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Lameduck Centre can end the bull market

Centre's decision to rollback the proposed disinvestment plans sends a negative signal on reforms, writes J Mulraj.

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What is the difference between Indian politicians and God? The answer, according to a wag, is that God doesn’t think He is a politician!

Our political class would do well to read Longfellow who wrote “Look not mournfully to the past - it comes not back again; wisely improve the present - it is thine; go forth to meet the shadowy future without fear, and with a manly heart”.

Our politicians constantly live in the past, see all sorts of ghosts outside the window in the present  and are doing little to prepare for the future.

Over the next decade, an estimated 70 million people will join the workforce. It is this demographic profile that is the  backbone of the Indian growth story. They will be looking for jobs.

Our politicians, instead of paving the way to provide them, are making a concerted effort to stall economic growth. The consequences of this neglect of planning will be felt over the next decade.

Prime minister Manmohan Singh, once hailed as the architect of economic reform, says he is not in favour of either corporatised farming or of large organised retail. Yet past governments have done little, except mouth sympathy for, the small farmer.

Witness the astounding increase in suicide rates. It has neglected the development of  infrastructure in rural India which would have allowed the creation of industrial jobs in the absence of which pressure on farm land leads to fragmentation of land holdings. Productivity of farm land in almost any crop is one of the lowest in the world because of fragmented holdings. The absence of rural infrastructure has also prevented growth of organised lending, making farmers turn to usurious unorganised channels, and to misery.

Voluntary aggregation of farmland, either by companies or cooperatives of farmers, may help tackle the problems of  fragmented holdings, leading to low productivity. This ideas needs to be given a shot.

The prime minister has also declared disfavour for organised retail. Just one company, Reliance, is planning to invest  Rs 25,000 crore in this, to provide 500,000 jobs.

When expressing disfavour, it is incumbent upon a critic to provide a viable alternative. Another big job creation opportunity is in the textile sector, post dismantling of textile quotas. After China, India is the most sought after destination for buyers who prefer to have an alternative to China.

Here the Left parties, looking, as Longfellow says, mournfully to the past, resist a labour policy that is flexible enough to allow, with proper compensation, for closure if market conditions should warrant it. They would rather protect incumbent jobs (and, of course the votes that go along with it) than pave the way for a secure future.

Simultaneously, governments are unable to control expenditure and are only able to manage the fiscal and budget deficits as a percentage of GDP because the denominator is growing. When that growth falters, as it will, given the lameduck government, the fiscal deficit would show up in deep red.

Desperate for revenues, the finance minister has proudly announced the results of his data mining efforts and stated that some four lakh people have done large transactions without having a PAN (permanent account number). This is wonderful, but you know, Mr Chidambaram, this represents just 0.04 %  of population! There are many, many larger fish swimming in the pond.

Why not, for example, tax large farm incomes? Say incomes of over Rs 5 lakh only? Surely this can’t hurt your vote bank? What  it can hurt are those people who, residing in Delhi, have a farm income.

Well, one way out would be to sell off assets and use the money to repay borrowings and lower debt servicing costs which eat up more money than defence or subsidies. But no! The DMK threatened to withdraw support were Neyveli Lignite to be privatised and the lameduck government buckled.

In corporate news of interest, the Tata group is to make a preferential allotment to Tata Sons, of upto 7% of Tata Steel.

The management fears, and rightly so, that for a price, shareholders would sell, leading to a management change, especially after the recent Mittal takeover of Arcelor. This poses an interesting question.

When minority shareholders exhort management to have good corporate governance practices in order to raise shareholder value, is it not a  one-sided bargain? Minority shareholders are free to sell once shareholder value has reached the targeted level; the  management, which built the institution, cannot do so. 

In addition to the threat to the bull run emanating from our own politicians, there are external threats such as the development of long range nuclear capabilities by North Korea, and the tussle between the US and Iran over the latter’s  nuclear programme. As against this, the threat of rising interest rates may have eased a bit and global money is finding its way back into emerging markets, as it did last week into India.

The BSE Sensex rose to brush the 11,000 mark, ending the week at 10,509.53, down 100 points from the previous Friday. It’s time to lighten the load. At least till one sees signs of political statesmanship and vision.

As JM Hoppin said: “A nation’s greatness resides not in her material resources, but in her will, faith, intelligence and moral forces”. Alas, if only a visit to Sewa Gram could help bring that back.

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