Archive for February, 2018

Is Privatization the Solution to Public Sector Banks?

Tuesday, February 27th, 2018

Is Privatisation the Solution to Fraud in Public Sector Banks?

By

Col(Retd) Bhaskar Sarkar VSM

Smart unscrupulous businessmen Nirav Modi and Mehul Choksi have managed to defraud Punjab National Bank of about Rs 11,500 croes and flee abroad. The scam came to light on February 14, 2018 when the bank informed SEBI about it. This was followed by Allahabad and associated Banks reporting being defrauded to the tune of Rs 3,900 crores by Rotomac Ltd. Next, Dwarka Das Jwellers of Delhi defaulted on about Rs 390 crores loan to Oriental bank of Commerce and are absconding. The scams have expectedly created a big stir. Some are blaming the bank staff, some are blaming the auditors. Others are blaming RBI for lax supervision while the neo-liberals are blaming our socialist economic policies and clamouring for privatization of public sector banks. Not many are blaming the unscrupulous businessmen who seem to be able to bribe bankers and politicians and loot bank deposits at will and flee to foreign lands. This article seeks to examine whether private sector banks in India and around the world are run better than our public sector banks.

Bank Failures Around the Developed World

Bank failures are surprisingly common. Only recently, the “Sub-Prime” crisis in US in 2008 led to the failure of 456 banks in the United States between 2008 and 2012. (www.en.wikipidea.org/wiki/List-of-bank-failures-in-United-States ). The collapse of Washington Mutual Bank with total assets of US$307 billion, 2,239 retail branch offices operating in 15 states, with 4,932 ATMs and 43,198 employees was the largest bank failure in US history. Regulators sold the bank to JP Morgan Chase. The five largest U.S. investment banks with combined liabilities or debts of $4 trillion failed. Lehman Brothers went bankrupt. Bear Sterns and Merrill Lynch were taken over by other banks. Goldman Sachs and Morgan Staley were bailed out by the U.S. government. US government-sponsored enterprises Fannie Mae and Freddie Mac with nearly $5 trillion in mortgage obligations were placed into receivership. A total of about $9 trillion was lost. US banks received over $700 billion bailout. All of them were private sector banks.

The primary cause of bank failure is lack of liquidity which can be caused by fraud, greedy and risky investment decisions or loans and excessive leveraging which result in financial loss when bubbles burst. Public sector banks are not supposed to be profit motivated. But they also make bad investment decisions in search of profits.

There are some other bank failures are worth mentioning (www.businesspandit.com/25-biggest-bank-failures-in-history). Bank of Credit and Commerce, USA, established in 1972, failed in July 1991 because of widespread fraud. It was once the 7th largest private bank in the world with over US$20 billion in assets. Regulators who investigated the collapse found that the Bank had deliberately setup operations to avoid detection of fraud committed on a massive scale. It was a US$20 billion (about Rs 130,000 Crore) swindle.

The Hokkaidu Takushuku Bank Ltd, Japan, went bankrupt in 1997, during the Asian Financial Crisis. It was set up to promote development on the island of Hokkaido in 1897. In 1939, the Japanese government deregulated the Bank. The Bank became involved in risky real estate investments during Japan’s 1980s real estate bubble and failed when the bubble burst.

Long Term Credit Bank (LTCB)  was one of Japan’s top banks. In 1989 it was considered the 9th largest bank in the world. When Japan’s asset bubble burst, LTCB was holding more than $19.2 billion in bad debt. In 1998, the Japanese government nationalized LTCB, and then restructured it as a commercial bank named Shinsei Bank.

Silverado Savings and Loan Bank, USA collapsed like Indian co-operative banks. Neil Bush, son of then Vice President George H.W. Bush, gave himself and his business partners loans of over $200 million US$ without notifying the Silverado Board. He was forced to pay a $50,000 fine and banned from banking activities for his role in collapse of Silverado Bank, which cost taxpayers $1.3 billion.

Northern Rock, a UK bank got into trouble in 2007 as a result of “Sub-Prime” meltdown. It could not get required funds from institutional lenders to tide over its liquidity crunch. The Bank of England lent the bank 3 billion pounds.  It was not enough. Depositors ran on the bank after the news broke. The UK government nationalized Northern Rock in February 2008.

Bank Frauds

Forgery and Altered cheques

In this type of fraud the fraudster alters cheques to change the name or the amount on the face of cheques and deposit it in some other account. Instead of tampering with a real cheque, fraudsters may forge a depositor’s signature on a blank cheque. They would subsequently cash the fraudulent cheque through another bank and withdraw the money before the banks realise that the cheque was a fraud. This type of fraud is common but petty and do not sink banks.

Accounting Fraud

In order to hide serious financial problems, some businesses have been known to use fraudulent bookkeeping to overstate sales and income, inflate the worth of the company’s assets, or state a profit when the company is operating at a loss. These tampered records are then used to make fraudulent loan applications in a final attempt to obtain more money and delay the inevitable collapse. These frauds can cause serious loss but do not sink banks. Examples of accounting frauds include the collapse of Enron, WorldCom, Satyam and the present Gitanjali Daimond scam.

Demand Draft Fraud

Demand Draft (DD) fraud typically involves one or more corrupt bank employees. The employees remove a few DD leaves or DD books from stock and write them like a regular DD. Since they are insiders, they know the coding and punching of a demand draft. Such fraudulent demand drafts are usually drawn payable at a distant city without debiting an account. The draft is cashed at the payable branch. The fraud is discovered only when the bank’s head office does the branch-wise reconciliation, which normally take six months. By that time the money is gone. These frauds are routine and hurts customers more than banks.

Rogue traders

A rogue trader is an authorized trader at an investment bank or financial institution who engages in unauthorized trading to recoup loss he incurred in earlier trades. Out of fear and desperation, he manipulates the internal controls to circumvent detection to buy more time. This kind of

unauthorized trading activities invariably produce more losses. A few working out of institutions with lax controls were not discovered until the loss had reached well over a billion dollars. Rogue traders may not have criminal intent to defraud their employer. He may be merely trying to recoup earlier loss and save his Job. This type of frauds have sunk banks like Baring Bank, UK, Daiwa Bank, Japan, Sumitomo Corporation, Japan. Other banks which lost billions but survived are Societe Generale, UBS and JP Morgan Chase.

Fraudulent loans

One way to swindle a bank is to take a loan and not pay back. The borrower is a business entity controlled by an unscrupulous businessman assisted by a corrupt bank officer or officers. The borrower simply flees abroad and the money is gone. The borrower may provide false information or forged documents to hide a credit history filled with financial problems and unpaid loans to corporations and may use accounting fraud to overstate profits in order to make a risky loan appear to be a sound investment for the bank. This kind of fraud can be prevented if the bank does proper due diligence before granting loans.

Wire transfer fraud

Wire transfer networks such as the international SWIFT interbank fund transfer system are tempting as targets as a transfer, once made, is difficult or impossible to reverse. These networks are used by banks to settle accounts with each other. Banks are expected to have checks and balances in place to prevent fraud. But insiders may use forged documents which allow money to be transferred to another bank, often an offshore account in some distant foreign country. A corrupt bank officer may approve the withdrawal. The bank or institution suffers a substantial monetary loss.

Bill discounting fraud

The fraudster gains the bank’s confidence, by posing as a genuine, profitable customer. Initially repayments are made on time. After the fraudster has gained the bank’s trust, he asks the bank to begin paying the company up front for bills. Bank management may agree or be bribed to agree. Finally, when the outstanding balance between the bank and the company is sufficiently large, the fraudster disappears with the money leaving no one to pay the bank. These frauds are rarely large and do not sink banks.

Money laundering

Money laundering is used to describe any scheme by which the true origin of funds is hidden or concealed. Money laundering is the process by which large amounts of illegally obtained money (from drug trafficking, terrorist activity or other serious crimes) is given the appearance of having originated from a legitimate source. (www.en,wikipedia.org/wiki/bank-frauds )

Bank Frauds in India

As per article “ICICI Bank, SBI, StanChart top bank frauds list: RBI” PTI, Mar 12, 2017, Times of India,

as many as 455 fraud cases involving Rs 1 lakh and above were detected during the first nine months of 2016 in ICICI Bank. The ICICI was followed by SBI (429), Standard Chartered Bank (244) and HDFC Bank (237). The other banks which reported large number of frauds to the apex bank during the period include Axis Bank (189), Bank of Baroda (176) and Citibank (150). In all, 450 employees were involved in fraud cases in different public and private sector banks during April-December 2016, in 3,870 cases involving a total value of Rs 17,750.27 crore. It will be seen that Private Sector banks are as prone to bank frauds as Public Sector Banks. These frauds mostly happen with the involvement of insiders, the bank staff. But the errant staffs are rarely punished if at all. Publicity is avoided.

Bank Failures in India

The Article “Of unsecured loans & bank failures” by Shenoy Karun | TNN | Dec 8, 2016, Times of India, discusses bank failures in India. All the failed banks were in the private sector and most were cooperative banks. Some banks in trouble in Kerala were merged with Public Sector Banks like State Bank of Travancore and Canara Bank. 18 Indian co-operative banks were liquidated during the economic year 2008-2009.

Conclusion

There are very few Public Sector Banks in the Developed World. Most of the major bank failures are in the US and all of them are private banks. The US government bailed out banks and financial institutions by over $800 billion. Two banks, Northen Rock in Uk and Long Term Credit Bank, Japan, were nationalized when they failed.

It will be clear that Privatization of Public Sector Banks is no solution to the fraud problem in the banking sector. RBI, the Finance Ministry and the banks themselves must take the matter far more seriously than what they are doing at present. There has to be a balance between effective regulation by banks and ease of doing business. Bank depositors must be protected. Laws must make bank frauds criminal offences. Errant Bank employees and auditors must be jailed. RBI must fine banks heavily whenever money laundering by a bank is detected. The Government must device ways to deal with unscrupulous businessmen who loot and scoot. Businesses of wilful defaulters must be immediately nationalized and sold. This will save jobs and enable the lenders to quickly recover their money. Cases will not linger for years.

Are We Indians More Corrupt than People of the Develope World?

Sunday, February 25th, 2018

Are We Indians More Corrupt than People of the Developed World?

By

Col (Retd) Bhaskar Sarkar VSM

There was a category of elite, England educated or English speaking wealthy Indians in British India who believed that “West is Best” and Indian natives are incapable of governing the country. They wanted India to remain a British colony. These people who worshiped the British, loved all things foreign and criticized all things native over pink gin or whiskey sour at their favourite clubs were known as Westernized Oriental Gentlemen or WOGs. They along with the Hindu Mahasabha and RSS did not take part in the “Quit India Movement” or the independence struggle and drowned their sorrow in their liquor of choice on 15 August 1947. Though the British have left, there are many WOGs among us, particularly foreign returned, who find nothing right in today’s India. They naturally think that India is more corrupt than the developed world and “West is the Best”. This article seeks to look at corruption in the developed world so that my readers can assess the truth for themselves.

Corruption is essentially of two types, political corruption and government departmental corruption. Politicians have to fight elections which cost money. One way of raising this money is doing favours and accepting illegal gratification. Politicians think of this as acceptable. Soon the greed of getting rich overtakes need and corruption increases. Political corruption, as we shall soon see, is a worldwide phenomenon. Government departmental corruption is not as widespread. It is very widespread in India and needs to be tackled on war footing. Parties in power do little to curb it as the parties collect funds through these officials for party coffers and public functions attended by leaders. When political leaders of the ruling party hold huge election rallies, foundation stone laying or tape cutting ceremonies, someone has to pay for the stage, seating, auditorium, electricity, public address syste, conveyance and payment to muster crowds. This is a justification for ignoring departmental corruption.

Corruption in Japan

I was always under the impression that Japan was one of the most disciplined, ethical and honest country. I was surprised to see that corruption has been a fixture of Japanese politics for a long time. Japanese don’t seem to be upset or outraged by it. Much of the corruption revolves around construction companies trying to secure money for infrastructure projects. A common practice is for bureaucrats to award a contract to a construction company and for that company to reward the bureaucrat with a high-paying job when he retires from the government. Perhaps this is why there is a lot of emphasis in the BJP Government on road projects and very little on water supply, public health and education.

Small-scale corruption is common. Much like in India, businessmen give expensive gifts every year to the bureaucrats, and politicians. American businessmen doing business in Japan say that a little “grease” is necessary to quickly get through the bureaucracy.

Prime Minister Kakuei Tanaka was forced to resign in 1974 because of corruption allegations. He was arrested for taking bribes in 1976 when scandal came to light in which the aircraft maker Lockheed paid top officials in the Japanese government in return for their help in a deal to sell L-1011 Tri-Star jets to All Nippon Airways.

Prime Minister Noboru Takeshita was forced out of office in April 1989 after members of his party, the LDP, were implicated in the shares-for-favors Recruits scandal. LDP leader Shin Kanemaru was among those forced to resign. One of Takeshita’s top aides committed suicide. Does it sound like “Vyapam Scam” in MP.

Two Ministry of Finance officials were arrested for demanding that bankers take them to restaurants where waitresses in short skirts with no panties serve guests, and for a $100 tip will bend over for the customers. The bankers dished out over $100,000 to avoid investigations into bad loan scandals.

In April 1998, two former Finance Ministry were indicted for receiving $69,000 in bribes from five companies in the form nights out at restaurants and golf trips.

About 90 percent of the road contracts in 2006 was done without bidding. According to one tally nearly 60 percent of the 1,248 former bureaucrats involved in road work got jobs after they retired with one the top 10 companies that do road work.

In May 2007, Agriculture, Forestry and Fisheries Minister Toshikatsi Matsuoka, committed suicide by hanging himself when faced with tough questions on the spending of $240,000 over five years on water, heating and other expenses that are provided free to lawmakers.

These are just a few examples. Those who are interested in knowing more about corruption in Japan are requested to visit www.factsanddetails.com/japan/cat22/sub146/item799.html .

Corruption in UK

The list of political corruption in UK is huge. I will list a few major ones that took place after 2010.

On 29 May 2010 Chief Secretary to the Treasury David Laws resigned from the Cabinet after the Daily Telegraph newspaper published details of his claiming around £40,000 in expenses on a second home owned by a secret partner between 2004 and 2009 which was illegal.

On 14 October 2011 Secretary of State for Defence Liam Fox resigned from the Cabinet after he allowed his personal interest and government activities to become blurred.

In April 2014 Maria Miller, the Culture Secretary resigned following an investigation into her past expenses claims.

For more on political corruption in UK please visit https://en.wikipedia.org/wiki/List-of-political-scandals-united-kingdom

Coming to departmental corruption one in 20 people in Britain say they have paid a bribe for services. One in five Britons said they had resorted to bribing people in the judicial system, while almost one in ten said they had paid a bribe while in contact with the police. Seven per cent said they had bribed education officials, while 11 per cent of people who had contact with the registry and permit services or land services said they bribed officials. http://www.dailymail.co.uk/news/article-2358665/UK-corruption-getting-worse-poll-finds-20-Britons-admit-bribing-public-service-officials.html

The UK has been a prime location for stashing away illicitly gained wealth and sanctuary for economic offenders from all over the Commonwealth. Its anti-money laundering systems are weak. Transparency International said that tens of billions of pounds of corrupt money are being laundered through the UK each year. But most Britons do not seem bothered by this. In 2012 HSBC, the UK’s biggest bank, paid a record $1.9bn fine to settle claims by the US authorities that it had allowed Mexican drugs traffickers to deposit thousands of dollars a day in HSBC accounts. For more details see www.independent.co.uk/news/uk/crime/uk-is-a-global-corruption-hub.html

Corruption in the US

Some forms of corruption like lobbying are legal in the US. Here I present some cases of corruption which took place in Barack Obama administration (2009–2017).

Cornie Brown, a Congresswoman was convicted of 18 federal counts including tax evasion, fraud, wire and mail fraud and sentenced to five years in federal prison in 2017

Bob Menendez, an U.S. Senator, was indicted on charges of accepting bribes in 2015.

Congressman Chaka Fattah was found guilty on 23 charges which included racketeering, money laundering and fraud. He was sentenced to 10 years and resigned from Congress on June 23, 2016.

Congressman Aaron Schock resigned from office after evidence surfaced that he used campaign funds for travel and redecorated his office with taxpayer funds in 2015.

Congressman Rick Renzi was found guilty of wire fraud, conspiracy, extortion, racketeering, money laundering, and making false statements to insurance regulators in 2013.

Congressman Jesse L Jackson pleaded guilty of fraud for using $750,000 of campaign money to buy personal items such as stuffed animals, elk heads and fur capes.

Congressman Michael Grimm pleaded guilty to tax fraud on December 23, 2014, and was sentenced to eight months in federal prison.

Fred Pagan, Office Administrator to US Senator Thad Cochran was sentenced to 30 months in prison for possession of methamphetamine with intent to distribute in 2016.

Eastern Louisiana Federal Judge G Thomas Porteous was unanimously impeached by the US House of Representatives on charges of bribery and perjury in March 2010.

For more on corruption in the US see https://en.wikipedia.org/wiki/List-of-federal-political-scandals-united-states

Conclusion

I am not trying to condone corruption in India. Corruption, both political and departmental is bad for the country and needs to be rooted out. But it is not as big an issue as our beloved PM and his cronies would like us to believe. Neither is Congress Party the fountain head of corruption. It is just that they have been in power for most of the 70 years of independence. The other parties are equally corrupt and enrich themselves whenever they are in power.

There are more important issues facing the country like providing drinking water, creating jobs, stopping or taxing imports from China and other countries and creating a level playing field for our manufacturers, solving the problems of our farmers, filling up vacancies in government and judicial organization and setting up fast track courts for tackling corruption.

I also belive that communalism, caste based violence, and politics of hate are more damaging to the country than corruption. Mistakes will occur when work is done and some corruption is inevitable. But we cannot stop economic activity and development to stop corruption as demonetisation did.

I do not agree with some of my WOG friends and relatives that we need to hang our heads in shame because of corruption in India. What we need is zero tolerance to corruption. We need to appointment Lopkpal and Lok Ayukts with dedicated investigating resources, the Whistle Blowers Act, strengthening of RTI and fast track courts to deal with corruption. We also need to get tough with countries like UK and Switzerland which shelter our economic offenders and break off diplomatic and economic relations if they continue with their support to money laundering and economic offenders.

Has India Progresses Satisfactorily Since Independence?

Sunday, February 25th, 2018

Has India Progressed Satisfactorily Since Independence?

By

Col (Retd) Bhaskar Sarkar

My cousin brother, aged about 65, a Modi admirer and Congress hater, is of the opinion that India has not made satisfactory progress since independence. I concede that every individual has the right to have and live by his own convictions. I believe that India has made remarkable progress compared other countries which became independent about the same time. The progress has to be seen in the background of its state of development, non availability of financial resources, trauma of a violent partition and the mass migration that followed and a huge illiterate, indisciplined  population fragmented by religion, caste, language and ideology. I would therefore like to lay before my learned audience the progress that I have seen during my working life which began in 1963 and leave it to them to decide whether we as a nation have made adequate progress and which political party made this development possible.

Progress I have Seen

As a young army officer undergoing training in College of Military Engineering, Pune in 1964, we used to ride bicycles to our classes and club. Today, about 20 lakh two wheelers are sold in India every month. 90% households in cities and 60 % in villages have two wheelers. School and college going children use two wheelers.

In 1964, it used to take 10 hours to go by meter gauge train from Siliguri to Banarhat in Dooars, about 200 kms. Now it , takes 3 to 4 hrs. There was no railway bridge over Ganga at Farakka or over Bramhaputra at Guwahati. Since then, meter gauge lines have mostly been converted to broad guage, steam engines have been replaced mostly by indigenously produced electric and diesel engines. Konkan Railways, about 600 km of new railway line across one of the most difficult terrain has been constructed. The railway network has been extended to Srinagar over the Pir Panjal range and into the forests of Madhya Pradesh, Jharkhand and Chattisgarh. Many amazing tunnels and bridges have been built using state of art technology.

In 1964, an illiterate person could become a jawan in the Army. Today matriculation is the minimum qualification. My non matriculate sevadar’s son is an IT professional working with a British company in Bangalore and earning Rs 1 lakh per month and having company car. The daughter of a daily labourer in my friends factory is an MBBS doctor. How many countries can boast of such upward mobility?

We fought the Pakistani Patton tanks in 1965 with World War II vintage Centurion and Sherman tanks whose rounds used to bounce off the Patton armour. By 1971, Indira Gandhi had modernized the Indian Army with Soviet equipment. We defied US, defeated Pakistan and liberated Bangladeh. No new artillery gun or fighter aircraft has been acquired since 1989.

My father could not afford a car in his life time. I bought mine in 1971 when I was 31. A car then cost 20 month’s salary. There were only 3 car makers. Maruti Udyog, the 4th, was started by Sanjay Gandhi in late eighties. Today, there are over a dozen companies selling about 6 million cars a year in India. A car costs 6 to 10 months salary.

Hundreds of dams have been built all over India to harness rivers for irrigation and power generation. The Bhakra Dam and the Indira Gandhi Canal from Fazilka in Punjab to Barmer in Rajasthan have converted many barren districts of Rajasthan into grain bowls. Millions of hectares have been irrigated. How many dams have been started since 1999?

I was Chief Engineer of a Border Roads Project in 1985. Road construction was mostly done manually. Today, road and bridge construction is completely mechanized with pavers, dumpers, bitumen plant, mass concreting etc.

The first computers made their appearance in government offices in 1985. No one knew how to use them. By 2000 almost all offices in public and private sector were using computers and e mails. Today, typewriters are obsolete. All communications and design calculations have been computerised. Indian IT companies and professional dominate the world.

After retirement from army I settled down at Alwar in Rajasthan in 1994. It is a district headquarters. The waiting time for a land line was three years. By 2000, you could get a broad band connection in days. At the time only 10% girls went to school. Today, the number is almost 100%. Agriculture is mostly mechanized. In 1994 the vegetable vendors had not heard of mushroom, baby corn or broccoli. Today these are locally grown and easily available. There wasn’t a single engineering college in the district in 1994. Today there are 4. My part time maid has TV with DTH, two refrigerators and two motor cycles in the family. In  1994, the cycle rikshaw was the main public transport. Today, in addition, we have six seater light commercial vehicles, auto rikshaws and battery operated rickshaws. Everyone from managers to maids have mobile phones.

Who should get Credit for the Progress?

A lot of the progress is individual driven. There is some complacency in the children of the top dogs many of whom rely on the wealth, family business or influence of their parents to get ahead in life. But there is a strong desire among the children of the underdogs to get ahead. It is for the governments to provide the opportunities and level playing fields for everyone to become prosperous.

Congress has been in power at the Centre from 1947 to 1999 when BJP under Mr. Vajpayee came to power and again from 2004 to 2014 when Modiji came to power. The short stints of coalitions governments under Mr. VP Singh, Mr. Chandra Sekhar, Mr. Raj Narain, Mr. Deve Gowda and Mr. Gujral could do little. Thus the progress made by India and Indians has been due to the vision and policies of Congress leaders like Pandit Nehru, Lal Bahadur Shastri, Indira Gandhi, Rajeev Gandhi, Narsimha Rao and Sonia Gandhi. Mr. Vajpayee also made a great contribution with his development of national highways and the Pradhan Mantri Grameen Sadak Yojna.

Modiji talks of “Make in India”. Pandit Jawarlal Nehru started “Make in India” even before Modiji was born. Modi talks of doubling farmer’s income. The “Green Revolution” which enabled India to transform from a grain importing nation to a grain exporting country was started by Lal Bahadur Shastri and actually doubled farm incomes.

Indira Gandhi persuaded Sikkim to join India and liberated Bangladesh in spite of US opposition and its 7th Fleet. Compare it with the “Surgical strikes by the Indian Army” which BJP leaders and the pro BJP media never tire of chest thumping and talking about.

Mr. Modi talks of acting against hoarders and black marketers. Mrs. Gandhi launched action against hoarders and black marketers and nationalized banks to prevent public money being used by hoarders and black marketers in the 70s. Now under BJP industrial houses have been allowed to open banks so that they can use public money for private business. Mrs. Sonia Gandhi legislated RTI so that corruption can be exposed while BJP governments of Maharashtra and Rajasthan have brought in gag orders to prevent exposure of corruption. The Law Ministry is working overtime to dilute RTI. Modiji has not appointed Lok Pal to prevent BJP corruption from being exposed. Now NIMO threatens the existence of NAMO.

Congress launched Indira Awas Yojna much before Modi launched PM Awas Yojna. Modiji talks of digital India. It was Rajeev Gandhi who brought in Sam Pitroda and launched the IT revolution and broad band communication network which we take for granted today. It was Manmohan Singh who launched the economic liberalization.

Amul was the start of large scale milk and milk product production that pushed India to be world’s second largest milk producer. It was launched during Congress rule in Gujarat. BJP has stopped sale of unproductive cows. This will damage the dairy industry.

GST was conceived by Congress but launched by Mr. Modi. Aadhar was launched by Congress and usurped by BJP. India’s longest road bridge and longest tunnel were started by Congress but inaugurated by Mr. Modi. Narmada Sagar Dam was started by Congress and credit usurped by Modiji.

How many young men and women know about Congress’s contribution to India’s development? Congress does not know how to project their achievements. Mr. Modi and BJP are experts at taking credits for other’s achievements and make small achievements seem earth shaking.

GDP as Yardstick of Progress

A lot of people measure progress in terms of GDP growth. I find it illogical. In calculation of GDP, producing 25 ltrs of milk costing Rs 40 per ltr is equal to consuming one bottle of whiskey costing Rs 1000. How can the two be equal? This method has been adopted by economists of the Western Economies to maximise the contribution of Capital and technology over which the Western Powers and their multinational companies have a strangle hold. The GDP method encourages conspicuous consumption and seeks to maximise corporate profit. It also makes developing countries borrow from IMF and lose economic sovereignty. Measurement of progress by measuring human development index will focus our progress to employment, food security, healthcare, education and preserving the environment.

Conclusion

Has India progressed? It is for my learned readers to decide. My grand children cannot even imagine what India was in the 1950s or 1960s. I wish they are keen to know the truth. Unfortunately, not many young people have time or desire to know to know the true story of India’s partition and progress.

Our leaders are humans. They make mistakes. Hitler attacked Soviet Union and led Germany to defeat. Japan attacked Pearl Harbour, forced the US to join World War II and surrendered after Hirosima and Nagasaki. President Kennedy got US into Vietnam and President Bush into Iraq and Afghanistan with disastrous consequences for the US. The list is endless.

Political corruption is universal and not a special trait of the Congress. President Lula of Brazil is in jail. President Zuma of South Africa and Prime Minister of Pakistan Mr. Nawaz Shareif have been forced to resign and could end up in jail. Ex President Clinton gets $750,000 and PM Blair a smaller sum for a lecture which is a cover for lobbying. The list is endless. NIMO is the first major scam to come to light during BJP Raj. We have to wait till BJP is out of power to know about corruption among their ranks. So please be fair in your judgement.

Mayhem in the Market

Wednesday, February 7th, 2018

Mayhem in the Market

By

Col (Retd) Bhaskar Sarkar VSM

Markets around the world have been jumping up and down, mostly down, since February 2, 2018. The reason for the slide in the Indian Markets could be due to the Indian budget. But what about the markets around the world? I see almost every English Channel around the world every day. I have seen no major upheaval anywhere. It is true that markets have been rising every day for years. At best a correction is due and desirable. At the worst, the bubble is beginning to burst and a collapse is around the corner.

Most analysts will have us believe that the downswing is just a normal correction. There is nothing to worry about market stability. The fundamentals are excellent. Just buy at the dips at the dips is what they advise.

The pessimists like me are not so sure. I believe that if there is smoke, there must be a fire somewhere. What could trigger a collapse of the market like in 2007/08?

Possible Reasons

Collapse of the UD dollar could be one reason for collapse. One of my friends had warned me about this about 3 months back. In my opinion the US dollar is overvalued. The US is the world’s biggest debtor with a debt of over $20 trillion. It printed the Greenback on as required basis since 2000. It has a large trade deficit and astronomical defence expenditure. The Quantitative Easing (QE) at $90 billion per month for about 8 years has created a huge liquidity in the market which has been pushing up share prices as unlimited money supply chases limited number of shares. The US dollar remains strong because most major economies of the world want it to remain high so that their products remain cheap and competitive on the US market. However, as the US tries to restrict imports from China, Japan, Korea, EU and Mexico by imposing import duties, the incentive to keep the dollar strong may be reducing. As China seeks to enhance its super power status, it would like to project the Chinese Yuan as the most stable currency. So it could decide to destabilize the dollar by selling some of its huge holdings of US bonds. Chinese rating agencies do not rate the US dollar very high. US do not have reserves to defend the dollar.

Stock valuations

I read somewhere that the price of a stock should be around 15 to 20 times the earning per share. Today, prices of most shares are above 30 times the earning per share. Thus a major correction becomes a distinct possibility.

War

There are many conflict zones in the world like North Korea, South China Sea, Iran, Syria, and Afghanistan. There is a possibility of a clash between the US and Turkey as Turkey tries to pushback the Kurds from its borders. There is also the possibility of a clash between Israel and Hezbollah over Israeli missile attacks on Hezbollah and Iranian bases in Syria. But these would not destabilize the world. Threat of war is least likely to be spooking the markets.

US Politics

US politics has turned ugly since Trump won the Presidency. There seems to be pathological hatred between the Republicans and the Democrats which is not good for the US and the world. Winning and losing elections is a part of democracy and the will of the people should be accepted gracefully. Unfortunately, that is not happening. Democrats want to discredit Trump. In his State of the Union speech, Trump claimed credit for the rise is US markets over the last year. Some Democrat moneybags may be trying to crash the market to discredit Trump. Republican moneybags could be trying to stabilize the market and hence the rebound. This could be the reason for the recent volatility.

LCGT

The 10% tax proposed on Long Term Capital gains could have spooked the Indian stock market. Most Indians hate paying tax and will go to any length to avoid paying it. The withdrawal of tax on Long Term Capital gains has encouraged all and sundry to invest in mutual funds in the hope of tax free gains. I have never been able to understand why governments of all hues have tried to encourage speculative activity by making it tax free while making manufacturers, traders, service providers, salaried class and consultants pay tax through their noses. This not only totally unfair but diverts funds from productive activities which create employment and real wealth to speculative activity which does not create employment and generates virtual wealth which can disappear in a day. I congratulate Mr. Jaitly on introducing the tax and hope that the next budget will make tax on capital gains from shares at par with any other capital gains. This tax has no effect on the global market.

Conclusion

I am not an investor, financial advisor or fortune teller. I am an humble writer who is not being paid for this piece. So it is not even paid news. I have no idea as to how the markets will behave in the coming days. For all you know, by the time this is published, if at all, the Bulls may be charging up the mountain again. However, I am convinced that if there is danger to economic stability in the world it lies in the value of the US dollar and US politics. If you are an investor using your own money, please go ahead and do what you please. If you are playing the market with someone else’s money or borrowed money, you may like cash your holdings and wait on the sidelines for better times.