8/25/2013

The intricacies of Indian bureaucracy

The crisis of the falling value of the rupee of India is in the front page of many papers recently. At least 20% of the value has been wiped off for those holding to the rupee currency. The second most populous country and setting it sight to overtake China as the next economic giant of Asia is now struggling with a lost of confidence in the rupee.

While the crisis is just unfolding, below is an article by Venkatesh, a Chartered Accountant that revealed the workings of the Indian bureaucracy and how money has to be paid all the way to get a project on the way. It is quite startling even to Venkatesh and the full article is worth reading by those intending to invest in India. Bid sovereign wealth funds must really be in the know of the corporate culture of India to place their multi million or billion dollar bets in the Indian economy. Lacking such knowledge and bravely punting and putting money into India is only for the brave and the knaves.
I have deleted some of the details to shorten the article. For those who want more the link is available. Happy reading.

'Indian economy comes to a fullstop


By MR Venkatesh on July 22, 2013
A fairly large South-Indian group with varied business interests had invited me to a strategy session to turn it around. It was the first meeting and was to be preceded by breakfast. As we waited to be served, I perused their latest balance sheet.

Noticing that it was a profitable, tax and dividend paying company, where was the question of turnaround I wondered? Nevertheless, I instantly zeroed in on the balance sheet. I observed that the company had invested approximately Rs 700 (1 crore = 10 million) crore on its subsidiaries and lent another Rs 300 crore — in the aggregate Rs 1,000 crore. Flipping across the accounts, I asked a simple question – what is the return from this investment of Rs 1,000 crore? (Amounts changed for obvious reasons.)

The CFO was silent. The executive director hummed and hawed. The body language of the rest was a dead giveaway of their uneasiness to discuss this matter further.

The junior-most amongst them blurted out, perhaps unwittingly, that it was virtually nil. His answer got a cold stare from his superiors. “Nil!” I exclaimed to the horror of my hosts. “You must be paying approximately Rs 150 crore as interest annually on this sum.” I commented, probably rubbing salt into their wounds. I went on to probe further, “Why, what happened to this money?”….

Unable to bear my repeated questioning, the CFO finally broke down. “Sir, as you are aware we are in infrastructure. That requires tremendous pay-offs to politicians and bureaucrats. We have used approximately 150 subsidiaries, some of which are foreign ones, to route these payments.”
I was stunned. My jaw dropped. “Sir, we expected you to know all these practicalities of our business. The turnaround strategy needs to factor these ground realities.” ….

The economics of kickbacks and payoffs

Instantly my thoughts raced to the Nira Radia tapes. Fifteen per cent was the kickbacks payable to the Minister concerned for approving every road contract. Add another fifteen to the bureaucracy and local politicians. Add another five to seven to bankers, lawyers, consultants and agents to procure funds. What we have is a staggering 35-40 per cent additional cost to every infrastructure project….
There is another dimension to this issue. Somewhere down the line these “costs” were funded, mostly by our banks. Corporates altered their top-line as well as bottom-line to keep their banks in good humor….

The impact of gold plating

….The net result – twenty per cent of lending by Indian Banks is stressed. Obviously, when banks end up funding pay-offs and kickbacks, this is the end result. And that is a whopping Rs 11 lakh crores – approximately $200 billion – a sum that even the banks in USA cannot afford.

Added to this is the stress on account of our external accounts. The foreign debt has risen to $390 billion. This was a mere $225 billion in 2008. What is galling is that the foreign exchange reserve has remained at a constant $300 billion during this period. Needless to emphasise, the ratio of foreign exchange reserves to foreign debt has deteriorated from 138 per cent then to less than 75 per cent now.
What is adding to the consternation is that in the short term – by March 2014 – we need to pay approximately $172 (billion) of our foreign debts. This works out to approximately 44 per cent of the external debt and a staggering 60 per cent of the total foreign exchange reserves of the country.

27 comments:

  1. RB, I think singapore is the largest if not one of the largest investors mah thanks to woody?

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  2. Worry not about India.
    It is one of the Oldest Civilization.
    With regards Sin Investments in
    India. The Investors from Sin went
    in with their eyes opened big big.
    Sin got a top financial expert in one
    of its DPM who is reported may sits
    at IMF and he is an Indian by Race.
    This may give Sin Investors much
    confidence in their decisions to sink
    their funds into India.
    They might strike gold mines; who knows?

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  3. Singapore has a special advantage over investment in India as many of the financial experts hired are of Indian origins. So they should know how India works and our investments are safe. That is probably one of the key reasons why so many Indian talents are working here, and so many Indian companies are here too.

    Our Indian investments are in good hands.

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  4. They told us; "All Indians are caring; understanding; nice; types".

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  5. SG is the 2nd largest investor in India, since traitor George Yeo push for CECA screwing us.

    From 2005 CECA to now 2013, INR plunge 50%. Our CPF go into shit hole.

    Today, George Yeo wash his hand. bye bye. Singaporeans see their CPF lock up.

    I assure that, you will now see CPF $$ again in our life time.

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  6. Caring, Understanding, Nice Types. Too right.

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  7. Why look so far and write about Indian bureaucracies?
    What about the intricacies of Singaporean politics ... like the position of Executive President.

    You need a Certificate of Eligibility before you can run for office.

    So what is the absolute number of Singaporeans who qualify to run for Executive President?
    100? 200? ... no more than 300?

    Assuming only 300 can qualify.
    How many are already card carrying members of a certain political party?

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  8. Absolute power care absolutely. Tio boh?

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  9. I think perhaps Singapore is attracting the best talents from India.

    Because if I were a great Indian talent, I would not want to work in India, for the reasons mentioned.

    I like the Singapore system, where the pay and rewards (top pay for top talent) are clear, legitimate and transparent.

    So perhaps Singapore is blessed with good foreign talents who want to come here because of our clean and good system.

    And why you all like to kpkb so much about these foreign talents? They are great talents.

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  10. They must be better talents lah, or else how come our PMETs can lose their jobs to these talents?

    Just like PAP is the better political party lah, or else how come PAP can soundly defeat the opposition every election, tio bo?

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  11. Caring, Understanding, Nice Types. CUNTs get it? No sense of irony you caring types.

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  12. Yup. Too much money printing and borrowing.

    But there are 2 sides to currency devaluation /debasement:

    It makes exports cheaper. You'll find that call centres, IT services, virtual office and virtual assistants - - the types of service industries India exports to the world be doing fine.

    The Malaysian Ringgit and Japanese Yen have also fallen in purchasing power. AbeNOMICS plans to EXPAND the Bank of Japan 's balance sheet by at least 40% this

    This will make Jap exports cheaper, which will piss off the Korean manufacturers like Samsung and Hyundai. Then the Korean central bank will ease to maintain Korea' s export competitiveness.

    To maintain their competitiveness, central banks of Thailand and Vietnam will do likewise.

    End game: Currency crisis like 1997.

    End of the end game: civil and regional war in Asia.

    Btw, not to worry about India. They need a few collapses and failures, perhaps some rioting and a few political assassinations ;-) - - always wonderful and welcome ENTERTAINMENT. India has been stockpiling GOLD. So don't worry.... Just kick back and enjoy the real-time Bollywood Wayang, eat chapatti, curry, and drink marsala tea.

    SHIVA has do do some killing and destruction first.

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  13. Since the elites of the west invented the financial system of today, they know very well how to play the system to their advantage just by moving their money around and creating shortages and surplus. They can always buy low and sell high while others buy high and sell low. I am not surprised that lots of investment by asians swf are under water now.

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  14. Elites, Loonies. All the same.

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  15. We have our own Looney in Sin City.

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  16. But China is very smart, they can never trust the indians, they will rather trust the europeans, africans, arabs than indians. Their investment are saved and probably thinking of buying up the entire india.

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  17. 'India has been stockpiling GOLD'

    - where they safekeeping the gold is the main issue.

    - is the gold 999 or gold plated is another issue.

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  18. Fool's Gold for a Caring Understanding Nice Timid people.

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  19. Good mah.depreciate 20% ,can allow one to have more chicken there with the same amount.Who ask one to invest.

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  20. Chicken can lead to bird flu in our caring land.

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  21. Indian mathematics very good. That's why we say don't anyhow count, "mai ka wa sng kek leng kia siow", in Hokkien. So now we know why we need them to head most of the banks. We count come count go also count no roads.

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  22. ayoyo! anon 3.10pm 25 aug,

    i think indian parliament and state legislatures must follow s'pore policy of having certificate of eligibility to run for office. half of india' mp's and mla's are ex-convicts, the other half have cases pending.

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  23. Caring Understanding Neh Talents of the world unit. Together we will take over Sin city - after we've raped our women.

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  24. Sinkie women so lucky. Now no need to go to India.

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  25. So lucky - you think so? Don't fool yourself my timid friend.

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  26. The problem with GIC/TH is they have committed the biggest mistakes of investing - do not go into something that you do not know. The fact that they need to employ so many native indians to fill up positions in GIC/TH more than justify this commandment. Most likely the reserves already ended up in foreign hands.

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  27. If one finds Indias' Bureaucracy intricate, it means one is not familiar with Indian Culture which is far more complex.
    For a nation to exist for over 5000 years, it must have very intricate and effective system to sustain it's viability.

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