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India's Off and on Policies 0810-010A

India's Off and on Policies 0810-010A

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Published by Anil Selarka
India, a giant dinosaur, is about to awaken but it is mired with inconsistent policy. A critical look at India, its economy and its political leaders. Read further
India, a giant dinosaur, is about to awaken but it is mired with inconsistent policy. A critical look at India, its economy and its political leaders. Read further

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Published by: Anil Selarka on Dec 02, 2008
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05/09/2014

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 Reviving Sleeping Dinosaur 
India’s ONandOFFPolicy
 In today’s uncertain world, a few countries stand out ontheir own, of which India is one. There is everythingone can think of finding – higher education, highsavings rate, less papers or derivatives, hugepopulation, efficient stock market, several millions of rich middle class wage earners, less debt, hugesavings in real wealth like Gold and Silver, classy hightech manpower, world’s best design source, aboveaverage entrepreneurs, great creative and entertainingindustry, least gambling resources, and a greatdemocracy.And yet, this giant dinosaur has been unable to find asingle genuine pace bowler for its Cricket team, enoughplayers to win the Olympic gold medals, really creativePrime Minister, Finance Minister, and Chief OperatingOfficers for SEBI (equivalent of SEC), and RBI(equivalent of FED in USA) from its thriving millions of population running across the country in every streetand corner, sweating, smothering, bothering and yetsmiling amid all odds against its existence.What is wrong with this country? Its culture, Nay;Collectivism, partly; education, Nay; poverty, Nay; democracy, Nay; Contentment, yeah and lack of Killing Spirit – certainly Yes. Indians are notorious for self egoism, false patriotism and above all“eternal contentment” for whatever it has. Its desire for yearning is least. “Why do we need this? It isenough. We are happy with what we have” And that sets it apart from the rest of the dynamic westernworld.
India’s Info tech Glory and Visionary Jawaharlal Nehru
 Indians have the extremely bad habit of not giving the credit where itis due. Take the example of its InfoTech Industry – now on the lips of every technocrat all around the world. It’s main creator and originator is forgotten as “Cause” and the “Result” is worshipped like a demi-god.The seeds of high end Info tech were sawn by its first and mostcharming Prime Minister, Jawaharlal Nehru, a great visionary. Withextremely limited sources at his command in early 50s, hemaneuvered to obtain the great alliance with prestigious MIT in theUnited States, to set up 4 finest technical institutes – Indian Instituteof Technology. And in remaining 60 years, the successivegovernments with almost 50 times monetary and ample humanresources at their command could set up only 3 such institutes. Hemade the technical and engineering education so cheap andaffordable, that India could produce talents at the cheapest cost.His investment by way of subsidies in education, basic industries and oil refineries returned 100 timesreturn in recent years. What he spent in millions on IIT brought in billions of dollars in Forex throughthriving Info Tech industries. Even this author got 4 degrees for just Rs 4000 or $80 in 4 years.
 
 When the British left India in 1947, they built 9 platforms at Bombay VT railway station when India’spopulation stood at 300 million; whereas in next 60 years, the successive Indian governments couldbuild only 4 platforms at Bombay’s Church gate railway station with over 1 billion population! It is saidthat India is always on “Auto Pilot”. No one knows how it runs – it just walks in the wilderness.Nehru dynasty gave leadership in the form of Jawaharlal Nehru itself,then Mrs. Indira Gandhi, Rajeev Gandhi (Son of Indira Gandhi) and nowMrs. Sonia Gandhi, head of ruling Congress party, and wife of Mrs.Gandhi’s elder son Sanjay Gandhi.Even the Kennedy dynasty nowhere stands near the Nehru dynasty.The greatest contribution that Mrs. Indira Gandhi made was the greenrevolution and killing of all strength of pre-1947 Pakistan into twoseparate nations – Pakistan and Bangladesh.And yet, all credits are given today to the likes of BJP Leader Vajpayee,the charismatic Prime Minister who merely exploded the Nuclear Bomb(It was built only with the vision of Nehru and Mrs. Indira Gandhi), ManMohan Singh, the Prime Minister and P Chidambaram, the FinanceMinister today for doing nothing substantially positive and lots of negative.India has come a long way since 1950. Knowledge is no longer a power of a few. However, the kind of progress expected has not been achieved by India, and in fact, it is on the verge of losing major advantage if nothing is done now.
India’s disastrous policy measures in past, its effects and how that can be reversed with ease?
 India’s de facto Central Bank – Reserve Bank of India – similar to FED in USA or Bank of England inUK, is a most revered institution in India. So also, Security and Exchange Board of India known asSEBI, equivalent of SEC in other countries, and stock exchanges like Bombay Stock Exchange – BSEand National Stock Exchange (NSE). They are given the status of demi-god by the admiring andignorant semi educated urban class in India. The result is that these institutions, with possible exceptionof NSE in some cases, have become monolithic and inefficient organizations, with RBI leading thepack.The officials of these bodies do nothave experience in global moneymarket, how certain powersmanipulate the word market withease, and therefore are verydogmatic in their views. They blindlyfollow the theories and practices of western and eastern world. As result,the economic, monetary and socialpolicies fell far short of desired goalsin last 50 years.
They do not realize that if certainstandards with reference to whichtheir policies are tailored are notyielding desired result, thestandard itself must be wrong.
Asresult, the measures initiated toadjust the imbalance often fail. Let ussee the measures that failed India:
 
Belief, Policy Measures, Expectations and Final Result with Causes
 
Actuator: Finance Ministry, Reserve Bank of India, SEBI
Policy No.1: Exchange Rate
 
BELIEF & PARADOX (
In small prints)
 1. Weaker Rupee helps exports and earns FOREX2. Domestic Industries are protected against excessive and expensive imports3. Jobs in domestic industries are protected and also promoted4. Foreign Debt reduces due to FOREX earnings out of exports
POLICY MEASURES: SwitchON
 Weaken Rupee by all means
1.
RBI:
Reduce NRE deposit rates
– pay them much less than domestic deposit
rates (6% less)Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of England. NRI were treated like disposable towel
2. RBI:
Do not let FII to buy Rupee from the market
. Let them come to RBI directly to rewardthem with much higher rupee rate as enticement not to go to the market.
Even if it costs national exchequer hundreds of crores of rupees
 
3.
FM, RBI:
Sterilize any rise
in the market by buying back dollar against rupee
Even at the cost of higher money supply leading to inflation4.
FM, RBI:
Allow Indian Businessmen to invest overseas
so that they buy dollars and sellrupee to cause it weaker and weaker.
While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India butinvest overseas, as though India had become one of the richest countries in the world. Even China after receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to investoverseas5.
FM, RBI:
Allow Indian citizens to remit overseas
US$ 100,000 without RBI approval, so thatpressure on rupee is reduced by letting them sell rupee and buy dollars.
While permission was not given to individual foreign investor to invest into Indian stock market as logical stepfurther to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas,even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads,sewerage, water filtration plants to reach every nook and corner of the country
6. SEBI, RBI: They introduced
P-Note measures
to scare away the foreign investors from India sothat upward pressure on rupee is diminished.7. SEBI: introduced
arbitrary circuit breakers
for market and individual stocks in the name of maintaining order which again scared the foreign investors who were faced with illiquidity in theinvested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixedarbitrarily.
SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at anytime without hindrance. Even in market crash such as now, and in January 2008, the foreign and domesticinvestors were not able to sell the stocks at market because there was no market.
 
8.
FM, RBI, SEBI: prohibited
short selling
on selected counters to arrest the market fall
If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000(over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?. In any healthy systemthere is inlet or outlet to maintain the equilibrium. If there is only inlet, everything including wastage isaccumulated, that poison the system ultimately.
 
Dogmas, False Policies and Misplaced Priorities
 I have said often that if certain policies do not work with reference to standard for long time, there issomething wrong with the standard itself.
Such erroneous standard has to be abandoned
. However,most of the policy makers and economists have been groomed in high end business schools that relyon outdated textbooks. These guys are not wise men but guys, who never worked on the front line,never gained first hand experience, always sat on the back bench, followed the books in full literarysense, and almost forgot that they too have common sense distributed by the God equally regardless of class, religion or nationality. This intelligentsia jettisoned the common sense and practiced high endintelligence that had no applicability in real world.
Why Rupee should be allowed to appreciate?
The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers,Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week

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