September 23, 2010

life in financial markets: can't have cake & eat it too, at least not for long!

Can't have cake & eat it too!

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.

September 12, 2010

life in general & financial markets: insightful analysis of indian government

"....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


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.


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).

September 09, 2010

life in financial markets: 7% of vodafone group's revenues are from india

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.

September 08, 2010

life in journalism: many indian media editor-in-chiefs are under unhealthy influence of large Indian companies

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.