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

(Excerpted from http://www.niticentral.com/2013/07/22/indian-economy-spirals-to-a-fullstop-107779.html)

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.

Tharman – A little meat and a little departure

In today’s ST front page, Tharman listed 5 priorities of govt policies that in a way are related to Hsien Loong’s NDR speech on a comprehensive health care scheme for the senior Singaporeans. Tharman filled in some meat to that general policy change and direction, and also included a few cautions and departures from the sweeping Medishield Life scheme for all, sick or unsick.

Tharman’s first priority is about targeting govt subsidies to those who need them and said that universal benefits are ‘wasteful and inequitable’. A comprehensive all encompassing healthcare benefit scheme will fit into this wasteful and inequitable definition perfectly. There is no need for further elaboration on this as the impact and consequences are simply obvious.

The second priority, to design redistribution policies to spur self reliance and individual responsibility has been the cornerstone of many govt policies. To lump every Singaporean into a healthcare scheme with no recognition of their needs and demands on the system is going to be in conflict with the concept of self reliance and individual responsibility. The reckless and irresponsible are going to pass the buck to the rest of the people to foot their bills, as simple as that. Would this be acceptable under the new scheme?

Tharman did qualify by saying that those who are in genuine need for assistance would not be left on their own. This is the big difference between humans and animals. In the animal kingdom it is survival of the fittest and the weak and sick will perish on their own steam. As a social animal, the human specie has this innate ability to want and can look after their weaker fellow beans, the old, the sick, the less able and less talented. Human beans can be caring, generous and selfless.

The third policy pointed out by Tharman is more startlingly in a way as it has been violated in many instances for vain glory and misplaced responsibility. This policy is about making ‘sure tax incentives and grants “aggressively” support and catalyse community and civic efforts, and strengthen “the values that drives us to be our brother’s keepers”’. How would spending money on foreign sports talents and paying for foreigners to study here fit into this brothers’ keepers idea? How would bringing in foreigners to replace our citizens in jobs be a good thing? We need to take care of our very own, incentivise and motivate our own to excel in all fields. The foreigners are not our responsibility and money spent on them is simply wasteful and also inequitable.

How would this policy fit into the comprehensive health care scheme with PRs and new citizens in our midst and standing to benefit wholly from public funds?

Tharman’s fourth policy is about progressive taxation, benefits and social spending. I think he must believe that GST is progressive taxation. Or would he now be more enlightened to tweak this regressive tax to tax the poor less? In this regard he hinted at the need for future tax increases to fund the growing health care needs. Here is his biggest contradiction. If the recently floated comprehensive health care scheme does take cognizance to the priorities mentioned, there should not be a need to raise taxes. Raising taxes is only necessary when the scheme is an unlimited buffet spread for all to partake with little regard to equitable distributions and prudence not to over provide with no regard to the cost involved.

Tharman’s final point is about a just and fair society, about opportunities to enjoy quality living, public spaces and our work and living environment. Would the govt be building more and smaller flats to improve the quality of living for Singaporeans, or would the dreams of the 70s and 80s when every family aspire to own a 5 rm flat or better, including private properties be reignited? Can Singaporeans relive this dream?

With the freeing of the two pieces of land in Paya Lebar and Tanjong Pagar, the govt is given a chance to really redevelop and design quality housing for the people and not more mickey mouse pigeon holes in close proximity. A new concept of living with bigger homes and space could be the future, if only the wet dream of 6.9m does not become a reality. We have more space and create even more space for everyone here, and not creating more space to squeeze in more migrants to fill up every inch of space created. Can there also be a departure from the mindset of more population for more economic growth and the deception that small and little space are good quality living, good for bringing up children?

Yes, we have the money to build our dreams. And our dreams must be better and bigger space and more amenities for the people, not more squeeze and lesser space to live like mice and competing for space and air. There is no need to drive down a road to hell when we can go to paradise. But as they say, the road to heaven is wide open but few takers, but the road to hell is narrow and dangerous and crowded like hell.

How would these five policies mentioned by Tharman be worked around the Medishield Life for all?

Overloading is dangerous and illegal

Our private cars have a legal limit on the number of passengers it can seat. Going above the approved number is illegal. The school buses or private buses, tour coaches, pickups and commercial vehicles too have a legal limit as well. And there is a very good reason for it other than graciousness. It is safety.
 
Often there were reports of ferries or boats sinking because of overloading. Our lorries and trucks also have loading limits and speed limits for safety reasons as well. Funny thing, why are public transport buses and MRT trains not having limits on the number of people they can carry on each bus or train carriage? Why are they allowed to squeeze as many passengers as they like into the cabins? And they have been suggestions to hire pushers to push more people into trains like it is the right thing to do.
 
Would overloading of public buses and trains affect the safety of the passengers? No? Not sure? What do you think?

Managing the people’s life savings

HDB prices are affordable based how the ability of the buyers to pay. Now the affordability is a couple’s monthly CPF contributions for the next 25 years. This means that whatever that goes into the CPF will go out the other way, to pay for the affordable HDB flat. The couple would likely to start to save a little 5 or 10 years after buying a flat when their incomes rise. How much savings could that be to go into their retirement account?
 
Then there is the Medisave Accounts to fill up and at current rate, more than $100k will have to be set aside as untouchable in the Medisave Minimum Sum Account. Technically there could be nothing left to be set aside for the Retirement account at least after the flat is fully paid in 25 years time.
By the age of 55 or 65 the CPF Life Scheme will kick in and whatever money left in the CPF would be compulsory acquired to pay for their retirement annuities. Luckily the Medisave Account is still untouched by any compulsory scheme, but not for long. The money in the Medisave Account will be compulsorily acquired too to pay for Medishield Life once the scheme is finalized.
The net effect of the two compulsory schemes means that the Govt has decided for you how your money must be spent. In the CPF Life which is an annuity scheme, there is still hope of getting something back if one lives long enough.
 
In the case of Medishield Life, it is paying and nothing is coming back except when one needs hospitalization or is seriously ill and provided the illness is covered by the scheme. Read the fine prints and the exclusion clauses carefully.
 
The Govt effectively has a hold on the CPF savings of its citizens through a monopoly public housing scheme that will feed on the savings of its citizens for the first 25 years and a CPF Life for the next 30 plus years. As for the Medishield Life, this is still work in progress and the payment into this scheme could come very early, maybe from the day one starts working and contributing to the CPF.
 
The best part, the Govt can decide as and when how much to raise the premiums and compel the people to pay. There is no opting out. Resistance is futile. You earn and save and the Govt will be the recipients in a way, helping you to spend your savings.
Your money is not your money anymore. The Govt knows how much you have and can afford to pay and the three items will effectively absorb practically every cent there is available or affordable with hardly anything left. This is a very efficient system to manage the people’s income/savings by the Govt, with compulsion, and the people are literally left with no choice of their own.
 
The Govt is caring for the people, to their last day and managing their last cent without having to ask the people for their consent. Our CPF savings are now absolutely safe with the Govt.

And one good thing, there would not be any more scheme to manage your CPF savings after this.There is nothing left to be managed anymore.

Economic suicide biggest threat to China

Economic suicide biggest threat to China

Global Times | 2013-8-14 19:28:01 By John Ross

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Illustration: Liu Rui/GT

China cannot be murdered, therefore it must be persuaded to commit suicide. This summarizes the geopolitical situation as seen by Western anti-China circles.

It encapsulates that China's national revival has now reached a point where no external forces are strong enough to prevent China's rise. The US remains militarily stronger, but China's strength is sufficient that US losses in a war would be so great even neoconservatives do not advocate it.

US authorities can try to murder Iraq, Afghanistan, Vietnam, and possibly in the future Latin American countries, but China is too strong.

This does not mean Western anti-China circles have given up. If it is impossible to murder China, perhaps it may be possible to persuade it to commit suicide? This idea might appear ludicrous, but actually the US has already succeeded twice, with Japan and the USSR.

From the 1970s, confronted with dramatic Japanese economic growth, the US persuaded Japan to overvalue the yen, cut investment to slow growth, and implement ultra-low interest rates after the Wall Street crash in 1987, allowing Japan's capital to flow to the US and safeguarding the latter's financial system, while Japan itself suffered the "bubble economy" which exploded in 1990.

In the 1990s, the West persuaded the USSR not to follow China's successful economic reform, but to undertake "shock therapy" - total privatization of state companies.

The result was the greatest peacetime economic collapse seen in a major country in modern history. Russia's GDP fell by 40 percent, male life expectancy dropped by seven years, and Baltic and Central Asian independence movements destroyed the USSR, reducing Russia from leading a state of 288 million people to one with a 143 million population. Vladimir Putin accurately described this as "the greatest geopolitical disaster of the last century."

China is harder to persuade to commit suicide. Unlike Japan, it cannot be blackmailed via military dependence on the US. Unlike the USSR, China is not pursuing an economically adventurist policy of seeking military parity with the US on the basis of a GDP only 40 percent as large.

But the West understands its leverage points. Ordinary Chinese citizens are economically tied to their motherland, but the rich can take wealth abroad.

The fate of State-owned enterprises and many productive private companies is tied to China's economic revival, but some financial groups can get rich even amid chaos, while certain professionals can be offered jobs such as well-paid professorships at US universities.

Therefore, a comprador bourgeoisie exists with support among those Chinese professionals whose highest ambition would be a US green card. If China cannot be murdered, these may be used to persuade China to commit suicide by adopting policies damaging itself.

After experience with Japan and the USSR, the US government knows accurately which policies those are.

Investment is the most important factor in economic growth, so China's economy should be slowed by reducing investment, as was Japan's.

An overvalued currency slows an economy, so constant pressure should be exerted for the yuan's exchange rate to rise excessively.

China's State-owned companies are its economic core and key to its ability to calibrate macroeconomic policy, so they should be weakened or destroyed, as with the USSR.

Moreover, to attempt to conceal that China's rise in living standards is the fastest ever seen in a major country, billions of propaganda dollars should be spent exaggerating out of proportion every real problem inevitably arising in China's rapid development.

It is therefore to radically misunderstand the situation to imagine the biggest threat to China is US aircraft carriers in the Pacific.

The biggest threat to China is forces within it trying to persuade it to commit suicide by adopting policies inevitably derailing its national revival.

Such processes can easily be followed from outside China. But while murder involves another person, suicide is a personal decision. The world's most important question is whether China can be persuaded to commit suicide or not.

The author is former director of London's Economic and Business Policy and currently a senior fellow with Chongyang Institute, Renmin University of China. opinion@globaltimes.com.cn