Good for the market - terrible for the country

A recent development in the stock market has the potential to harm India and Indians in the long term. The irony is that this is a result of "progressive policies". The development in question is the acquisition of Nicholas Piramal's pharmaceutical business by Abbott. In itself, the acquisition raises few issues. However, it portends a resurgence of multinational pharma companies in the Indian market, with consequent detrimental effects to the lives of Indians.
 
I have long been opposed to so-called "Intellectual property" - which, in my opinion, is just the latest way to exploit the poorer sections of society. Especially after physical assets/resources required for human existence have been captured by the "developed world". Using the power of lobbyists and under the guise of IP, poor countries like India have been forced to accept product patents. With this come expensive, and unaffordable medicines, and usurious health insurance costs - social costs we could do without.

India shook off its dependence on foreign medicines and developed a thriving domestic pharma business when it abandoned product patents and recognised only process patents. Consequently, Indian pharma industry today is well developed, with excellently developed chemistry skills and low cost production - benefitting not only Indian patients, but those around the globe - including those in "regulated" markets. This is now set to change - with India having succumbed to political pressure and signed up for product patents a few years ago.

Surprisingly despite countries like the USA drowning in health care costs, so-called free marketeers continue to push the case of "IP"  - and poor countries like India acquise. If the above seems overly leftist (after all the patent laws in India do offer compulsory licensing and price setting by the government) - well, read this

Equity market outlook - Apr 2010

While most commentators on the market have been very bullish on Indian market prospects, I find that there is a potential to hit many an air-pocket. Even if we avoid most of these, I think the upside is not very large. My report (as part of BRICS research) - published in April.

">India Equity market outlook - April 2010

Beware of what you ask for!

I have, after a gap of more than a decade, started writing "research" on the macro aspects of the market. Here is a recent comment I made - in its unedited form:

The Street believes that higher oil prices are detrimental for Indian equity markets. In fact, recent broker reports suggest that if oil prices were to fall globally, Indian economy, and by extension, the Indian stock markets, would rally.

The belief is misplaced – the data does not support the thesis. A look at the graph above reveals that the markets tend to move either independent oil price movements (for example in the first few months shown in the graph above), or in the same direction as oil prices. Clearly, it appears that oil price declines likely happen at a time of reduced economic activity. Consequently any potential savings in import costs is perhaps offset by a more-than-proportionate reduction in output growth, adversely effecting corporate profits. A drop in global prices of crude is certainly NOT what we should be asking for

The nuclear sell-out progresses

The government introduced the nuclear "no-foreign liability" bill in Parliament on the last day of the session. Apparently, this was on the basis of a deal with some parties in opposition that the bill will be referred to a committee of the house that would be chaired by the opposition. As expected, this has not happened, with the bill being referred to a committee in the Rajya Sabha - chaired by a congressman. While the SP is crying foul, the government is secure in the thought that they have thrown a bone in the direction of the SP in agreeing to the obnoxious and racist suggestion of the SP and other parties of their ilk to include caste in the latest census. Not surprisingly, since this is a Congress initiative, there is no protest (a few columnists aside) in the English media to this extremely retrograde and communal move. 

The congress spin doctors initially tried to explain away the infirmities of the nuclear bill though half-truths and obfuscation. Brahma Chellaney's article here is worth a read for getting a real picture on the issues with the bill. But with the PM busy out-sourcing and sacrificing India's defence and foreign policies to American interests, and the key opposition party in slumber, we can only hope that the many gods Indians pray to are watching over India's interests.  

Managing expectations - learning from corporate India

One of the great achievements of recent years has been the ability of Infosys management to consistently set and beat analyst expectations. Quarter after unfailing quarter, Infosys manages to do better than forecasts. This has as much to do with running a great business, as it is to do with setting expectations. 


Whether Nandan Nilekani gets us a fool proof unique identity number as citizens of this country will be revealed as time passes. What is already visible however, is the lesson that the government has received from Mr Nilekani in managing analyst expectations. In my nearly two decades of watching the budget, never have I witnessed such perfect "expectation management" in the run-up. Most business channels and news papers were busy asking analysts if the two expectations that would lead to a post budget rally were - (1) 5.5% fiscal deficit (2) government borrowing not exceeding 4.5 lakh crores. When the budget was presented, lo and behold, these were both met, or bettered (in case 1 and 2 respectively). The market has rallied considerably since then, predictably with foreign investors in the vanguard. 


The latest case of this expectation management is NDTV highlighting that the Prime Minister actually stood up to Madam! Given his track record, this resembles  the claim of a hen-pecked husband - " I am the master of my house, and have my wife's permission to say so". A read of the linked news article offers a clue for this apparent show of spine. The RTI needs to be amended to avoid the Chief Justice of India from appearing before himself ! So while Madam is seen as doing the right thing, i.e advocating that the RTI act remain as it is, the PM cleans the poo left by an adamant CJI demanding that he remain above the law! Now the government will be seen to be doing the "wrong thing" but will be protected by the PM's reputation of personal probity. The master puppeteer will retain the moral high ground. A case of eating ones cake and having it too. 

Different Strokes

Two recent developments, completely diverse responses. This is what makes space for "hindu fundamentalism". I leave it to the reader to draw his/her own conclusions.

Incident 1 - M F Hussain purportedly takes citizenship of Qatar (later denied) because he has cases pending in Indian courts. These cases, filed by private citizens, were on account of his paintings of Hindu religious figures in the nude. The english press decries this as an assault on artistic freedom.The STATE is silent, while offering "protection" to the artist. So, did he get a raw deal?

Incident 2 - Jesus is depicted holding a beer can and a cigarette in a text book. The STATE confiscates the books and promises to take legal action against the publishers. There are calls for a "Blasphemy law" (fortunately, shelved). The Church bans all books by the publisher. No one questions if this is an assault on freedom of expression.

Budgeting for growth - but focus on the hocus

The latest budget of the UPA government cannot be faulted for trying fuel growth through lower taxes in the hands of individuals. At a time when private capital formation has been weak, and most of the growth of the current fiscal has been achieved through higher government spend, lower planned spend by the government has to be replaced by private consumption to keep the wheels of commerce moving.

Pranab da however gives the game away when he says that the budget is a political document. In a world where it has become acceptable for governments to fudge figures on a large scale, a la Greece, India is following suit. An example would clarify. Forecast for GDP growth for FY2009-10 estimates that "real growth" in agriculture is -0.2%. The economic survey states that Kharif crop production is lower by 15% over previous year, sugarcane by 9%, oilseeds by 15% and pulses 8%. To get to a 0.2% de-growth, we not only have to assume that the Rabi crop is normal, but that it is also 15% higher in terms of output. The survey also says "the index of area under rice shows negative growth (sic)". So where is the growth coming from?

Another way to look at this is the computation of "real GDP". The "real" growth is calculated by taking the nominal output and applying the GDP deflator. The deflator is supposed to have the advantage of reflecting the actual consumption basket in the economy (as opposed to a fixed basket used in calculating WPI or CPI). While the CPI in the current year is in double digits, the WPI is less than 2%. The survey uses 3.6% as the deflator.

Now the growth in agri prices is upwards of 18% on an average. However, if one uses 3.6% as the deflator, then a 15% de-growth in real terms, would show up only at a 0.2% de-growth since the price rise would take care of the rest. It appears that we are significantly over-stating the real growth in the economy.

On most parameters except growth, India is no different from Greece. With a fiscal deficit figure in double digits, an internal debt burden of over 80% and unemployment near double digit, the only reason India is not bracketed with the 'PIIGS" and "STUPID"'s is the supposedly higher growth the economy continues to register. When the growth itself is chimera, the consequences may be disastrous. SS Tarapore made the point in his column here.
 
We should ignore the warnings at our own peril.