It seems like billions of gallons of water have flown down the Ganga since the first page of a newspaper made some gratifying headlines. It’s mostly the same disappointing narrative every morning. The positive news, if any, comes mostly in the form of government claims, which I find hard to accept on their face value.
Yesterday (Tuesday, 12 July 2023) was apparently one of the usual days. The newspapers were full of disappointing news relating to accidents, crimes, disasters, and platitudes. However, I found five headlines which appeared particularly alarming. These headlines highlight apathy, inconsistency, and incompetence of policymakers. While it may not be a revelation to anyone; what amazes me is the steadfast refusal of a majority of newspaper readers to question the otherwise claims of the government.
As an investor, I find it critical to take note of these headlines, because these underline the risks to the India Story, which is gaining currency again.
Hill states devastated again
The hill states of Uttarakhand and Himachal Pradesh have suffered tremendously from rather frequent episodes of cloud bursts, floods, and landslides etc., in the past one decade. Despite several objections from the environmentalists, local residents, and geology experts the governments have continued with mindless deforestation and construction. The authorities have ignored strong warnings from Mother Nature on multiple occasions. The Kedarnath (2013) Uttarkashi (2019), Vishnu Prayag (2021), Joshimath (2023) flash floods/landslides being the most (in)famous ones.
I have also been frequently highlighting the unsustainability of the development efforts in hill states and apathy, and incompetence of the implementing agencies. (For example see Save the Dev Bhoomi, for God sake and Exploring India )
The destruction of the ecology of Himalayas could have a devastating impact on the Indian economy in the coming decades. The total failure of conducting a comprehensive impact analysis of the infrastructure projects in hill states and even poor execution of the ill-conceived projects highlights the incompetence of respective authorities.
We all need to appreciate that images and videos of these frequent disasters are not like usual Social Media reels. These will soon come to haunt every citizen of this country in the form of water scarcity, unusual hot and cold weathers, and erratic rainfall patterns.
Highways
A school bus, speeding on “wrong side” in “broad daylight” on “Delhi Merrut Expressway'' hit an SUV killing at least six passengers travelling in that car. The school bus was apparently taken off the school duty a while back and deployed to ferry staff of a garment factory; but it was still bearing school color (yellow) and carrying school name on it.
This is yet another episode that highlights the poor highway planning and management; total regard for traffic discipline; criminal apathy towards fellow co-travelers on highways; total lack of training and orientation for highway users and lack of oversight on highways.
I have been frequently highlighting the problems in the highway development program of India for the past many years. For example see This highway - my way and A road trip to Western UP and Uttaranchal and Highways Security and safety
Recently, the government claimed that India has surpassed China to become the second longest highway length in the world. What it did not mention was the sharp rise in the number of fatal accidents on our highways. The issue of poor quality of highways also did not find any mention.
The government also does not acknowledge that over 60k kilometers of highways need a dedicated highway police to ensure safety of travelers and prompt action on repairing needs.
28% GST on gaming
The GST council in its meeting on 11h July 2023 recommended imposition of 28% GST on full value of online gaming, hors racing and casinos with no distinction between games of skill and chance.
Roland Landers, CEO of All India Gaming Federation (AIGF), termed this decision of the GST Council “unconstitutional, irrational, and egregious”. He said, “the decision ignores over 60 years of settled legal jurisprudence and lumps online gaming with gambling activities".
Without going into the morality issues concerning online gaming, casinos and other forms of betting and gambling, I would like to highlight the inconsistency and arrogance of policy making, especially the taxation policies.
In the past one decade, the government has knowingly allowed numerous gaming startups to flourish. All these startups have been eligible for various startup incentive schemes of the government. The government has also allowed casino licenses. Now when the industry has reached the take off stage, it has made this debilitating policy announcement.
I am not sure about the common narrative of the existential crisis for the industry that may imperil thousands of jobs and millions of dollars of investment. My concerns are two-fold:
1. This sends a strong signal to the global investing community about the tentativeness and volatility of the policy environment in India, discouraging them to invest in India. Remember, it has come at a time when the foreign investors are already witnessing massive write-downs in their investments in entities like Byjus, Pharmeasy etc.
2. The move is prima facie unsustainable legally. It may lead to avoidable litigation that could protract for years, keeping the entire industry on tenterhooks.
To a common man, chips in a casino are bearer instruments like currency notes. These could be converted into currency notes "on demand". Merely converting cash into chips does not constitute buying a "Good" or "Service". Taxing the conversion of cash into casino chips @28% is, as Roland Landers said, “unconstitutional, irrational, and egregious”, liable to be set aside by a court of law.
Corporate governance
The Taiwanese electronic giant Foxconn reportedly called off the joint venture to set up a US$20bn semiconductor fabrication (fab) unit in the state of Gujarat, announced a few months ago. The joint venture was widely hailed as a watershed in the manufacturing history of India. The JV was formed in pursuance of $10 billion government-backed financial incentive scheme (PLI).
Post the announcement of termination of JV, Rajeev Chandrasekhar, minister of state for electronics and information technology, tweeted that it was well-known that both companies had no prior experience or technology and were expected to source fab technology from a technology partner.
Reportedly, Foxconn has separately announced that it will pursue the plan to set up five Fabs in India, on its own or with other partners.
On 7 July 2023, Vedanta Limited had informed the stock exchanges in a filing that “that the Board of Directors at their meeting held today, July 7, 2023, have considered and approved the acquisition of 100% of Vedanta Foxconn Semiconductors Private Limited (“VFSPL”) and Vedanta Displays Limited (“VDL”), wholly owned subsidiaries of Twin Star Technologies Limited (“TSTL”) via share transfer at face value. TSTL is a wholly owned subsidiary of Volcan Investments Limited, the ultimate holding company of Vedanta Limited.”
On 11 July 2023, the stock exchanges sought clarification from Vedanta Limited about the newspaper item titled "Foxconn Withdraws from Rs 1.5 Lakh Crore Vedanta Chip Plan In India". The company had not replied to the BSE communication till evening of 12 July 2023.
This development raises three serious questions:
1. How did the government approve and celebrate the US$20bn proposal of two totally inexperienced players in a highly advanced and mission critical technology project? This raises questions on the entire PLI scheme, which has seen a much below par execution so far.
2. Why did Vedanta not inform stock exchanges and shareholders about termination of plans a week ago?
3. Why Foxconn and Vedanta are not obliged to inform the government and public what led to the termination of their JV? Was it some corporate governance issues at Vedanta or Foxconn?
7th Cheetah dies at Kuno national park
Not long ago eight Cheetah, imported from Namibia, were introduced in the Kuno national park, Madhya Pradesh, with much fanfare. The event led by the prime minister himself was made into a national celebration, with the entire union cabinet joining in congratulatory messages. Yesterday, seventh of the eight imported Cheetahs has reportedly died. Earlier, four Cheetah imported from Singapore in Gujarat, had also met the same fate. Apparently, nothing was learnt from the past experience.
The point is that the government has been repeatedly using frivolous issues to distract the citizens. Absolutely mundane events like introduction of an animal to a zoo; starting a new train or boat cruise etc., are turned into a massive show of nationalism and celebrated as a massive achievement with no follow up or consequence.
