Financial Wisdom – By Kalidas

Radical Solution for Credit Crisis from Kalidas

Posts Tagged ‘India

Helping Indian Industrialists, Mr. Prime Minister

with 20 comments

08-015t-tata-birla

Ref: 0811-015

It is well known that India’s best breed of industrialists Tata (of TISCO and Tata Motors) and Birla (Hindalco) for over 5 decades are in serious trouble while taking up expansion overseas. Yes, they made serious errors and in normal course, they may not have deserved the help for their follies.

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However, the circumstances are entirely different now. We are in middle of severest form of credit crisis. Although Tata and Birla are well known in India, they are not as much known overseas. Since almost all western banks are in trouble, they are unable to raise necessary finance their overseas acquisition – Corus (for Tata Steel), Jaguar (for Tata Motors) and Novelis (for Hindalco). They are now at the mercy of the foreign vultures.


Should India and Indians abandon these worthy Industrialists who created millions of jobs, made India independent in basic industries without foreign help, donated thousands of crores in charities in building temples (Birla Temple in Shahad, Kalyan (Maharashtra)  is one of them), educational institutions like BIT (Birla Institute of Technology), Tata Institute of Social Science (TISC at Chembur, Mumbai) Tata Institute of Fundamental Research (TIFR), hospitals, schools, nurseries, Tata Consultancy Service (TCS) and what not for the benefit of Indian society regardless of cast, creed or color, and also paid thousands of crores of Income Tax, Excise duty, Sales Taxes, Professional taxes to the national and state exchequer for over 60 years?

 

0811-015-man-mohan-singhIt is now pay back time, Mr. Prime Minister and Finance Minster. India and Indians are not those ungrateful bastards. Those who helped this nation deserve all type of help when they are in distress.

 

It is causing sleepless nights to both Ratan Tata (in his early seventy) and Kumar Mangalam Birla (who is relatively younger). They deserve better retirement days. We have to make their lives better towards the fag end of their life in recognition of their contribution to the massive development of India and Indians as whole. These two industrialists never bothered about India’s deep divide religious fabrics while creating industries for themselves and millions of Indian back home. Without them, India would not have been 60% of what it is today.

 

Ratan Tata is going pillar to post for lousy $12 billions whereas Mr. Birla for paltry $5 to 6 billions to finance their overseas acquisitions. When the world is denying them these paltry sum, for its own reasons of bankruptcy, why not India with over $300 billions of Forex reserve which is earning lousy 1 or 2% interest and invested in bankrupt country like USA, help our own businessmen whose acumen is beyond doubt.

 

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Charity begins at home. India as nation must help these two outstanding businessmen. They may not long for Bharat Ratna, Padma Vibhushan, Padma Bhushan or similar khitabs. They need material help at the time of their acute distress. If Indian Forex Reserve does not come to the help of India’s best industrialists, what is the use? Should we allow our Forex reserve for the use of Americans who has been simply wasting all resources and using them to create toxic waste.

 

Indian FOREX Reserve belongs to the Indians and must be used for Indians first and others later.

 

And I do not suggest that you give them free money. Give them the amount required as under after due scrutiny.

 

 

  1. Assess their requirements and be wetted by top financial institution.
  2. Work out how much amount they need
  3. Give them @ 5% in foreign currency non subordinated Convertible Bonds secured by the floating pari pasu charge on their respective enterprise.
    1. Such bonds may carry conversion rights at last 6 months average prices of their respective shares, exercisable only after 5 years.
    2. It may have buy back clause at 8% premium per year for the life of 15 years. This will help these guys to buy back the bonds when they are comfortable without diluting their equity stakes when the things improve.
    3. If the Government wishes, it may sell these bonds in the market with huge profit (because current stock prices are very low), after giving respective companies to buy back the bonds.
  4. When the things improve, they can raise the capital from the market to buy back these bonds.
  5. Give them loans repayable in 15 years due to depression prevailing all over the world.
  6. Ask them to pay special tax @ 3% after initial 5 years so as to relieve the interest burden during early phase of management. National exchequer may also be benefited for help rendered.
  7. Ask them to give India at least 5 hospitals and 5 Technical Institutes with full management rights vested with the respective group companies on purely voluntary basis. (we can trust them)
  8. Ask them to adopt at least 5 villages to make them into model town in next 15 years on voluntary basis. (again, we can trust them)
  9. Indian tax payers are not affected with this help. Their advance is fully secured and given to the industrialists they trust most.

 

This is the only way of really honouring our beloved industrialists. It is not going to set the precedents, if you are worrying about them. Even if it is setting precedent, it is a good one. It is one of the principles enshrined in the Constitution of India under Directive Principles of State Policy from Article 36 to 51. One of the article is quoted below:

 

Directive Principles of State Policy as enshrined in Constitution of India

38.

State to secure a social order for the promotion of welfare of the people.—’[(l)j The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.

2[(2)

The State shall, in particular, strive to minimize the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.]

39.

Certain principles of policy to be followed by the State.—The State shall, in particular, direct its policy towards securing—

(a) That the citizens, men and women equally, have the right to an adequate means of livelihood;

(b) That the ownership and control of the material resources of the community are so distributed as best to subserve the common good:

 

By following above policy, the state will be preserving the jobs of the millions of workers in India

 

Mr. Prime Minister and Mr. Finance Minister, the time is critical. Do not even flinch while extending help. If you do not, their enterprises could slip into foreign hands, could cause huge job losses back home that may have devastating social consequences. The material resources of this country are in danger of losing to foreign hands, if our own people are not helped.

 

This is the appeal not only from this Kalidas (Anil Selarka) but also millions of investors in India. Read the following sample poll from learned investors from India and let them help you in forming your final decision. God Bless India.

 

Kalidas, Hong Kong

16-Nov-2008

Ref: 0811-015- Helping Indian Industrialists


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India’s ON and OFF Policy

with 21 comments

In today’s uncertain world, a few countries stand out on their own, of which India is one. There is everything one can think of finding – higher education, high savings rate, less papers or derivatives, huge population, efficient stock market, several millions of rich middle class wage earners, less debt, huge savings in real wealth like Gold and Silver, classy high tech manpower, world’s best design source, above average entrepreneurs, great creative and entertaining industry, least gambling resources, and a great democracy.

And yet, this giant dinosaur has been unable to find a single genuine pace bowler for its Cricket team, enough players to win the Olympic gold medals, really creative Prime Minister, Finance Minister, and Chief Operating Officers for SEBI (equivalent of SEC), and RBI (equivalent of FED in USA) from its thriving millions of population running across the country in every street and corner, sweating, smothering, bothering and yet smiling amid all odds against its existence.
What is wrong with this country? Its culture, Nay; Collectivism, partly; education, Nay; poverty, Nay; democracy, Nay; Contentment, yeah and lack of Killing Spirit – certainly Yes. Indians are notorious for self egoism, false patriotism and above all “eternal contentment” for whatever it has. Its desire for yearning is least. “Why do we need this? It is enough. We are happy with what we have” And that sets it apart from the rest of the dynamic western world.

 

India’s Info tech Glory and Visionary Jawaharlal Nehru

Indians have the extremely bad habit of not giving the credit where it is due. Take the example of its InfoTech Industry – now on the lips of every technocrat all around the world. It’s main creator and originator is forgotten as “Cause” and the “Result” is worshipped like a demi-god.

The seeds of high end Info tech were sawn by its first and most charming Prime Minister, Jawaharlal Nehru, a great visionary. With extremely limited sources at his command in early 50s, he maneuvered to obtain the great alliance with prestigious MIT in the United States, to set up 4 finest technical institutes – Indian Institute of Technology. And in remaining 60 years, the successive governments with almost 50 times monetary and ample human resources at their command could set up only 3 such institutes. He made the technical and engineering education so cheap and affordable, that India could produce talents at the cheapest cost.

His investment by way of subsidies in education, basic industries and oil refineries returned 100 times return in recent years. What he spent in millions on IIT brought in billions of dollars in Forex through thriving Info Tech industries. Even this author got 4 degrees for just Rs 4000 or $80 in 4 years.

When the British left India in 1947, they built 9 platforms at Bombay VT railway station when India’s population stood at 300 million; whereas in next 60 years, the successive Indian governments could build only 4 platforms at Bombay’s Church gate railway station with over 1 billion population! It is said that India is always on “Auto Pilot”. No one knows how it runs – it just walks in the wilderness.

Nehru dynasty gave leadership in the form of Jawaharlal Nehru itself, then Mrs. Indira Gandhi, Rajeev Gandhi (Son of Indira Gandhi) and now Mrs. Sonia Gandhi, head of ruling Congress party, and wife of Mrs. Gandhi’s elder son Rajeev Gandhi.

Even the Kennedy dynasty nowhere stands near the Nehru dynasty. The greatest contribution that Mrs. Indira Gandhi made was the green revolution and killing of all strength of pre-1947 Pakistan into two separate nations – Pakistan and Bangladesh.

And yet, all credits are given today to the likes of BJP Leader Vajpayee, the charismatic Prime Minister who merely exploded the Nuclear Bomb (It was built only with the vision of Nehru and Mrs. Indira Gandhi), Man Mohan Singh, the Prime Minister and P Chidambaram, the Finance Minister today for doing nothing substantially positive and lots of negative.

India has come a long way since 1950. Knowledge is no longer a power of a few. However, the kind of progress expected has not been achieved by India, and in fact, it is on the verge of losing major advantage if nothing is done now.

India’s disastrous policy measures in past, its effects and how that can be reversed with ease?

India’s de facto Central Bank – Reserve Bank of India – similar to FED in USA or Bank of England in UK, is a most revered institution in India. So also, Security and Exchange Board of India known as SEBI, equivalent of SEC in other countries, and stock exchanges like Bombay Stock Exchange – BSE and National Stock Exchange (NSE). They are given the status of demi-god by the admiring and ignorant semi educated urban class in India. The result is that these institutions, with possible exception of NSE in some cases, have become monolithic and inefficient organizations, with RBI leading the pack.

The officials of these bodies do not have experience in global money market, how certain powers manipulate the word market with ease, and therefore are very dogmatic in their views. They blindly follow the theories and practices of western and eastern world. As result, the economic, monetary and social policies fell far short of desired goals in last 50 years.

They do not realize that if certain standards with reference to which their policies are tailored are not yielding desired result, the standard itself must be wrong. As result, the measures initiated to adjust the imbalance often fail. Let us see the measures that failed India:

Belief, Policy Measures, Expectations and Final Result with Causes

Actuator: Finance Ministry, Reserve Bank of India, SEBI

Policy: Exchange Rate

BELIEF & PARADOX (In Blue prints)

1. Weaker Rupee helps exports and earns FOREX

2. Domestic Industries are protected against excessive and expensive imports

3. Jobs in domestic industries are protected and also promoted

4. Foreign Debt reduces due to FOREX earnings out of exports

POLICY MEASURES: Switch ON

Weaken Rupee by all means

1. RBI: Reduce NRE deposit rates – pay them much less than domestic deposit rates (6% less)

Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of England. NRI were treated like disposable towel

2. RBI: Do not let FII to buy Rupee from the market. Let them come to RBI directly to reward them with much higher rupee rate as enticement not to go to the market.

Even if it costs national exchequer hundreds of crores of rupees

3. FM, RBI: Sterilize any rise in the market by buying back dollar against rupee

Even at the cost of higher money supply leading to inflation

4. FM, RBI: Allow Indian Businessmen to invest overseas so that they buy dollars and sell rupee to cause it weaker and weaker.

While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India but invest overseas, as though India had become one of the richest countries in the world. Even China after receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to invest overseas

5. FM, RBI: Allow Indian citizens to remit overseas US$ 100,000 without RBI approval, so that pressure on rupee is reduced by letting them sell rupee and buy dollars.

While permission was not given to individual foreign investor to invest into Indian stock market as logical step further to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas, even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads, sewerage, water filtration plants to reach every nook and corner of the country

6. SEBI, RBI: They introduced P-Note measures to scare away the foreign investors from India so that upward pressure on rupee is diminished.

7. SEBI: introduced arbitrary circuit breakers for market and individual stocks in the name of maintaining order which again scared the foreign investors who were faced with illiquidity in the invested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixed arbitrarily.

SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at any time without hindrance. Even in market crash such as now, and in January 2008, the foreign and domestic investors were not able to sell the stocks at market because there was no market.

8. FM, RBI, SEBI: prohibited short selling on selected counters to arrest the market fall

If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000 (over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?

Dogmas, False Policies and Misplaced Priorities

I have said often that if certain policies do not work with reference to standard for long time, there is something wrong with the standard itself. Such erroneous standard has to be abandoned. However, most of the policy makers and economists have been groomed in high end business schools that rely on outdated textbooks. These guys are not wise men but guys, who never worked on the front line, gained first hand experience, always sat behind the back bench, followed the books in full literary sense, and almost forgot that they too have common sense that was distributed by the God equally regardless of class, religion or nationality.

Why Rupee should be allowed to appreciate?

The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers, Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week and 365 days a year for over 60 years. Rupee was devalued from Rs 4/$ to Rs 50/$ today with no tangible result.

Currency is an Ambassador of a Nation – it has to be strong

Currency is the first sign of strength of any country. Currency is a child of the nation by which a nation is recognized, same way the parents are recognized by their own children. Ask your self – Do you want strong children or weak children? You always say my son is this; my son is that, my daughter did well here; my children became engineer, doctor or MBA who will get us decent life from their earnings.

And what the same guys are doing while in charge of the country? They want their currency Rupee weak, so that it earns less, expends more, exports undersells country’s assets, imports overpays for the good, and the external debt soars only because of depreciation of the currency. These smart guys in RBI, SEBI, Finance Ministry and Prime Minister’s office know nothing, absolutely nothing. They are monkeys imitating blindly the western world, who want your national currency weaker so that they can buy cheaper from you and keep their inflation in check.

Weaker Rupee may help Exports, what about Imports?

Oh no, it will hurt exports! Really? What about imports? Are you not overpaying for the gigantic oil bill. Are you not overpaying for debt servicing? If Rupee is at Rs 45 and foreign debt is $100 billion, the national external debt is Rs 450,000 crores. If the rupee goes to Rs 39 as it did, the national debt reduces to Rs 390,000 crores. If rupee was allowed onward journey, it would have gone to Rs 26, and in that case, national debt would have come down to Rs 260,000 crores. You therefore saved Rs 190,000 crores just by letting the Rupee getting stronger.

And I do not say that manipulate rupee to get stronger (the way US does for dollar). What I want to say is that let it find its own level. Do not intervene when there is natural tendency to get stronger. Do not sterilize its rise. The sterilization operation is antibiotic. Continued practice of sterilization will kill its natural power to grow and get stronger. It is more like a person not wanting a child uses condom or birth control pill to sterilize the fertility for over 10 years. finds difficult to have child when he wants to, because the body has become immune to its natural power to produce. Treat economy like a body, and RBI’s sterilization and SEBI’s P-Note measures like birth control pills, and you will understand complex economics in a flash.

A person in a gym uses all equipments and tools to make every part of his muscle beautifully contoured and in shape. He then takes in healthy food, without which entire body will not respond to various form of physical exercise. Consider body as economy, policy measures as various tools for exercise and Rupee as lifeline food. If the food is weak or debilitating, the whole body is destroyed. It is a job of Finance Minister to imitate that practice to make every section of the economy well contoured and strong. The currency policy should be conceived and directed as suitable to the national needs, not international or IMF demand.

How External Debt gets reduced by Stronger Rupee?

If you want to earn Rs 190,000 crores by way of FOREX earnings out of exports, and if the export margin is 10%, the exports have to be additional 1,900,000 crores, provided none of the debt going bad. Further, if rupee had gone higher, Government could have reduced the external debt by simply selling rupee, buying dollars and liquidating the debt say, $ 15 billions.

False Praise leads to Wholesale Destruction

Often the names of financial officials in the country were mentioned on the top covers of magazines like Forbes, Fortune, International Banker, IFR, IMF Review etc. Whenever their names appear on such magazines, take for granted that they are least qualified for that post. Those who do not get proper jobs in their own country lend up at world Bank and IMF, where decisions were never taken and such posts were official retirement with full pay every month. It is a warehouse of inefficient. That resume however works in India.

India is a country that believes in enormous adulation. Gods, Goddesses, Gurus, Cricketers, Hollywood actors, high court judges, politicians and officials in RBI, SEBI, NSE and BSE are all elevated to the extreme status. Gods and Goddesses never listen, Gurus always need bhakta jan to wash their feet and drink that holy water, Cricketers and Actors are easy pass time, and inefficient judges in various courts who have been caging justice for over 20 years, take 3 times vacation, larger than your own children, never deliver justice in time prompting citizens to approach for alternative judiciary of Mafias or Bhais to give them “Supari”, politicians like Advani go on blurting about building Ram Temple, instead of building mass housing for the poor Indians, and officials in RBI go on having “condom sex” with economy by sterilizing operation, and officials in SEBI go on inventing rules like P-Notes how to drive out the Foreign Investors. When they were coming, they were asking why you are coming, and when they are going, they are asking why they are leaving. What the hell do you want, you fickle minded babus?

Indians never saw Lower Oil Prices at Rs 10/ltr when Oil fell all time low to $10/brl

Due to consistent weaker rupee, the petrol prices always rose like mercury in thermometer. When the oil fell all time low to $10 per barrel or Rs 400 per 159 liters or Rs 2.33 per liter, Indian never saw petrol or diesel prices falling to Rs 10 per liter. This is what the misguided Rupee policy did for Indian consumers

Currency (Rupee) Never Remain at Same Level – like Water, it finds its own level

The currency movement is always dynamic. The sum total of entire economy is represented by currency. If it does not go down, it goes up; and if it does not go up, it goes down.

During BJP administration, Rupee was allowed to appreciate to Rs 43 from Rs 48. It continued to Rs 39 when the officials in RBI and Finance Ministry were alarmed. SEBI started talking about Rupee when it was none of its business. These are fiscal and monetary matters, not stock market that is the domain of RBI and Finance Ministry. They invented P-Note related measures that were the harbinger of downward movement of Rupee. It just dropped from Rs 39 to Rs 50 yesterday, when Indian economy was supposed to be having highest growth in the world, Forex reserve at over $300 billions, and every sector of the economy was on four cylinders.

These wise guys applied screeching brake with the result that money simply evaporated, stock markets crashed, rupee crashed, interest rates rose, inflation rose to over 13%, oil subsidies went through the roof, and many other countless collateral damage such as recession, lower home prices, higher food prices, and what not.

If Islamic punishment of stoning to death was allowed in India, the officials in finance Ministry, Reserve Bank of India and SEBI fully deserved that capital punishment. They destroyed vibrant economy; they dealt death blow to the aspirations of Indian people, they sank India into deeper external debt (by additional at least Rs 60,000 crores), they caused Oil bill to rise by Rs 16000 crores due to depreciation effect of the Rupee, they caused first time home owners life miserable by increasing their EMI by over 6% per year or Rs 3000 per month per Rs 100,000 of mortgage loan, they raised the borrowing cost of almost all business enterprises by minimum 3% , cost of energy rose by 20%, and only the life of human (Made in India) became cheaper.

Due to single most reason – Weaker Rupee

(To be continued further that will be appended here. Full article will then be converted into PDF file for download)

Kalidas, Hong Kong

Ref: 08-010 – India’s ON and OFF policy

25-Oct-2008
Note: Due to problem with the WordPress software, the article can not be properly formatted earlier. It has been withdrawn and substituted with this one. The comments associated with the previous one may not be available here, but I will try to put them if possible.