Do it yourself

 Political state of affairs

The latest round of elections concluded with results of five state assemblies announced yesterday. BJP managed to retain their power in two states - Uttar Pradesh and Uttarakhand – with a comfortable majority, though the number of seats is lower than the outgoing assemblies. In two other states – Goa and Manipur - BJP is well placed to make a government. In Punjab, Aam Aadmi Party (AAP) has wiped out the traditional parties (SAD and Congress) in one of the major upsets.

Overall, the latest elections must be seen as continuation of some key political trends that started emerging in the past decade that saw emergence of BJP as a primary political party in the country and decimation of the Congress Party. BJP must be relieved after these elections that saw the entire central government, including the prime minister and home minister. Though less number of seats in Key states of UP and Punjab would mean that BJP leadership would have to remain busy till Presidential election in July are completed with a BJP candidate winning comfortably.

My key takeaways from the latest election are as follows:

·         AAP is well placed to replace Congress in national politics. In next 5years we may see AAP contesting to take Congress space in key states of Madhya Pradesh and Gujarat. That will make AAP a key national party.

·         The Modi-Yogi model of BJP means leaders’ direct connection with the electorate. Historically BJP has relied on the cadres of RSS and VHP for their election campaign. This may allow BJP to gradually move towards centrist politics from the right of the center agenda.

·         Caste is still relevant in Indian politics but the manifestation is changing. The electorates are associating caste considerations more with the candidates rather than the political parties.

·         Digitalization of governance has resulted in closer association of leadership (CM and PM) with the beneficiaries of the government schemes. This trend may continue to benefit the incumbents for next few years, before it is fully internalized by the voters as status quo. In this election free ration during the pandemic has done for BJP in 2022 what MNREGA did for Cong in 2009. But in 2024 it could be the case of Dil Maange More.

·         Women are becoming a major vote bank. This is a positive consequence of rising female literacy and gradually increasing female participation in the labour force. Presently this vote bank is favoring the ruling parties like BJP, TMC, AAP, DMK and JDU etc. But in future elections we shall see all parties specifically targeting this vote bank. The most positive impact of this would be the fading of caste and religion agenda and rise in inclusive politics.

·         UP has seen mushrooming of sub-regional parties. It is becoming a replica of national politics of the 1990s. In the latest elections it was BJP (with 3 sub-regional parties) on one side and 12 sub-regional parties on the other side. The results indicate that most of these sub-regional parties may survive and even BSP may become a sub-regional party. This trend may warrant the splitting of UP into multiple states in future.

·         Post this election, we may see a material increase in the intensity of efforts to form a Non-BJP, Non-Cong and Non-AAP alliance of regional parties.

Economy

The escalation of the war between Russia and Ukraine has material implications for the global economy. The global growth that was anyways slowing down after the effect of pandemic related fiscal stimulus subsided and central banks have started to withdraw monetary stimulus, has taken a noticeable hit. Sharp spike in commodity prices, especially food and energy, is hitting the policymakers as well as the common people.

The Indian economy is also witnessing slowing growth momentum for the past couple of quarters. Rise in global energy prices present a formidable challenge to the economy. If the current level of energy prices sustains for more than a month, the macroeconomic indicators like inflation, current account deficit, currency, and bond yields will all be impacted adversely, putting further pressure on growth.

As per the rating agency ICRA—

·         The current account deficit (CAD) is likely to widen by ~US$14-15 billion (0.4% of GDP) for every US$10/bbl rise in the average price of the Indian crude basket. If the price averages US$130/bbl in FY2023, then the CAD will widen to 3.2% of GDP, crossing 3% for the first time in a decade.

·         If the Centre reinstates the excise duty on MS and HSD to the pre-pandemic rates, before April 1, 2022, followed by the budgeted rise of Rs. 2/litre each on unblended fuel in H2 FY2023, we estimate the revenue loss to the Centre in FY2023 at Rs. 0.9 trillion.

·         In addition to the cut in excise duty, the GoI’s budgeted fiscal deficit would also come under pressure from high fertiliser subsidy requirements and a hit to direct tax collections due to elevated margin pressure for corporates. However, modest nominal GDP growth and tax buoyancy assumptions, and the spillover of the LIC IPO to FY2023 would provide some cushion.

·         Crude oil spike could exacerbate the impact of higher-than-expected FY2023 market borrowings of the GoI on yields. We expect 10-year G-sec yield to range between 7.0-7.4% in H1 FY2023.

·         Large downside risks seen to FY2023 GDP growth forecast of 8.0%, with higher commodity prices to compress margins during the duration of conflict.

As per Kotak Research, “As mentioned in our report Crude cost of someone else’s war, an average crude price of US$120/bbl in FY2023 will (1) cost the Indian economy US$70 bn, (2) increase average CPI by 80 bps and (3) negatively impact growth.

Edelweiss Research notes, “In the Indian context, the indirect economic impact of the conflict would far outweigh the direct fallout in terms of trade flows between India and Russia/Ukraine, which is low to begin with (around 1.5% for Russia and 0.6% for Ukraine). The impact would be felt in the real economy and financial markets alike. Furthermore, the uncertainty and erosion of consumer and business confidence that the crisis brings along could push back the anticipated revival in private investments.”

Emkay Securities highlights, “Higher oil prices can impact growth through multiple channels: 1) higher inflation erodes purchasing power, weighing on consumer demand; 2) lower corporate profit margins due to rising input costs; and 3) deterioration of the twin deficit, with government spending capacity being constrained. Crude at $100/barrel and other commodity shocks in FY23 could shave off up to 80bps of real GDP growth, which could end up below 7.0%.”

SBI Economics cautioned, “The recent geopolitical conflict has brought the focus back on government finances that might be derailed as the conflict intensifies. Against the possible impact on Government finances, the markets are already apprehensive of a larger borrowings. The Government has been quick to clarify that it is unlikely to borrow in March. Beyond this, the RBI does have a host of unconventional measures to manage Government borrowings in FY23 and it is important that debt market understands such nuanced undertows and does not get into a frenzy as it is swirling currently with crude prices threatening to move beyond $120.”

Markets

The markets are witnessing the beginning of an earnings downgrade cycle that may accelerate if the inflation stays elevated and rates firm up.

Kotak Securities highlights, “Market multiples appear ‘expensive’ relative to (1) history and (2) bond yields, despite sharp correction in recent weeks. However, ‘consumption’ stocks may see earnings downgrades from higher-than-assumed crude prices and lower volumes and gross margins. ‘Growth’ stocks are trading at expensive valuations and may see further downside to their multiples; financial stocks, however, are looking reasonably attractive.”

Credit Suisse has tactically downgraded Indian equities stating, “Because of its strong structural prospects and robust EPS momentum, we will look for opportunities to re-enter the market, but today we tactically cut our India position from Overweight to Underweight. Higher oil prices hurt the current account, add to inflationary pressures and increase sensitivity to Fed rate hikes. If Brent crude remained at US$120/bbl, India’s current account would weaken by almost 3 pp of GDP. The market’s big P/E premium magnifies the risks.”

 In the decade of 2000s (2001 to 2010), gold gave superlative returns. The prices of yellow metal increased 3.8x (in USD terms) for the decade. This return had however come on the back of the negative returns for two successive decades (1981-1990 and 1991-2000). In the last decade (2011-2020) the precious metal yielded a return of 39%.

Traditionally it was believed that during periods of high inflation, geopolitical uncertainties, war, money debasement (due to quantitative easing or hyperinflation) etc. gold is a preferred refuge. However, this safe haven status of gold appears to have diminished in the latest episode of high global inflation, unprecedented quantitative easing, and geopolitical uncertainties.

The shortages of goods and skilled workers are troubling the global economy. Unprecedented borrowing and printing of currencies by the US Federal Reserve, Bank of Japan, and European Central Bank has eroded peoples’ trust in official currencies to some extent. As per the conventional wisdom, the situation is quite ripe for a super bull market in Gold. However, so far gold has not witnessed any extraordinary interest. Rather, independent digital assets (popularly known as cryptocurrencies and NFTs) have mushroomed world over to fill the trust vacuum. The new age investors have even preferred equities to hedge against debt and inflation rather than gold.

So far, the movement in gold appears to be driven more by technical trade rather than any fear psychosis, refuge seeking or hedging against risk of large scale war, hyperinflation, or money debasement due to excessive and/or unsustainable debt.

Despite the massive volatility in the exchange rate of Russian Ruble, Shutdown of Russian markets, sanctions on many large Russian global energy corporations, and freezing of billions of dollars in Russian foreign assets, the gold is higher by -11% YTD 2022 in international markets. This is in sharp contrast to the crisis in peripheral Europe (Greece, Iceland, Portugal) in 2011. The prospective default of Greece was less than US$50bn, but gold had spiked more than 30% higher in 2011.

The opinion of market participants is vertically divided on the prospects of an imminent gold bull market similar to the 1970s and 2000s. But I would like to draw attention of the readers to following points:

·         Gold traditionally been a refuge in the periods of crisis, but in recent years the preference for gold has been diminishing.

·         During the decade of 1970s (1971-1980), significant turmoil was witnessed in the global economy. That was perhaps the best decade ever for gold prices. The gold prices recorded an increase of 9x in that decade. But most of that increase came in the last two years of the decade when global crude prices witnessed a sharp increase. In the following two years (1981-1982) the gold gave up 2/3^rd of these gains.

·         During the decade of 2000s (2001-2010) the gold prices increased 3.8x as the world struggled with an unprecedented financial crisis. But most of the gains came in last two years of the decade (2009-2010); and almost the entire crisis time gains were given up in the next five years. Again the rise in gold prices coincided with the sharp spurt in oil prices.

·         Gold has gained about 39% in the decade of 2010s (2011-2020). But ~75% of the gains have come in just 9 months of 2020 when the world was shut down due to the pandemic.

·         The Gold has lost ~11% in the current decade.

·         The gold has shown strong correlation with the oil prices; though correlation with USD and Copper has weakened in recent years. Given the global trend towards clean energy, it is possible that the relevance of gold as a safe haven also diminishes with the use of fossil fuels.

Thus, it could be reasonably assumed that gold continues to be one of the safe havens but much less volatility. The risk reward profile of gold is definitely worsening with the time.

I continue to maintain my stance on Gold. In my view, a new global order will definitely emerge out of the pandemic and subsequent geopolitical events. The new order will address sustainability and equity issues. Gold will not be a key component of the new order. USD may retain its dominance but it shall face serious challenges from other currencies, including the digital currencies.

You may read in detail here:

Gold is not the end game

Bretton Wood is not about Gold

In the past two years, the quintessential argumentative Indian in me, like most of my fellow countrymen, has assumed “expert” status in many diverse fields such as Virology, Epidemiology, Medicine, Macroeconomics, Geopolitics, Defense strategy, nuclear weaponry, History etc. This is besides the Politics, Spirituality, Religion, Astrology and Memelogy (the art and science of making jokes for every important and serious issue) which have been the domains of our expertise for a long time.

Recently, we have been discussing (or trying to direct, if you will) the geopolitical and war strategies of Europe. The government of India may have chosen to stay neutral in the conflict between Russia and Ukraine; but the people have taken sides. More than the countries, we are taking sides of the leaders - The Russian president Vladimir Putin and Ukrainian President Volodymyr Zelenskyy.

Supporters of Putin are mostly playing the “old friendship” card. They are vehemently arguing that Russia is our old and tested friend, while Ukraine has always opposed us at UN and other international fora. It is therefore appropriate for Indians to support the Russians in this war. In their argument, they are happy to omit the issues of human rights; wide scale destruction of civil infrastructure; plight of foreigners caught in the crossfire; and the suffering of the poor in Eastern Europe and Africa who were already suffering from the effects of the pandemic and are now facing food shortages and prohibitive inflation. They are also missing the point that in their support for Russia, they are also (even if unwittingly) supporting a war that has the potential to become a much wider conflict involving the use of weapons of mass destruction. These people are also not recognizing the very close Ukrainian connection of at least three of the USSR premiers (Khrushchev, Brezhnev and Gorbachev) who had taken our side at the time of Goa liberation and Bangladesh independence.

The supporters of Zelenskyy are mostly concerned with the hardships that the common Ukrainians are facing in this war of the unequal. They feel that the acts committed by Russia are a violation of human rights and international laws. By extending their moral support to Ukraine, these people are in fact glamourizing war. They are happy to share pictures of the Ukrainian women in uniform carrying guns and Zelenskyy sharing meals with soldiers. Many of these supporters are just cheering for an underdog, as if it were a game of soccer between the top-ranked Brazil and the bottom-ranked Samoa. These cheerleaders are conveniently ignoring the blatant foreign policy mistakes of Ukraine in the past three decades which may have pushed this beautiful and prosperous country into a perennial conflict, just like Afghanistan and Palestine.

I am against any kind of war that is fought merely to plunder territory, wealth, and/or power. Sometimes wars do become essential to establish the rule of Dharma (righteousness). For instance, the War of Mahabharata, in which neutrality was not an option, everyone must choose a side.

Speaking of Mahabharata, I feel that there is a need to examine whether ‘Hitler’ is a common noun, or a proper noun. Or is it just a title given to an overzealous or despot administrator/governor, who does not mind using inhumane methods to enforce his ideology and practices? I am sure most of us have used this title for a strict teacher, hostel warden, parent, or boss!

Even after 77 years of his death, people all over the world are enthralled to see ‘Hitler’ getting defeated again and again; just like we like burning of the effigy of Ravana every year. Hundreds of successful movies have been made on WWII, reminding us of the consequences of war and the fallacies of the methods and principles of bigotry and fascism. Even young children are fascinated to see Thanos, a super villain comic character having a twisted moral compass and his actions to eliminate a large part of humanity, getting defeated in his misdemeanors over and over again. Many Zelenskyy supporters are even commonly using this title for the Russian president. While we all like seeing ‘Hitler’ defeated and destroyed in fiction, we hardly make an effort to acknowledge the Hitlerian tendencies in the people around us.

A social media survey conducted by me yesterday indicated that a majority of people concur with the thought that ‘Hitler’ is a common noun, representing a person who sincerely believes that they are empowered and authorized to use force to make people believe in their ideas on the ideal socio-political and/or religious order.

Prior to the German Chancellor Adolf Hitler’s attempt to establish the racial superiority of his people, many Greek, Roman, Turkish, British, French, Mongol, Japanese and other rulers had used the methods of genocide and enslavement to establish the superiority of their clan, race and/or ideologies.

The British enslaved half the world – destroying ancient cultures and plundering wealth. Mongols, Hun, Greeks also invaded the Indian subcontinent, destroyed places of worship, raped and kidnapped women, and killed millions of natives.

I certainly do not intend to hurt anyone’s feelings and apologize beforehand if it happens so. At the risk of sounding blasphemous, I would nonetheless like to examine the following with an open mind:

Whether the killing of all the Kshtriyas 21 times by Parashuram, because he believed that Kshtriyas had begun to abuse their power, take what belonged to others by force and tyrannize people, tantamount to a Dharma Yudh or genocide?

How was the Kalinga War, in which the mighty army of Mauryan King Ashoka killed 2,50,000 Kalinga soldiers and citizens, different from the present Russian-Ukraine conflict? Did Ashoka the Great also have Hitlerian traits before turning to Buddhism for penance?

Rodion Raskolnikov, the protagonist of Crime and Punishment (Fyodor Dostoyevsky, 1866), also had the belief that he was entitled to kill people – a Hitlerian trait. But later he learned like Ashoka that salvation is possible through atonement.

History is replete with instances of people with Hitlerian traits. The point, therefore, is that ‘Hitler’ is not a proper, but a common noun.

Society shall do much better if we could incorporate methods and practices in our education system that would guide children to become better human beings by curbing their Hitlerian tendencies and develop compassion, empathy, tolerance and acceptance.

इशरत-ए-क़तरा है दरिया में फ़ना हो जाना 

दर्द का हद से गुज़रना है दवा हो जाना

— मिर्ज़ा ग़ालिब

(Aspiration of every drop of water is to get extinguished by immersing itself into the ocean. For a person who is hurt in love, extreme pain is the only relief.)

I interacted with a small but reasonably representative sample of investors in the past few days. The interactions were in person meetings, discussions over telephone and WhatsApp chats. We discussed a wide range of topics that are current in investors’ memory. The idea was to understand their current outlook on markets. From my discussions I have concluded that currently a majority of investors are ambivalent about their investment outlook and strategy. They are perplexed, greedy, fearful and relieved all at the same time.

The following are some random thoughts based on my latest interaction with a sample of investors.

Some random thoughts

It is customary to read and quote investment classics during market turbulences. However, in my view these classics are more relevant in the times that could be explained by rational thinking. For market situations where the investors’ psyche is overwhelmed by greed, fear, anger, disillusionment, delusion, etc., philosophy (of life not money) provides better answers. I find that the present market situation is one of those situations where investors’ may be better looking for guidance in philosophy books.

In this digital era of human civilization, the life of common people is significantly influenced by the media, especially social media. Our brains are increasingly becoming like RAM (Random Access Memory) of our computers. It is a playground of active dataset, which gets erased as soon as the new dataset becomes active. It works strictly on GIGO basis (Garbage in Garbage Out). If the feedback of my sample is any indication, the activity of investors in the markets is aptly represented by the messages they send/share on their social media timelines or chat boards.

The activity of a common man on social media is a good indicator of his current state of mind. I find an unusual rise in funny memes relating to the markets, portfolios and investors’ misery. Even seasoned investors and advisors are sharing jokes and memes about the serious drawdown in their portfolios; as if they are vindicating what legendary Mirza Ghalib said 200 years ago. Once the drawdown in the investment portfolio goes beyond the tolerance limit, it becomes a relief.

Many younger investors are perplexed; especially those who have started investing on their own in the past 2years, and experiencing their first major market correction. These youngsters who have been learning investment from the benevolent guides on social media and star investors frequently seen on electronic media, are already questioning what they have learned in the past couple of years. For example, consider the following inquisitions:

·         I was told that the markets are decoupled from macroeconomics. But now all experts are warning about inflation, current account deficit, policy rates, USDINR, GDP growth etc.

·         I was told that this decade belongs to India. The Indian economy is the fastest growing economy and the pace of growth will accelerate even further. The government of India is doing all the right things to ensure faster growth in the coming decade. But the experts who were telling this are worried about the ruling party losing election in one state and advising caution.

·         I was told that Electric mobility, ESG standards, clean energy etc. are the power themes that will drive markets in this decade. However, two weeks of spike in fossil fuel prices has made these themes redundant, rather than strengthening belief in them.

·         I was told “Zomato, one of the top 5 unicorns of India, is a platform company which has successfully solved for convenience by connecting restaurants with customers. By using technology and a fleet of delivery partners, Zomato has created a capital light compounding machine which creates an eco-system wherein the best of the restaurants will make more money (as Zomato brings more customers driven by quality reviews/ratings) while customers enjoy convenience along-with right-quality product and delivery partners enjoy part-time income. Platform companies have ruled wealth creation globally. We believe, Zomato, as a platform and being category leader, will continue to drive outperformance in the food services industry in India.” But the stock is down over 25% from my buying price and now experts are telling me to sell.

A deeper inquiry suggested that most of these investors were overweight on new economy stocks, which have been the worst affected in this correction. They are not sure whether they should sell their current holdings at prices 30-40% lower than the cost of acquisition, or just stay put.

Many seasoned investors who started the discussion with the question “what should be done?”, were found swinging between “greed” and “fear”. From their experience they know that these are temporary turbulences and eventually markets will be alright. Thus they are seeking opportunities in this fall. However, the persistently negative news flow is making them fearful. The fear of losing capital due to further sharp drawdown is overwhelming. These people are thinking about selling and buying in the same breath.

Some of the global institutional investors who were “structurally” bullish on Indian equities are suddenly discovering that many developed markets may be offering relatively much better valuations than India. Some domestic fund managers are the most ambivalent at this point in time. They cannot afford to give a “sell” call publicly but in private discussions they are scared since the new “skin in the game” rule has put their own money at stake.

Overall, it appears that the process of bottom forming has already started. The fear (and indifference) shall soon overwhelm the greed and capitulation would befall. Till then enjoy the memes:

 A barrage of bad news has made the market mood rather despondent in the past one month. The enthusiasm created by the “path breaking” budget did not last even for a whole week. Issues like macroeconomics (growth, inflation, current account, yields, INR), geopolitics (Russia-Ukraine), politics (state elections) and persistent selling by foreign portfolio investors (FPIs) have dominated the market narrative in the past one month. The trends in corporate earnings also did not help the cause of market participants.

While from their respective all time high levels recorded between October 2021 and January 2022, the benchmark Nifty is down ~11%; the second most popular benchmark Nifty Bank is down ~16%, the Nifty Midcap 100 is down ~14% and the Nifty Smallcap 100 is down ~17%.

In strict technical terms, Indian markets are still some distance away from a bear market. However, if I may use the Weatherman’s phrase “Indices are in correction mode, but feels like bear market”.

The tendency of the benchmark Nifty in the past one month indicates that the markets are putting up a strong resistance against the persistent selling pressure. So far a precipitous fall has been avoided; and the trends are not showing that Nifty will give up its resistance anytime soon. However, the same cannot be said, with as much assurance, about the small cap stocks, where the probability of sharp earnings downgrades (basically normalization of irrational exuberance) is decent.

One clear sign that the markets may not be anywhere close to entering the bear territory is the outperformance of cyclicals like metals, energy, textile, sugar, automobile etc. over the defensive Pharma, IT services and FMCG. Even if we look stock specific, the underperformance of traditional safe havens like HDFC group, Asian paints, Piddilite, Hindustan Unilever, Colgate, MNC Pharma, etc. indicates enduring risk appetite of the investors.

It could be argued that these safe havens are bearing the brunt of heavy FPI selling, who over owned these companies. But this argument may not fully sustain, since most domestic funds also like and own these stocks. They have however preferred to add cyclicals in their portfolios, indicating a higher risk appetite.

Another argument could be about valuation. Most of these safe havens were trading at relatively higher valuation, when raw material inflation and erosion of pricing power impacted their margins. A de-rating was therefore considered in order. This is a valid point but cannot fully explain the market trend. Most metal, textile and sugar stocks are also trading close to their peak margin and peak valuations. IT Services stocks have been sold heavily precisely on this logic.

Obviously, the market participants in India are not in a risk off mood as yet. How long this trend will continue is tough to predict at this point in time as the situation is too fluid and the negative factors clearly outweigh the positive factors.

My personal view is that once the global news flow gets fully assimilated and volatility subsides in next 6 to 8weeks, we are more likely to witness a “boring” market rather than a “bear” market in India.

The indices may get confined in a narrow range and market breadth also narrow down materially. The market activity that got spread out to 1200-1300 stocks in the past couple of years may constrict to 200-250 stocks.

The compounders or the boring safe havens are offering a decent valuation now after the correction. These may again return to favour. A few good men in the broader markets may get separated from the crowd of rogue boys and get the attention of the investors. There may be no clear sectoral trend. The leaders from all sectors may get favoured.

The giant wheel (continuous upper circuits followed by lower circuits) and roller coaster (high volatility) that excites the traders may stop, until it starts operating again once the sentiments and finances of traders are repaired.

The National Statistical Office (NSO) recently released national income estimates for 3QFY22 and advance estimates for the entire year FY22. The key highlights of the GDP data are as follows:

 As I indicated last week (see here) to me markets are not looking good, at least for now. And it is definitely not only due to the latest episode of Russia-Ukraine conflict. This conflict has only added to the caution. My primary problem is the lack of adequate growth drivers for the Indian economy.

 “Kaya lag raha hai?” (How is it looking?) I am sure most of the financial market participants must be overwhelmed by this question in the past week. Obviously there is no accurate answer to this question in the present uncertain and volatile times. Regardless, every market participant is trying to answer this inquisition to the best of their ability and understanding of the situation. As the situation is still evolving and new complexities are getting added with each passing day, it is natural that the answers to this question will keep changing every day, and sometimes even within the same day.

The stock market participants, who invested or traded in stocks in the 1980s and 1990s would remember how tedious it was to buy stocks and get the ownership transferred in their own name. “Bad delivery” and “lost dividends” were such a big nuisance. Then dematerialization of securities was implemented and things changed forever. Research has shown that investors of that era still consider “dematerialization” as the single most important reform in financial markets.

The Union Cabinet of the UPA government headed by Dr. Manmohan Singh had approved the draft of “The Land Titling Bill, 2010”. This was supposed to be a model law to be adopted by all states and union territories. The objective of the proposed legislation was, inter alia, to provide for a uniform law across the country “for the establishment, administration and management of a system of conclusive property titles with title guarantee and indemnification against losses due to inaccuracies in property titles, through registration of immovable properties”.

The Bill was prepared by the Rural Development Ministry’s ‘Department of Land Resources’  to bring uniformity across the country and replace the existing deeds system fraught with excessive litigation due to inaccuracies in property records.

It is a well-known fact that the present system for keeping records of property titles and transactions has numerous inadequacies. There are multiple, usually unconnected, agencies involved in the process. The multiplicity of agencies, their inherent inefficiency and varying processes of updation of property records, often lead to inaccuracies in the ultimate records, causing avoidable disputes and litigation.

The Bill was primarily based on the Australian System of 1858 (commonly known as ‘Torren System”), which has been adopted by multiple countries subsequently. Under the Torren System, the government is the keeper of all land and title records, and a land title certificate issued by the designated authority represents proof of full, indefeasible, and valid ownership.

Under the present system of ownership through deeds, all property titles are “presumed titles”. These titles are claimed by people through diverse legally recognizable instruments, which could be inaccurate, fraudulent, incomplete, or inconclusive, giving rise to disputes and litigation.

The Bill however was never presented for approval before the Parliament as most states did not respond favorably.

In November 2019, “the Committee to draft Model Act and rules for states and model regulation for union territories on conclusive land titling”, set up by the NITI Aayog submitted its report. Subsequently, in October 2020, the NITI Aayog circulated the draft of a model Act and rules on conclusive land titling to be adopted by all states and union territories. The proposed bill is apparently based on Maharashtra’s draft land titling Act. The Maharashtra draft is based on the recommendation of the task force that was set up in 2017 under chairmanship of noted agriculture economist T Haque, comprising experts from across the country.

Like 2010, most of the states have “failed” to respond to the draft legislation. However, unlike the case with the 2010 draft Bill, the central government this time has warned the states to reply promptly, otherwise their silence will be treated as affirmation. Obviously, the states do not like this approach of the central government much, and a constitutional crisis may be brewing underneath.

Surprisingly, this issue is mostly missing from the popular narrative. Inarguably, when implemented, this would be one of the most important reforms in post-independence India.

…more on this tomorrow