2012
WHAT DOES INDIA
REALLY, REALLY NEED
TO MAKE 2012
A PROSPEROUS NEW YEAR?
2011
has come to a very painful end for the stock Market Investors – for almost
flimsy reasons of omissions and commissions by Government and RBI – and of
course, partially due to Global factors.
Investors
can see the P&L Accounts Balance Sheets of most of the Companies at the end
of the quarter ending September,2011. Most of them are as PINK and healthy as
they can possibly be.
Some
have suffered global factors – like TATA Steel and TATA Motors. Demand
downslide in Europe could hit TATA Motors especially – unless the company
captures new Markets in 2012.
Some Companies have suffered local factors - like
Maruti Suzuki. The strike at Maruti was a huge drag on the company. Its
subsidiaries too will bear the brunt automatically. But, this is considered
temporary.
Some
sectors like Infrastructure have suffered sheerly due to Government apathy,
policy gaps, and implementation vacuum.
The
non enabling of companies to acquire Land needed for Power, steel and mining
purposes till today – is a huge Policy Gap from Government side. The country
will suffer the Power generation Gap, mining and steel generation gap in the
years to come – unless, government, at least now, passes the needed laws –
without any further delay.
The
Airlines Industry is suffering mainly due to heavy doses of taxation by the
central and state Governments. These taxes need to come down by at least 50%. If it does, both central
and state Governments will actually stand to benefit by the surge in Seat occupancy
rates in all Airlines and consequent Higher revenues. The whole Airlines
Industry is turning sick gradually – starting with the No.1 the Government
owned Airlines itself.
Government
infusing money into Air India, is at best, a temporary postponement of its
Death – as long as these funds last. The real medicine for the Airlines is – to
persuade the centre and state Governments to cut their taxes by 50% at least.
Governments are not understanding or not responding to the fact that they are only
killing the goose which lays the golden eggs in their blind avarice for
immediate tax funds through High Rates of Taxation of the Industry. If the tax
rates are halved, the Fares will come down drastically, and many middle class
people also will travel much more frequently by Air than at present.
This
more frequent travel of more people by Air is like an oxygen supply – not only
to Airlines Industry, but also to the whole Indian economy. Unlike the present
scenario where all Airlines are getting into RED, many more Airlines companies
will surely come up in India.
The
Telecom sector is another sector – where Government Policies and Regulatory
commissions and omissions have led to many companies like Bharti choosing to go
out of India to Invest their funds. Government and Regulators have the bounden
duty to ensure that Industries remain PROFITABLE in India, and that there are
sufficient Incentive to Invest in such Industries. In India, telecom tariffs
touched WORLD LOWS and were still going down further – clearly indicating an
already existing TOUGH & SUFFICIENT
COMPETITION in the Industry.
On
the one side the Regulator, TRAI was merely watching the going down of TARIFFS,
even below the WORLD LOWS, on the argument that it benefits consumers. The Lower
Band for such tariffs should have been fixed by TRAI – at least to ensure that
the central Government owned BSNL and MTNL remain at survival and profitable
levels. This regulatory action never came.
On
the other hand, the Ministry went about issuing Licenses in hundreds more, as
if India is bigger than the whole world market. These and many other omissions
and commissions ensure that fresh Investments in Telecom are now not easily
forthcoming. The profitability levels are so low. This needs to change. BSNL
and MTNL together have about Rs.1 lakh crores of Government’s own Investment in
them. This also needs to be saved. Several lakhs of Jobs also can be / must be saved.
Therefore
– (i) cancellation of most of the unused / underused Licences by Government and
(ii) Fixing lower band for tariffs – to incentivize fresh investments in
Telecom and ensure survival of the 2 PSUs - by TRAI are essential needs for
Telecom Industry today.
FDI
is essential for any country. More so, for India. But FDI in Retail puts in
Peril crores of employment. It is a spacious argument to say – that farmers
will benefit and consumers will benefit. May be they will or may be they will
not. But, this argument is illogical and unethical.
If
the mid-brother is killed, the elder brother and younger brother will no doubt
benefit much more from the common property. Shall we kill all mid-brothers in
India on this argument? FDI in Retail is no different. Killing Retailers for
benefitting farmers and consumers is just like that.
No
doubt, there are inefficiencies in Retail sector. There is adulteration, there
are unhygienic practices and so on. But, these must be tackled headlong by
Government. Not by replacing the whole lot of them – but by appropriate, tough
Policy measures.
We
do need FDI in many, many areas. For instance, in Defence Equipment
Manufacture. In Advanced Education. In applied / pure science and Technology
research. In space programs. In atomic research. In health research. In faster
road building. In building more Dams, reservoirs, electricity generation,
Hotels, entertainment Industry and so on. In all these, there will be more,
fresh employment generation, more productivity, more GDP growth and more per
capita incomes. In these areas, Government action and enabling legislation
(like Land acquisition Bill)are not forthcoming at required pace.
But,
FDI in retail will not prove to be a reform but a DEFORM.
One
immediate concern of Indian stock Investors is – the Huge wealth that has been
wiped in the current downturn, from almost every single medium / long term
Investor’s Portfolios.
For
many of the Investors, the horrifying fact is – the COMPANIES (in their
Portfolio of stocks) have performed well – but yet, instead of the stock prices
moving up, they have gone down to levels which existed 2 years before. Many are below their 52 week LOWs at present !
The
European downturn etc do not explain this at all – except for an odd company
like TATA STEEL and TATA Motors.
The
real factors that are pushing the stock prices lower and lower every day are as
below :-
(i)
the absence of any encouraging Government / regulatory
Action for any Industry. If TRAI fixes
slightly Higher Minimum Tariff levels, the telecom Industry will be saved and
benefitted.
(ii)
If Centre and state
Govts reduce taxes on Airlines Industry, this Industry will need no major cash
infusion – but will become healthy within a short time on its own – and Govt
revenues will also improve vastly & quickly – though for a few months,
there will be small reduction which is worthwhile.
(iii)
A new scam every month indicating the horrifying levels
of corruption, red-tapism and subverting of ethics in governance is a real
dampener for international and
national sentiment. Govt should act faster on the Corruption front – on Lok Pal
front specially – satisfying the Opposition at least – and bringing in a Lok
Pal Bill acceptable to majority - so that, the ugly sentiment, that Government
somehow wants corruption – ends once for all.
(iv)
Huge delays in settling the disputes with cairn /vedanta and other external Investors is a
great dampener for future investments through FDI route. Will Walmart be happy
with the type of treatment that Vedanta
or Arcelor got in India? There should be FAST TRACK DISPOSAL of such problems
for External Investors.
(v)
Continuous raising
of Interest rates by RBI, which have had no effect whatsoever on Inflation – in
the absence of matching Governmental control measures to curb Inflation - has also been a great dampener. In reality, when Inflation went up, it had nothing to
do with RBI Interest rates. When it went down also, no thanks to RBI. It was
due to other supply driven factors. RBI acts only on demand side. Now, RBI
actions have stifled and constricted Demand side in several manufacturing and
service sectors – more noticeably in auto finance and home loan finance and so
on – and therefore, Growth in all these sectors is coming down due to the High
Interest Regime. Possibly, the higher interest rates, applicable (also) to
loans to fertilizer manufacture sector etc are contributing to the raising of the
food inflation to some extent. Therefore, one Policy action that need not be
delayed any further – is the rolling back of Interest rates by RBI - to what they were at the beginning of
2011 at least. This means – rolling back by about 2 to 2.5% immediately. This
will reduce Interest costs of many Industries and many buyers – and will spur
demand and production both quickly. India needs this badly and urgently. RBI
must leave Inflation to Government. Govt must act on supply side. And it is not
acting – but leaving it to natural factors!
I
do have great faith in Dr.Manmohan Singh. His stewardship of UPA I was really
heart-warming. That makes UPA II totally inexplicable. Many steps, taken and Not taken, seem to be
in wrong direction. Almost.
There are great Ministers in his Cabinet. Like
Pranab Mukherjee. Like Jairam Ramesh – to mention a few. They must all act – to
salvage the economy quickly.
2
or 3 quick measures – from Govt and RBI will put the stock market in fine shape very
easily again. They will also boost production and demand – and Government will
again see the Growth rates touching double digits – despite all turmoil in
Europe.
In that fond hope, I
wish the Government, the Parliament, the Industry captains and the Investor
fraternity – a very, very happy, Prosperous, Growth oriented NEW YEAR,2012.
=Yours
v.vijayamohan
=Yours
v.vijayamohan
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