"Don't talk about
yourself; it will be done when you leave."
—Wilson Mizner (American,
1876-1933)
Word for the day
Gaucherie (n)
Lack of social grace,
sensitivity, or acuteness; awkwardness; crudeness; tactlessness.
Malice towards none
Could Iran emerge as new
favorite destination of Indian tourists who have made enough rounds of Dubai
and Phuket?
First random thought this morning
Digvijay Singh is a master strategist. He has always been
successful in deflecting the attacks on the Congress leadership by trivializing
the debate. For instance, in the current episode, people are discussing nuances
of cardiac surgery vs. cosmetic surgery rather than seeking accountability of
the Congress leadership towards millions of voters who have traditionally voted
for them. No one is even asking the Congress Party to make the reports of
various committees on previous election debacles public along with the action
taken on such reports.
Only Delhi CM Arvind Kejriwal can match the strategic skills of
Diggi Raja.
Still trying to make money from politics? - Part 2
Though in principle I strongly believe that politics of the day
has little influence on the financial markets in the medium to long term, it
does cause short term volatility.
The market participants from my generation would remember the kind
of Euphoria caused by the "Dream Budget" of 1997 presented by P.
Chidambaram. The market and industry were ecstatic over the new bottle which
was half full with country liquor (no wine). The proposed financial sector
reforms (Narsimham 2.0) and tax reforms (Chelliah 2.0) lacked any innovation
and political commitment. Nifty which rose from 997 to 1252 after the 1997
budget fell 10% by the end of 1998. Similarly, the fabled reformist NDA I
government 1999-2004, saw Nifty rising by just 10% over October 1999 to May
2004 period.
Anyone who tried to make money from political developments in this
period lost heavily. Particularly, people who bought disinvestment stories in
NDA-I regime and random NBFCs in UF regime.
On the contrary, Nifty rose from 390 to 1100 in five year regime
of PV Narasimha Rao. Reeling under the shocks of Harshad Mehta scam and
subsequent market crash, no one believed in that rally and very few
participated in 2.5x upside. The Modi wave in the market has also subsided. I
do not hear many claims of making a kill in this wave, either.
The point is that any attempt to make profit from political
developments, in India context especially, is mostly futile. Like buying
railway vendors ahead of Rail Budget and fertilizer stocks ahead of monsoon
forecast, it could be an entertaining show. But it rarely helps making any
significant gains.
As I have been reiterating rather frequently, that the governments
in past 25years have mostly adopted similar socio-economic policies
consistently irrespective of their form or constitution.
For example consider the following:
1. The process of
meaningful tax reforms was started by the then finance minister V. P. Singh
(Congress 1984-89) by rationalizing the tax slabs, lowering maximum marginal
tax rates substantially, rationalizing wealth tax and introducing CENVAT. The
recommendations of Raja J. Chelliah Committee (1991-93) on tax reforms
constituted by the government (Congress 1991-96) have since formed the basis of
tax reforms in India. All successive governments have implemented these
recommendations. No government has sought to reverse or alter the process
started by Congress government (1984-89). These recommendations formed the core
of the now discarded Direct Tax Code. The origin of the tax proposal like lower
tax rate with lesser exemptions and no wealth tax could also be traced to that.
Committees formed under the chairmanship of other members of Raja
Chelliah committee like Govinda Rao, Partha Shome and Vijay kelkar etc.
subsequently updated the recommendations to provide further impetus to the
entire process of tax reforms in the country.
It was the Finance Minister of H. D. Devegoda led United Front
government who presented the most talked about "dream budget".
2. The recommendations of
Narsimham Committee (1991-92) appointed by Dr. Manmohan Singh, the then finance
minister in the Congress government, have largely formed the basis of financial
and banking sector reforms in the country. Most successive governments have implemented
the recommendations consistently. In fact, P. Chidambram, the then finance
minister in United Front government (1998) had re-appointed the Narsimham
Committee to make recommendations about the second generation banking sector
reforms. The report was submitted in 1999 to the NDA government which accepted
the recommendations. However, almost all governments have failed in building
wider consensus on these recommendations and have failed to implement many of
them. But acceptance and rejection has been very consistence irrespective of
the form and constitution of government.
3. The BJP led NDA
government enacted the Fiscal Responsibility and Budget Management Act (FRBMA)
in 2003. The arch rival Congress led UPA-I government implemented the same in
2004 in letter and spirit. This still forms the very basic of fiscal discipline
both at central and state levels, though implementation was suspended in 2009
in the wake of global crisis and need for stimulus. In FY13 stimulus withdrawal
commenced. The incumbent Finance Minister has committed to achieve the targets
in next three years.
4. The minority government
of Chandrashekhar introduced disinvestment policy first time in 1991. Every
successive government since then has not only accepted the policy in principle
but also tried to actively integrate into the evolving economic model. Almost
all of them have consistently failed in implementing the policy in right
spirit.
5. The then Finance
Minister Pranab Mukherjee sought to implement GAAR or general anti tax avoidance
rules. However, he had to defer the implementation due to concerns expressed by
foreign investors and businesses. Both the successive finance ministers have
kicked the can a little further.
6. Single national market
(GST) is also an idea whose time has come. The incumbent government is poised
to implement the legislation framed by the previous government.
7. Programs such as
cleaning the holy rivers of Ganga & Yamuna and provision of toilets in
every home have been accorded priority by all successive governments. Millions
have been spent on these programs with no evident results. The incumbent
government has adopted the program on mission basis. The execution could make a
difference.
From the above cited example, it is evident clear that the direction
of policy has been mostly same on most accounts during the past three decades.
The difference lies in the execution.
The incumbent government has taken a number of steps to improve
the execution of key policies and programs. The outcome will decide whether the
things are being done differently!
It is however important to note that the P. V. Narasimha Rao led
Congress government and Atal Bihari Vajpayee led NDA government made many
historic departure from the past and took many new policy initiatives.
The end of Nehru era's license, quota & permit raj, abolition
of capital controls and introduction of LERMS, entry of private players in
civil aviation, opening of financial sector, etc. were some major path breaking
reforms introduced by P. V. Narasimha Rao government.
Divestment of major government monopolies like power, roads,
wireless communication, ports, airports, insurance & hydrocarbons, focus on
rural connectivity, deregulation of fuel pricing, and liberal FDI regime were
the key new policy initiatives during the Vajpayee led NDA regime.
The 10years of UPA regime did not witness any major policy
departure. The execution of existing policy norm was poor.
The dominance of market economists (against development &
social economists before) in the consultative bodies of the incumbent
government suggests that we might see a new policy paradigm in next four years.
However, in past 2years of PM Modi led NDA we have not seen any major policy
departure, except dismantling of 6 decade old Planning Commission.
We have though seen many administrative corrections that are
apparently leading to much better execution. The communication with markets and
people has also improved materially.
But anyone who did bet on immediate cyclical recovery and bought
cyclical stocks in summer of 2014 might not be a happy person today, two years
down the line.
Many people have asked about my comments on the current political
scenario and its implications on financial markets.
This post has become unusually lengthy and repetitive. I would
discuss my views on this later in the week.
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