the Union (Federal) Government and the PM’s office holds the highest rank, thanks for having opened my eyes.  I think its high time we re-write our books on Indian Civics.

And here comes the best of it all, when asked about the revenue loss to the Govt on account of underpricing the 2G spectrum, the PM said "We subsidise the price of kerosene to an extent which is greater than many other subsidies, that imposes burden on our oil marketing companies, should we say then that because we give subsidy for kerosene sales under public distribution, that there is loss of revenue." WOW, WOW, WOW, Mr. PM, what an astounding comparison, I am dumbstruck, to be hearing those words from a Cambridge / Oxford educated, acclaimed Economist. 

Mr. Manmohan Singh, you have played a Karunanidhi by comparing the under pricing of 2G Spectrum with Govt subsidy on Fertilizer, Kerosene and Gas.  Now you are a perfect Congress politician Mr. PM.

He has categorically said that "there are serious corruption allegations, but I cannot do anything about it (as he feels he doesn’t have the authority to do so), but no matter what, I will continue as the Prime Minister.  This is the gist of the interview given by our honorable Prime Minister to the Television Editors.

Isn't it an ultimate embarrassment..??

Your thoughts and comments are invited.

Jai Hind.

Does Dr. Manmohan Singh deserve the tag Mr. Honest?

I could not restrain from writing a commentary on this topic. The Congress has been hiding all the scams that it has been accused of behind the face of our Honorable Prime Minister, Dr. Manmohan Singh, who as you would expect enjoys a clean image, as he is perceived to be. The UPA government has been very successful in doing so, the list of scams include but does not restrict to the Sashi tharoor and his IPL controversy, Common Wealth Games, Adarsh housing society, the much talked 2G and other issues of national interest like soaring Inflation, deregulation of oil price, Maoism, Chinese infiltration, Pakistani Terror Camps, so on and so forth.

All the scams and concerns were hidden behind a ceiling, which is nothing but our Prime Minister’s Mr. Clean, Mr. Honest image.  But considering the recent developments, unfolding of 2G spectrum outrage and the prime minister’s reaction, response to the Supreme Court has provoked me to write on the topic, "Does Prime Minister Manmohan Singh deserve the tag Mr. Honest?"  Read on..

Well, many of us feel that Manmohan Singh is a honest man, as long as he does not benefit personally, whether or not he allowed crooks like Raja to loot precious resources of the country like the 2G Spectrum. But permitting crooks to loot the nation’s resource is not the sign of any man who claims to be honest or clean and in my opinion he is culpable as well.

The Congress might put forth it’s defence that it has to stick on to it's Coalition Dharma to avoid elections mid way, but every right thinking man would adhere to the standpoint that no amount of coalition compulsion can justify permitting such a mammoth loot of nation’s resource.

It is not so that the entire misappropriation of the spectrum took place without the knowledge of the prime minister, time and again Raja has been claiming via the media that the PM is fully aware of whatever he has done. On November 1, 2007, the then Union law minister H R Bhardwaj replying to the Department of Telecommunications recommended an empowered group of ministers (eGoM) and getting legal opinion of the attorney general. The finance ministry had also recommended an eGoM. Raja wrote to the prime minister objecting to an eGoM stating it was not an inter-departmental issue. The PM kept quiet or rather batted for Raja ignoring Bhardwaj and the recommendations of the finance ministry.

On May 2010, when the PM made a rare public appearance while addressing a press conference marking the 1st anniversary of the UPA-II, Manmohan Singh gave a clean chit to Raja by stating that the minister had followed the procedures and everything was done in accordance with the rules. He said, “What the minister did was to implement a policy that was already in place. It would have been unfair to new entrants if a new yardstick is used. You have to look at it in proper perspective.” He said that the watchdogs — the TRAI and the telecom commission — had both approved the policy on the 2G auctions and since complaints were received, the CVC and the CBI were looking into it.  He added, “If I come to know that there is any involvement at any level, we will take action.” When he said this, spectrum corruption was very much within his knowledge.

Now looking at the CAG, it has clearly indicted Raja on several grounds, ineligible applicants, not fixing 2008 prices and ignoring recommendation for an eGoM are some of them.  Any individual with a rational, sound mind would know that several facts go against Manmohan Singh.  The most important of it is the petition filed by Subramanian Swamy in Nov 2008 seeking sanction to prosecute Raja (Please note that it requires the PM’s sanction to prosecute a cabinet minister).  The PM neither accept nor reject the petition filed by Swamy, he has been sitting on it all these days which is why the Supreme Court has questioned the PM for alleged inaction.

After all, what Manmohan Singh could do is to make the Attorney General Goolam E Vahanvati represent him in the Supreme Court in place of Solicitor General Gopal Subramanium.

Secondly, the PM had the CAG interim report in his hand by April, 2010. The interim report, as Swamy says, is no different from the final report because CAG was not convinced with the answers given to their queries.

Thirdly the PM himself has been shielding Raja all these days. Raja has carefully built his defence. The PM has written to him in November 2007 suggesting that the entry fee be revised considering innumerable applications and auction be followed.  Raja replied to him on the same day that it was capricious to follow the auction method and that he preferred the 2001 price.  The prime minister has acknowledged the letter but did not write back opposing or supporting Raja’s views.  That gave Raja a strong handle to go about saying that the prime minister knew everything and he had informed Manmohan Singh the procedures he followed.  Why did the PM not stop the telecom minister? His own Ministry of Finance has objected to the price and the procedure. The high-powered telecom commission was not consulted at all.  Now, evidence of several officers having protested may surface but they were all within the knowledge of the people involved, and certainly in the knowledge of the prime minster.

Above all came the master stroke, PJ Thomas who has been facing corruption charges was appointed as the chief of the Central Vigilance Commission (The CVC) which is a watchdog agency. This yet again has attracted severe criticism from the Supreme Court.  The Apex court has asked the Government to explain the procedures followed for appointment of the CVC.

All the above cited reasons will make every right thinking citizen of this country to contemplate the question “Does Prime Minister Manmohan Singh deserve the tag Mr. Honest?”

Jai Hind.

As always, your comments and thoughts are welcome.

Women’s Reservation Bill in my perspective

I write this commentary at a time when the entire Nation is celebrating the Woman’s Reservation Bill.  The women MP’s rejoice this proud moment by galloping sweets.  The other leaders term it as the “onset of a new era” and a “historical moment” in Indian politics.  The self proclaimed intellectuals go one step forward to say that the entire political system would undergo a radical change once the bill takes effect; the media is in all praise of UPA Chief Sonia Gandhi for having taken such a strong decision with conviction to make woman’s reservation in the parliament a reality.

Now let us set aside all our emotions for a while and critically examine what would be the outcome if the Women’s reservation bill is passed in both the houses of the parliament. There is no doubt that the parliament strength would comprise of 33% Women, which is what this bill is bound to facilitate, well, on the face of it, certainly looks great isn't it?  There are lavish, ambitious assumptions like politics would become cleaner, corruption would come down, the women would be empowered, the nation would march towards progression and so on and so forth.  But let us not jump into conclusions being carried away by emotions, I indomitably believe that reservation, be it any form, does not reach the deserved in this great country; I can quote numerous examples which are obvious but do not want to, since it would deviate from the current topic.  The Bill is a deliberate attempt to force women into politics which will never help us achieve the desired results; rather it would lead to nepotism.  Read on.

Do you think that the downtrodden and the unprivileged women in the society will be given tickets to contest the elections?  NOT at ALL, only daughters, sisters, in laws, nephews, grand children and great grand children (who happen to be women) of current corrupt politicians would be given tickets to contest the polls, now how the hell on earth is it suppose to change the fate of politics in our country? I fail to appreciate.

Source: http://cartoonistsatish.blogspot.com

In the atmosphere of politics without ethics, women’s reservation would only help our fellow politicians to nurture more politicians within their family tree and multiple their net worth by leaps and bounds.  Is this what we boast as women empowerment?  Please revisit your opinion for heaven sake.

If we, as responsible citizens of this great democratic country truly aspire to empower women, then all we need to do is to ensure a level playing field where socially conscious, capable, deserving women leaders can willfully come forward and participate in politics, without any fear to contest the polls which shall  be free and fair, to make their way to the parliament and lead this country to prosperity.  Rather, forcing women into politics by way of reservation would only lead to unworthy, contemptible women MP’s & MLA’s who in turn shall act as proxies for filthy politicians hiding behind the veil.

  Source: http://cartoonistsatish.blogspot.com

Some might brand me as a conventionalist or an orthodox cocoon who is no longer relevant for the present generation for my views.  I can only laugh at them as they would themselves realize the hard facts after witnessing a couple of elections, a handful of women MP’s, MLA’s and their activities thereon.

In the meanwhile, this Bill would serve as a very effective tool for the Marketing & Vote generation campaigns of the Congress and the United Progressive Alliance in the consequent elections.  Thanks to all sort of Reservations and Quotas which the Congress has achieved in their 60 years of post independence politics.

Views expressed are personal, you are free to contradict, correspond by dropping your comments.  

Jai Hind

SPECTRUM SCAM – A Cover up?

The Union Minister of Telecommunications Mr. A. Raja, now being popularly known as SPECTRUM Raja has become a famous personality overnight. The Spectrum Scandal which has cost the government more than rupees 1 lakh crore is supposed to be the biggest scam the country has ever seen. 

The Ministry of Telecommunications held by Raja is in charge for the allocation of Spectrum to the companies which offer mobile phone services in the country. In the year 2008, 2nd generation (2G) Spectrum for GSM service providers was allotted to the private players. There were a lot of controversies in the way Spectrum allocation took place by 2008 itself, now the minister’s office is being raided by the CBI for further investigation.

The Minister claims that there is no truth in the allegations against him; he says that whatever procedure was followed in the year 2001 has been adopted by him as well. But there were mere 50 lakh subscribers in the year 2001 compared to 37.5 crore mobile phone users by the end of March 2008; there has been an exponential growth in the Mobile Market which is known to all of us. The fact that the market has grown by leaps and bounds in between 2001 and 2008 is unquestionable.

In the year 2001 the government was shouldering the responsibility to nurture the mobile services market, therefore the Spectrum license was not auctioned then. Even the private players in the industry would not have anticipated such a colossal growth in the mobile services market. The Government was then in a position to motivate and attract private players to operate in the mobile services space.

But that is not the case in 2008. Both domestic as well as MNC players consider investing in Telecommunications extremely profitable. In this sort of a scenario if the government decides to fix the same price, following the same procedure as it did in the year 2001 then it would be a deliberate attempt to put too small a price for the 2G spectrum.

The Telecom Regulatory authority of India (TRAI) is a statutory body found by the government of India in 1995 to avoid excessive government interference in pricing and policy. The TRAI had advised the Telecom ministry to auction the Spectrum License in the years 2001, 2003, 2007 respectively. But the Telecom ministry held by Raja had completely neglected TRAI’s recommendations and allotted the 2G spectrum license on first come first serve basis. More than that fact, Mr. Mishra (TRAI - Head) in his letter dated 14th Jan 2008 to the Telecom Ministry had clearly pointed out that the Ministry has ignored all the crucial recommendations of TRAI and considered a few points for the sake of it.

The last date to submit applications for 2G spectrum was announced as 1st October 2007 by the ministry as on 24th September. Later an artificial cut-off date, Sep 25, 2007, was created and applications received between Sep 25 and Oct 1 were summarily rejected. (This in itself is a clear violation of TRAI’s guidelines).

Datacom Solutions, Yestel, Shyam Telelink, Loop Telecom, Spice, Idea Cellular, Tata Teleservice, Swan and Unitech were given license for 2G Spectrum. The total fee generated by the government for selling license to the above 9 companies is 10, 772.68 crore.

Out of the companies mentioned above, the two companies Swan and Unitech do not have any prior experience in the business of mobile phone, broadband or related services. Swan Telecom has obtained Spectrum license to operate in 14 circles for an amount of 1537.01 crore while Unitech has obtained license to operate in 22 circles by paying 1651 crore respectively.

Within a matter of six months these two companies have sold majority of their stake to foreign companies. Swan Telecom had sold 45% of its shares for a whopping amount of 4050 Crore to a company called Etisalat which is based out of UAE due to which the valuation of Swan Telecom had increased to Rs. 9990.56 crore. Unitech had sold 60% of its stares to a Norway based company Telenor for Rs. 6120 crore due to which the valuation of Unitech had increased to a monstrous amount of 10, 731 crore. Just by leveraging their ability to acquire Spectrum license, Swan and Unitech had made massive 700% return on their investment within a matter of six months.

Raja’s ministry made Rs. 10,772.65 crore by selling 2G license to 9 companies whereas Swan and Unitech just by selling half of their stake had proved the fact that their license is worth more than 20,000 crore. If we consider the market value of these two companies, the Government by selling license to these nine companies should have generated 70, 022.42 crore as license fee. In that way our country has incurred a loss of over Rs. 60, 000 crore.

The Central Vigilance had written a letter to the Telecom Department stating the irregularities in allocation of 2G Spectrum as on 15th of December 2008. It had clearly mentioned that it is highly disappointed with the way 2G Spectrum was licensed. Even after that, Raja while answering to a question in Parliament had told that 2G Spectrum was allotted on first come first serve basis; he had also mentioned that neither TRAI nor the Vigilance had raised objections, which is against truth.

TRAI head Mr. Mishra had clarified in an interview (December 2008) that nowhere in the guidelines or recommendations of TRAI it had mentioned that Spectrum needs to be allotted on first come first serve basis. The Chief of the Central Vigilance Mr. Prathyush Sinha had told in an interview (April 2009) that it is evident that there have been severe irregularities in 2G Spectrum allocation.

Despite all misshapes the Congress party, Prime Minister and the Finance Minister are trying to hold up the Telecom Minister A. Raja due to political pressure from the DMK which is obvious. In fact Raja has said on record that whatever he has done has been discussed and in consent with the Prime Minister. This very fact is even more shocking than the scam in itself.

Let us hope that the Congress led UPA government does not pressurize the CBI considering the interest of its ally, the DMK.

Views expressed are personal, you are free to contradict, correspond by dropping your comments.

Jai Hind.