The long-term outlook for markets is outlook unless politicians mess things up
At a CNBC function to felicitate best managers, panelists were asked what would be the biggest threat to the ongoing bull run. Only Arun Shourie mentioned appalling governance and how, unless there was pressure on them to pursue reforms, politicians and administrators would be quite capable of derailing the economic success story. He is right! It took 2 ½ hours to reach the event, for recognizing good corporate management, thanks to abysmal public management of roads and traffic! It is the consumer and the investor who pay the price for poor governance. Bad governance is one of the biggest risk factors which could thwart the bull run, which otherwise looks set to continue for a few years more.
Thus the road space has not been increased commensurate with the increase in vehicles, simply because the former costs money governments don’t have, while the latter earns them money which they need to splurge on. Politicians and bureaucrats have not prepared for the future, but are merely seeking to raise revenue to meet uncontrollable expenditure. It is only the judiciary which is taking an activist role at times. There was once a time, after Independence, when members of cabinets were of the high moral standards. It is lamentable that when India is finally shining the quality of the polity is at a low.
Take poor airport infrastructure, for instance. To create vote banks, politicians have allowed illegal dwellings to be established near airports, prohibiting their expansion and providing a poor sight to foreign tourists seeking to see the new emerging global power. As a result of poor planning, there are inadequate runways to cope up with the increase in traffic, spurred by competitive pricing from new airlines. Who bears the cost? Airlines, through increased fuel charges, and passengers, through congestion surcharge!
Or take the continuance of subsidy on kerosene, ostensibly to aid the poor, but in reality to feed the mafia that adulterates it with more expensive diesel. Huge costs ensue to society, in the form of pollution caused due to adulteration, (here, again, it was the judiciary that intervened, not the administration which ought to have) relating to increased health costs borne by the people. Investors bear the financial burden imposed on government controlled oil companies, effectively destroying their valuations.
It is the same for many industries. Take telecom, one of the biggest success stories, one in which the number of mobile customers being added each month has now overtaken China!
After BSNL’s huge tender for 45.5 million GSM lines, Reliance Communication has floated an even larger one, indicating the potential for growth. It has invited bids for 75 million GSM and 25 million WCDMA lines for a whopping $8 b! With such large numbers, one would expect competition to hot up, and it will. But the competition will be only for customer acquisition and not for customer retention, thanks to the myopia of DOT. DOT has rejected a suggestion by TRAI to introduce number portability fast.
Under a number portability regime, the phone number belongs to the customer, who is therefore more willing to change a provider whose service he is unhappy with. DOT thus errs in favour of operators and against consumer interest. The consumer, of course, bears the cost for this apathy.
Misgovernance and inadequate preparation for the future are a consequence of excessive focus on staying in power and in raising revenue instead of curtailing expenditure. Thus, though the buoyant economy, last seen growing at a 9.2% annual rate, yields a 41% increase in tax revenue, the finance ministry, with its insatiable appetite, seeks new ways to tax people.
It is considering hiking service tax from 12% to 14% and widening its scope. Now see how this greed for revenue to meet burgeoning expenditure affects the economy. Because of this, the government is seeking to ban technology in the form of net telephony (like Skype or Vonage) for use by BPOs and KPOs, on the specious plea that they have not been licensed for use in India! In short, instead of allowing consumers to benefit from technology in a globalised world, the revenue hungry government seeks to curb its use. These are examples of what can, possibly, derail the bull run. And, of course, what all consumers (who are also voters) must protest against.
The market has corrected on the last day of the week, reflecting weakness in global markets and the hike in CRR by the RBI, after crossing 14K on the Sensex and 4K on the Nifty. The Sensex ended at 13799, down 45 over the week, and the Nifty ended at 3962, down 35. Hopefully the correction would continue, making the market morehealthy. The long term trend is rosy, unless our leaders succeed in making a hash of things.