May 30, 2010

life in financial markets & general: using lies to garner public support

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).

Here is the news story:

Fish, Rice, Blood
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.
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.

From Tehelka Magazine, Vol 7, Issue 22, Dated June 05, 2010

May 23, 2010

life in financial markets: what is the worth of net worth?

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.

May 16, 2010

life in financial markets: massive hypocrisy when it comes to property rights

There is much hypocrisy among the educated affluent of India when it comes to the issue of property rights. When they talk of industrialisation and 'development' they are desperate to snatch away the property rights of individuals, families and tribes residing in the remote areas and villages of India so that their kind of 'development' happens. But if at all their own homes and offices were to be snatched away for the same purpose they will cry themselves hoarse about their property rights not being respected.

"Development is just an excuse to grab land for companies who will then make electricity, goods etc which will be consumed in urban India and other countries. Such capitalists are an insult to true capitalism that says that governments should not interfere in the free play of property rights and competition in trade. Why then do companies worldwide manipulate governments to seek tax favours and other cruel interventions against poor people living in remote areas?
Why aren't the property rights of these poor & un-influential, whether individual or collective (of a community or a tribe) respected by industrialists, politicians and civil-service-bureaucrats? Their machinations and double-standards disgust me completely. As a journalist, I know, for a fact, that they also manipulate very senior editors in the media (print, TV and internet) to carry forward their ugly agenda. The affluent citizenry, in the meanwhile, continue to remain steeped in their excessive consumerism."

Currently, the government of India, that is supposed to be beholden to democracy, is using excessive, even brutal, force against the villagers and tribals of Orissa who are protesting against the illegal and forced acquisition of their land for steel company Posco.
Below is a copy of an email I received from an internet-based group called 'Orissa Concerns' (I am on its mailing list) that gives details of more violations going beyond land acquisition ones:

From: Anivar Aravind
Date: 15 May 2010 22:19
Subject: [OrissaConcerns] Police Open Fire for Illegal Mineral Robbers: The Real Story of the POSCO Project
To: connect , Invitesplus , common-concern
Police Open Fire for Illegal Mineral Robbers: The Real Story of the POSCO Project
Today, Orissa police opened fire on peaceful protesters sitting on dharna for their lands and livelihoods. We join other democratic forces in condemning this atrocious brutality, in which at least 50 people have been injured, markets have been burned and many more are likely to be wounded or killed. We also wish to draw attention to the following facts:
This is not just a “dispute over land acquisition for development.” The POSCO project is illegal and will not bring any benefits for the local population or the country's economy. Rather, it is simply plunder of lives and resources:
  • The POSCO project is illegal as it violates the Forest Rights Act of 2006. Under that law, no forest land can be given to anyone until 1) all the rights of the people in the area are recognised and 2) their consent is given to the project. This is the requirement of the law, acknowledged further by an Environment Ministry order of August 3, 2009. This has never been done in the area despite the people demanding it. The Central and State governments have no legal right to hand over this land to POSCO. In law, not just in public view, this is daylight robbery. Please see the attached timeline for more details.
  • The project is nothing less than a robbery of the country's natural resources by a multinational. There is no conflict between people's rights and “development” here. Despite grand talk of 51,000 crores of foreign investment, what is not mentioned is that POSCO is getting a huge amount of:
    • land: 4,000 acres for the plant, 2,000 acres for a “township”, 25 acres in Bhubaneshwar for their office, plus an unknown amount in the mining and port areas;
    • water: an estimated 12,000 crore liters from the river Mahanadi, threatening the water supply of Bhubaneshwar and Cuttack;
    • iron ore: 600 million tonnes in the form of captive mines, and a further 400 million tonnes will be “allocated';
  • in exchange for which it will:
    • pay essentially nothing for the water and the land;
    • pay a pittance as royalty, allowing it to make tens of thousands of crores in profits just by the difference between market prices and extraction costs (one 2005 estimate put the net profits at 96,000 crores from extraction alone);
    • practically no income and other direct taxes, as it is seeking SEZ status;
    • provide 13,000 jobs – by their own estimates, which in the case of all industrial projects have proven to be gross overestimates – while displacing around 40,000 people in the plant and port sites alone (not including the mines). More than 20,000 people will lose employment in the plant site alone.
In sum, no tax revenue, net loss of employment, no royalties, loss of 15% of India's proven ore reserves, environmental devastation and the forced displacement of 40,000 people. This is what our government considers “development.”
Today's police action shows better than any other that the government is neither concerned about law nor resources nor development – it is interested in daylight robbery. We stand by the POSCO Pratirodh Sangram Samiti, who are among the many unsung heroes of our country today, fighting not only for themselves and their homes but for the idea of true democracy in India.

Timeline of Events in POSCO Project Area Relating to Forest Rights

June 22, 2005: MoU signed between Orissa government and POSCO-India, subsidiary of the POSCO Corporation of South Korea. MoU pertains to an integrated iron ore mine – steel plant – private port project. Rs. 51,000 crore investment is spoken of. Critics point out that there are almost no linkages with local or national economy; operation consists of extracting iron ore while paying extremely low rates of royalty, processing into steel without paying full land, electricity, water or tax costs (due to SEZ status and use of State government's powers for all these resources), and exporting it.
MoU allocates an area of 4,004 acres for the steel plant in Jagatsinghpur District. Of this, 1,253 hectares (approximately 3,000 acres) are officially classified as forest land. However, this “forest land” is largely under cultivation by various betel vine, cashew nut and other cash crop cultivators as well as people engaged in aquaculture. Some of these people have lived in the area for over a century and most have been there for several decades. The land was classified as forest land as a result of an agitation in the 1950's demanding afforestation in the area. The main actual forests of the area are mangroves, which occupy only a small part of the “forest” land.
Due to absence of title, out of an estimated 4,000 families that will be physically displaced by the steel plant, only 270 odd are officially entitled to compensation.
August / September 2005: POSCO Pratirodh Sangram Samiti formed to oppose project. A people's blockade declared in three gram panchayat areas affected by plant. The blockade allows all persons entry and exit except government officials and POSCO employees. The Samiti calls for negotiations. No negotiations have been held till date.
December 18, 2006: Forest Rights Act passed by Parliament. Some sections that are relevant:
2(o) declares that all those living on forest land for at least three generations (75 years), as well as forest dwelling scheduled tribes, have rights under the Act
3(1)(a) recognises right to land under occupation and/or cultivation in forest areas
3(1)(c) recognises right to own, use, collect, dispose of minor forest produce
4(5) bars removal of any forest dweller without recognition of rights
5 empowers gram sabha to protect and manage forests as a statutory authority
November 29, 2007: Police and hired goondas attack PPSS dharna at one entry point with bombs – more than 50 people injured – dharna tent demolished. The protesters are driven back into one gram panchayat (Dhinkia). Police set up camps in the schools of the other two villages, deploy in heavy force.
January 1, 2008: Forest Rights Act notified into force.
August 8, 2008: Supreme Court upholds “in principle” clearance for use of forest land but directs Environment Ministry to proceed “in accordance with law.” No final clearance granted. The case is only between Orissa government, Central governent and POSCO; no opponents to the project are represented.
March 23, 2008: Gram sabha of Dhinkia passes resolution electing a Forest Rights Committee and starting process of inviting claims under the Forest Rights Act. Resolution also states the gram sabha's decision to protect the surrounding area from environmental destruction in exercise of its powers under section 5. Claism are filed, but Sub-Divisional Officer illegally refuses to accept them. The State government takes no steps to implement Act in the area. Claims are till this date with the gram sabha.
August 3, 2009: Following prolonged protest, Environment Ministry issues circular clearly stating that no application for “diversion” (i.e. clearance for non-forest use) can be made without inter alia certificates from gram sabhas of the affected area stating that:
  1. The process of implementation of the Forest Rights Act is complete and all rights have been recognised
  2. That they consent to the diversion after being informed of the nature and details of the project and rehabilitation project.
50% quorum is required. Without these requirements, the Ministry says, no final clearance can be granted.
December 29, 2009: In violation of its own circular and the Forest Rights Act, Ministry grants final clearance for diversion of forest land.
January 5, 2010: POSCO Pratirodh Sangram Samiti writes to Ministry against illegal action. CPI also raises issue, and various people's organisations protest.
January 8, 2010: Environment Ministry “clarifies” that clearance is subject to the August 3rd, 2009 circular, including “informed consent of the tribal people” (emphasis added). There are no tribals in the area, but there are people eligible as other traditional forest dwellers, who are also protected to the same extent by the Forest Rights Act. Taking advantage of this obvious and illegal loophole, POSCO responds within a few days that there are no tribals in the area. Despite the “clarification”, illegal final clearance is not withdrawn and all government officials are treating it as final.
First week of February, 2010: In response to a request from the Collector for the opinion of the gram sabhas, all three in the steel plant area pass resolutions refusing consent for diversion of forest land and demanding recognitin of their rights and power to protect forests. As per law, the forest clearance is now clearly illegal and has to be withdrawn. Despite this, till date MoEF has done nothing and the clearance is standing.
February 2010: PPSS begins a three month dharna at main entry point at Balitutha.
May 11 2010: 25 platoons of police deploy in the area. Attack on protesters expected at any moment.
May 15 2010: Attack begins.  At least 50 people injured, market areas and protest camps burned, police attacking people.