Archive for August, 2011

All that glitter is not gold

August 29, 2011 5 comments

The Reserve Bank of India (RBI) needs to begin with the recognition that a substantial part of the demand for gold results from its policy of subsidising borrowers at the expense of lenders

Recently, the vaults of the centuries-old Padmanabhaswamy Temple were opened after some 150 years to reveal a treasure trove of gold, silver and precious stones running into $ 40 billion. India has a long history of burying its wealth in vaults as a hedge against political risk or outright expropriation. India’s small principalities, split among many independent princes, never had a universal currency valid throughout the subcontinent. Instead, gold and silver coins, valued by weight rather than nominal value, played the role of a currency. Indigenous banking systems never went much beyond the local money lender who lent against gold, helping provide liquidity to the metal. Hence it is gold, rather than a universal currency, which served both as a store of value and a medium of exchange.
Circa 1890, a young man of 30 was sitting under a Banyan tree, at what is now Hornsby Circle opposite the Mumbai Library close to Dalal Street, beseeching passing merchants to buy shares in his new venture. His name was Dorabji Tata. He needed but a tiny fraction of the capital locked up in the Padmanabhaswamy Temple’s vaults. Not many thought Indians could make steel; others dismissed him as a crank. He had to go door to door in Colaba, literally begging people to buy his shares. That was India’s first Initial Purchase Offer (IPO). It took him months to put together the capital he needed. His Tata Steel has since created more wealth than was locked into the temple vaults. Moral of the story: wealth locked up in vaults may preserve wealth but it does not create wealth if it is not put to use by entrepreneurs. How many Dorabjis have missed out on their dream because India lacked the systemic ability to put its entrepreneurs and capital together?
We take great pride in the fact that our engineers and management graduates go on to lead venerable corporations in the US. We see that as an affirmation of our being as good as any in the world. Yet that success mostly comes abroad and not at home. Why? What we miss out is the enabling software imbedded in the US system that sustains and nurtures ideas, merit and entrepreneurs. It is not just one thing. It is the system that recognises and rewards talent, respects ideas and intellectual property, provides venture capital to entrepreneurs, and a capital market that helps monetise their ideas into wealth. Think Twitter. It has not made a dime yet. Where is the system in place to sustain such an enterprise in India? The key to success of the US is deeply imbedded in this culture of recognising and rewarding innovation that we as a society simply ignore. India is poor, not for lack of wealth, but for the poverty of ideas and institutions that sustain and create wealth. Investment in gold is a singular affirmation of our lack of faith in our own social and economic institutions of wealth creation and preservation.
India imported approximately 1,000 MTs of gold valued at $ 64 billion this year. The capital used to buy gold went abroad; not to sellers in India. Most of these imports are by households. What happens to the gold so imported? Much of it remains un-monetised with households — the equivalent of locking up treasure in temple vaults. It is a store of value to households, and still works as a hedge against government debasement of currency. But it is of little use to entrepreneurs like Dorabji Tata. Needless to say, it creates no further wealth for society. That needs to change, not by fiat, but a proper mix of institutions, financial instruments and government policy.
A bank deposit should be a superior store of value to a household than locking up wealth in gold. When you park your savings in a bank deposit, the bank creates a loan against it. That in turn is used to create an income generating asset. At the end of the day, it is the income generated by such an asset that pays the bank its agency fees, your deposit together with interest, while still leaving a profit for the entrepreneur who puts the asset to use. As this form of saving is by far superior to locking up wealth in a metal, it behoves the system to ensure that households save in bank deposits rather than gold. Bank deposits fetch households a higher real return than gold. That this is not so in India should be a cause for worry.
The government’s interest policy has traditionally been skewed in favour of borrowers over depositors. This was done largely to (a) provide ‘cheap’ capital to industrial borrowers on the one hand and (b) give the government access to cheap capital with which to build infrastructure. Most households do not pay income tax. So shaving off a few percentage points from the interest rate was seen as a ‘harmless’ way of taxing them in the larger public interest. In practice this had the unintended effect of reducing the overall supply of capital as households substituted physical assets like gold for savings in financial instruments. The skewed policy also drove up the cost of capital to new entrepreneurs. Innovation and entrepreneurship suffered as a consequence.
To the economy as a whole, $ 64 billion is a dead loss since capital used to import gold will never come back to India unless the gold is sold abroad again. This loss is incurred not because households are irrational but because government policy is irrational. If it did not debase its currency, or favour borrowers over lenders, the investment demand for gold would drop sharply, freeing up that much more capital for productive use within the economy.
The Reserve Bank of India (RBI) needs to begin with the recognition that a substantial part of the demand for gold results from its policy of subsidising borrowers at the expense of lenders. As such, a major portion of the $ 64 billion loss is simply the subsidy it has been giving to the borrowers by stealing from the depositors. That sum should be added to the total interest payments by the government for its borrowings to reflect the true cost of such skewed policies. Only then can the RBI begin to pare down the total cost of government borrowing and not just the nominal interest cost as of today.
If the RBI is honest about introducing a fair rate of return to bank depositors through a neutral interest rate policy, then it can also consider writing one to three year call options on gold. To the extent investment demand for gold abates, gold funds can continue to sell units in gold to investors without importing physical gold immediately. Instead the fund could rely on call options from the RBI, or its suitable agency, to hedge itself. The RBI in turn could set aside a small portion of its gold reserve to write such covered calls, and actively manage its portfolio of physical gold, call options, and puts where necessary, to provide this service to gold funds. Every MT of physical gold import avoided is real wealth saved to create more wealth in the local economy. The suggestion will not obviate gold imports but has the merit of moderating them in a transparent fashion. The RBI needs to be more proactive in managing gold. After all, the metal is our second largest import, next only to oil.

The writer is a trader. She can be reached at

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Anna’s Satyagraha: Where will it lead us to?

August 28, 2011 6 comments

Civil disobedience, of which Satyagraha is a manifestation, succeeds by appealing to a higher normative principle than the laws it defies.  For it to succeed as a mass struggle against established authority, certain objective conditions have to be met.  It is perhaps appropriate to examine Anna Hazare’s anti-corruption movement in this framework in order to understand it and assess how far it can run in order to achieve its goals.

That corruption is a cancer eating into the vitals of our republic is well known.  After having receded somewhat with the first blush of reforms in the 90s, corruption returned with a vengeance as the politicians and bureaucrats perfected new methods of rent seeking to replace those that had been eliminated by reforms.  In the current outcry against corruption, we ignore the fact that the new corruption that we see is not based on the old methods of rent seeking such as industrial licenses,  cornering of import licenses, black marketing of imported raw materials or smuggling of gold and electronic goods and the crimes that went with them.  Reforms closed off these avenues of corruption for good and they remain closed. Instead what we are seeing is corruption, still gargantuan no doubt, but in areas such as land acquisition, distribution of Government owned scarce resources like telecom spectrum, or illegal mining that were untouched by reforms.

The distinction between old corruption that ended with reforms and new corruption that still continues in those areas untouched by reforms is important.  Opposition to corruption is a normative principle has the potential to transcend the current ruling dispensation in order to mobilize the masses into protest.  But that opposition needs careful channeling in order not to throw out the baby with the bath water.  Reforms have been successful in ending or mitigating corruption in vast swathes of our economy.  They are a cause for celebration. Instead some in the Anna movement have blamed these very reforms for corruption which is ridiculous.  In time, if the movement fails to make a distinction between old ways and new ways of rent seeking, it will lose focus and support.  In a still largely unreformed economy, it will risk proposing solutions that lead to more corruption rather than less of it.  Perhaps Anna can still win over far more support from the aspirational youth if it were to clearly state that reforms, having been successful in the past, are the best way to reduce corruption if not end it. Does anybody even remember the crime syndicates that gold smuggling spawned and the extent to which they corrupted everything in their way?  Under no circumstances should the solutions we propose permit a return to the old ways.

Corruption begins at the top. Nothing emboldens rent seekers more than the knowledge that the man at the top in their department, corporation or organization is also on the take.  Human ingenuity being essentially limitless, once an atmosphere of permissiveness is created, people will find ways to use whatever discretionary power is at their command to create opportunities for rent seeking.  The recent rule in Maharashtra to increase the age limit for buying a drink in a bar to 25 years is an example.  It accomplishes no social purpose but merely increases the opportunity for graft.  One suspects that the revulsion that powers mass participation in the Anna movement is this sort of petty corruption that ordinary people see in their day to day lives.  We who focus on reforms as the only valid basis for reducing and eliminating corruption forget the demonstration effect of scandalous corruption at the top. This petty corruption is so obvious now that is has obscured the good work done by reforms in eliminating that stemming from the license-permit raj of the pre-reform era.  Merely better policing will not eliminate this petty corruption that dogs people; but it will help. Anna’s solution of an omniscient and omnipresent super cop has it’s genesis in this notion. Until this is adequately addressed, reforms as means to end corruption argument will continue to ring hollow to the man in the street.  That has been the weakness in the counter-narrative of those who support Anna’s cause but baulk at his methods and/or proposed solution.

Anna’s anti-corruption theme resonates well precisely because it embodies a higher principle, the need for honesty at the top, with the ubiquity of petty corruption that harasses ordinary people in their daily lives. The power of this theme is obvious even if one discounts for the organizational sinews lent to it by various quarters. Anna’s capacity to mobilize masses and to gain new political adherents should not be underestimated. Satyagraha works by de-legitimatizing the existing order because the truth of its transcending principle, or central proposition, is so obvious that no further examination is necessary.   That is Satyagraha’s strength as well as its drawback.  Gandhi used Satyagraha to demonstrate that freedom was our birthright by picking up a handful of salt after the Dandi March.  In that very act he at one stroke de-legitimatized British Rule in India once for all.  Satyagraha is not just a means of coercing a reluctant authority into concessions.  If that were so Anna’s movement would have no downside. The sad fact is that Anna’s supporters have sought to tar everybody opposed to them as uncaring, corrupt exploiters of the people, be they Government, Parliament, courts, police or ordinary people who think differently.  That across the board condemnation of legitimate authority, especially an elected one, when combined with mass mobilization posses risks to our young democracy.  Unfortunately, there just isn’t enough evidence in the movement to suggest that it’s organizers are as aware of the downsides as Gandhi himself clearly was.

Clearly not all corruption in our system is just rent seeking by individuals and politicians for personal gain. Elections are horribly expensive affairs demanding a lot of money, not for buying votes, but for legitimate expenses like travel, publicity and the like. Yet we have not made adequate provision for funding of the same.  This is not an excuse for corruption.  But not addressing it properly sets up a self-perpetuating vicious circle in which we are now caught up.  Firstly, without funding a honest politician is at a tremendous disadvantage compared to an unscrupulous one.  It is amazing that we still manage to elect a few honest politicians despite the prohibitive handicap that this imposes.  Anna himself is on record saying he couldn’t hope to get elected given the above handicap and has used this to denigrate the electoral process itself.  Secondly, once dishonest money is to be used, it sets up a competitive dynamic of its own. The more money you have the better the probability of you or your party getting elected and so on and so forth.  As a result of this dynamic, each successive crop of politicians is more criminal, more venal, more corruptible than the one before.  What better way to ensure that we produce the worst leaders we can?  So election funding is important, not because it is the root cause of corruption, but for the Darwinian property that naturally selects the most ugliest of politicians that the system can find.  Most of us forget this dimension to election funding.  Again, this is the key to how we de-legitimatize our electoral process.  Anna has correctly laid his finger on it and has used it in his rhetoric though the solutions his supporters offer do not even attempt to address the problem.

All policing works by first reducing the incidence of crime to an exception.  If everybody is a thief there would be nobody to catch a thief and robbery wouldn’t be a crime. This in not a trivial issue.  It is our moral training in early life that turns us against thievery and that teaching persists in most of us.  The first line of defense against wrong doing is always embedded in our culture.  How many of us are taught to be honest and how many are taught to be practical? Be honest in your reply to yourself. The State or its instruments such as the police come into the act only to deter using exceptions to the rule.  And they deter by making an example of those caught.  The police cannot catch every thief despite all this. The system still works because it is usually sufficient to keep the honest honest by demonstrating deterrence.  The same holds true for corruption.  You cannot catch all the corrupt simply by setting up a large enough police force. There will never be enough resources for the same.  Instead you attack the problem by first reducing the scope for corruption as we have successfully done in case of gold smuggling or industrial and import licensing. Once you whittle down the problem to manageable proportions you can use police methods of deterrence by making an example of those who get caught at it.  Again you cannot possibly catch all the corrupt.  So the best policy is to focus at the top rather than the bottom of the pyramid.  Which is why Anna’s proposed coverage of lower bureaucracy is of dubious merit.  Corruption has to be fought top down, not bottoms up. A honest departmental head is usually enough to keep all others below him honest.

Anna has done a singular service to the nation by putting the issue of corruption center stage.  He has also put the insouciant politicians on the mat.  He has a popular mandate that can, with some more effort, be converted into an unstoppable force for change.  But what of the change itself?  Reforms have worked far more than anybody could have hoped to end corruption in the areas they have been applied to. Anna and his supporters need to acknowledge that.  Further, the areas in our economy that remain untouched by reforms remains vast.  In the absence of reforms these unplugged areas will provide fertile hunting grounds for the corrupt no matter what we do.  Lack of election funding has already got our polity in its vice like vicious grip that will be extremely difficult to break.  That self-perpetuating vicious cycle needs to be dismantled through electoral reforms to given honest politicians a way to gain access to leadership positions.  Last but not the least, team-Anna needs to recognize the limitations within which their movement needs to work.  It will not do to de-legitimatize and de-bunk all our institutions indiscriminately.  That leads to anarchy which will be exploited by fascists waiting in the sidelines for an opportunity.  Anna can and must lead us to a better and more honest future. It is perhaps an opportune time for him to heed his critics and win them over by reaffirming his faith in what we have accomplished so far in eliminating corruption.

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Should RBI write covered calls on gold?

August 28, 2011 9 comments

Should RBI provide liquidity to the Indian gold market?

India produces no gold.  All gold is imported into India.  Imports this year will exceed 1000 MTs of physical gold valued at $64 billion.  Gold imports are the 2nd largest item of import next only to oil. Gold imports are 3 times the total FII and FDI investments in India.  India exports $3 of savings abroad for every $1 of savings received from overseas investors. What else is capital flight?  Foreigners are selling us beads for our hard earned wealth.  The situation is ridiculous.  It persists only because our experience with banning gold imports prior to the 90s, and the consequent smuggling rackets, deters us from examining the matter unemotionally.  Gold still drives people crazy. Policy measures are required to moderate gold imports using market based regulation rather than communist style controls of yore.  One way to do this would be for RBI to encourage gold ETFs on Indian bourses and afford them flexibility in operations by writing 3 months to 3 year covered call options. This would help moderate gold inflows triggered by investment demand and also give the RBI a handle by which to monitor and moderate gold metal inflows.

RBI could use a part of its existing portfolio of gold, say 100 MTs to write 3 months to 3 year call options on gold.  Only ETFs who sell gold units to investors would be eligible to buy these options to begin with. Their purchases of calls, would naturally be linked to their portfolio of gold held, units outstanding, annual sale & purchase of gold etc.  RBI should afford the ETFs some flexibility but overall the ETFs would have to keep their net long or short position in gold to within say 20% of the total units outstanding to investors at any given point in time.  This would limit risk to them and cap the possible demand for such call options from the RBI.  It would also ensure that RBI is not called upon to import any gold over and above what would have been imported had the ETFs not sold units to investors.

RBI in turn could import gold when its call options get called in or any time during the currency of the calls outstanding. Ideally RBI should create an independent body under it to run a portfolio of physical gold, calls and puts using the local and overseas gold markets in order to manage its operations in the gold market in much the same way as it intervenes in the FX markets.  We need to realize that gold imports now are 2nd only to oil in our import basket and not some residual item that can be left to fend for itself.  There is need for proactive monitoring & management of the gold market.  It bears repeating that gold imports are 3 times the inflow of FII + FDI investments into India.  Yet contrast the policy attention paid to FII + FDI with that given to the gold market.  Policy makers ignore the elephant in the room.

To the extent ETFs replace the physical demand for gold, we avoid importing gold which is nothing but export of savings from India to overseas investors. Gold remains largely un-monetized in India, locked up in household vaults playing no further role in wealth creation. Therefore every ton of gold import avoided is every ton of gold earned by the economy. That is not a small amount. In fact it is humongous and provides the economic motive for a body like RBI to go out and write the call options.  The economy has nothing to lose and everything to gain even if RBI manages to defer import of just 10 or 20 Mts of physical gold. There is no downside to RBI or the economy in writing gold calls to ETFs.

RBI, as the central bank has the mandate, indeed the responsibility, to encourage savings in financial instruments rather than a physical asset like gold. Most central banks the world over pursue policies designed to promote the active use of fiat currency over gold.  In fact some like the FeD have powers to actively discourage citizens from holding physical gold.  So RBI intervention in the markets through writing call options would be in line with global central bank practice.  The intervention need not, indeed should not, be massive. Instead it needs to be used to promote use of gold ETFs and signal RBI intentions at market extremes as in the FX markets.

Gold prices have a phenomenal bull run from early 1990 to date with prices having shot up from $250 an oz to over $1850 now.  That bull run may continue but there is no denying that we are in a very mature bull markets and nearer its end than the beginning. While it is nobody’s case that RBI take a view on gold prices, it is worth noting that many investors will get badly burnt as gold prices correct, now or the near future.  Writing gold calls, covered by a small part of its gold reserves, will help avoid or defer very expensive gold imports at the top of a mature gold market.  While investors in ETF will certainly pay the price in case of a correction, as they should, the economy as a whole need not take the fall with them.  Indeed RBI has an obligation to issue some caution on gold prices at market extremes as it does in the case of equity or FX markets.  Writing covered calls would be a good way of issuing such a caution as well as making some money on the side while saving the country a whole lot of money buying a metal has little use locked in household vaults.

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Market Notes: 26th August, 2011

August 27, 2011 2 comments

The DOW, though not my favorite proxy for US equity markets, presents an interesting view of the present correction underway in US blue chips.  Note that the composition of the DOW has so changed that it is best to view the index as what Wall Street would LIKE YOU TO SEE, rather than the full story as revealed by say the Russell 2000 or 5000. Nevertheless, DOW makes sentiment.  And the value of sentiment is very hard to overestimate in equity markets.  With that caveat in place, let us take a look at DOW starting September, 1990 when most of the last major bull markets started their run up.


DOW had a classic bull run from September, 1990 to May 1999.  It was just up and up all the way with few minor corrections bearing all the characteristics of a parabolic rise from 2360 to 10,930, a near fivefold rise.  The sheer momentum behind the rise, fuelled in part by the tech bubble within the larger bull market for equities, showed it was something like the first part of run-up that you see in Wave V of a bull market.


A complex correction followed the May 1999 high that in fact saw a higher high at 11,750 in January of 2000.  The DOW then went on to make a low of 7750 in October, 2002 in a correction that lasted over 2 years.  The last phase of the great Bull Run started in October, 2002 and peaked in October 2007.  We are now in the process of correcting or validating how much of the Bull Run up from 1990 to 2007 is in fact sustainable by increase in profits and other valuation metrics.  That is what this correction is all about.


One way, but not the only way, to “read” the correction that started in the DOW in October, 2007 is to note that the first leg of the fall took it low of 8400 over a period of approximately one year.  It then spent some time trying to make a base around that level and finally rallied from low of 6400 in March, 2009 to end up at 10,470 in December, 2009.  From there the DOW has been in a complex “correction”, but with an upward bias, between two upward sloping trend lines that are obvious from the charts. The low of 10,600 on the DOW on 9th August was in fact a successful test of the lower of these two trend lines.  That doesn’t mean the DOW will continue to move in this channel.  But it helps to “uncover” the larger corrective pattern that is obscured by the clutter and noise in the charts.


Taking 12,900 as the last peak on the DOW and doing a wave count from there shows we are in somewhere in the 2nd half of the Wave 3 down whose first low is at 10,600 followed by a more credible support 9,800. If you were looking for a place in time where the correction to the 1990-2008 bull market would end, January of 2012 happens to be the right place to look at. Hence the wave count down from 12,900 has added significance. The worst is not over yet.  However, if market action from here on validates this scenario, [a big if] then one can hazard a guess that the bottom will be found somewhere between 9,800 and 10,600 before the end of December, 2011.  So the awful doom and gloom in the news flow may not be the right way to look at the market. At least the charts don’t justify an end of the world scenario often imbedded in the headlines.  Note, I wouldn’t buy the markets until the market actually validates this analysis by its price action.  So this is just a frame of reference against which to view the ensuing price action as it unfolds in order to be able to flag surprises as they happen.

Having said that, the DOW is bearish till the end of this year but not all that bearish as it was in 2008.


NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

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Market Notes 23rd August, 2011

August 22, 2011 2 comments



Gold, darling of the investing public, is in a very long uptrend that began in August 1999 and has continued since. Even during corrective cycles, the metal has maintained an upward bias. Corrections have been violent, sharp, but relatively short-lived all through the bull market. Having said that, we now enter a corrective cycle sometime early September, when a sharp correction in prices could set in. For traders, the signs of an impending correction have been obvious for sometime as the price of gold turned parabolic from a level of $1500 in April this year.  That sharp run up to $1880 is now due for correction. When prices go parabolic corrections can be deep.  On the charts, first support rests at $1600. That represents a correction of 15% of the top.  The correction could go deeper and will likely last for a while. Gold bugs beware.



Copper started its long term bull run in Feb., 1999, a little ahead of Gold.  It continues in a bull run that saw a very sharp correction between May 2006 and Dec., 2008.  Since then it is been in a phenomenal bull run to 4.65 in Feb., 2011.  It entered a corrective cycle since and has seen an orderly correction down to 3.81 that continues and will probably end November this year or even earlier.  Barring a break of 3.7 levels, there is not much downside to Copper from the current levels. Copper being a fairly good indicator of industrial activity and world GDP growth, it isn’t signaling a drastic downturn in growth. An upturn in prices from current level of 3.81 would be an early indicator of growth picking up.  Watch the metal as a lead indicator.



NYMEX crude began its latest bull run, like most other commodities in Dec., 1998 or early 1999.  The first phase of this Bull Run took the price to a high of $148 in July 2008.  Since then the price has followed a largely corrective pattern and has come back to test a very crucial support at $72.  It is highly unlikely that this support will be breached. In fact the correction could end as early as the end of this month.  Oil, like Copper, signals an orderly correction and not a down turn in either in its own price or in world GDP growth.  Worth accumulating at current levels with appropriate stop losses.


Taken together, these 3 commodities, don’t signal a down turn in world GDP growth rates of the kind that the news flow appears to imply.


NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

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The coming middle class revolt

August 22, 2011 1 comment

As the world plunges into a long term bear market that could last another two years or more, it has become obvious that there are no easy or quick fixes to the current set of problems that bedevil the world economy. The hope that the world’s central bankers could rekindle growth with their ‘Keynesian’ stimulus packages is fading. The debt created by the stimulus packages is too large in relation to the underlying GDP of most developed countries to permit easy refinancing from bond markets. The developed world now faces grim prospects wherein real cuts in living standards are necessary, at least for a while, before normal growth returns. The burden that this entails needs to be shared optimally and equitably if social tensions are not to explode. So far little thought has been given to the problem of how these might be shared without impairing future growth prospects or further deepening social fissures.
The run-up to the market crash of 2008 was characterised by a banking system that had run amok in terms of credit creation, credit quality and trading little understood credit derivatives. This binge was underpinned by a lax Federal Reserve System (Fed) under Alan Greenspan that believed the market could do no wrong, practically abdicating its regulatory role to the markets themselves. The credit bubble was left to collapse on its own. Therefore, when the collapse came in 2008, it was after credit had run through two decades of uninterrupted expansion. The crash in the markets, particularly bank stocks, laid bare the full extent of the havoc wrought by unrestrained lending and credit creation. Hundreds of banks would have failed. More were threatened. The authorities chose to save the banking system instead of letting the bad ones fail and the rest regroup and consolidate. Much of the so-called “Keynesian stimulus” that the central banks created has gone towards ‘replacing’ impaired bank capital rather than asset and job creation. No wonder then that trillions of dollars poured into banks neither created new jobs nor stimulated growth. Banks have simply used the money to replace capital that had been paid out earlier as dividends in good times to distribute unreal paper profits.
As the Fed drives interest rates to zero, or even negative, it impacts the wealth and wellbeing of people profoundly. These changes in wealth are neither obvious nor is their impact on society uniform. If the changes are for a short period as in a normal recession of 2-4 quarters, society is able to cope with them without much pain and things return quickly to normal. However, when the recession lasts longer, savings are not enough to tide over disruptions and very painful adjustments are required. The Fed’s use of a blunt instrument like interest rates further aggravates the problem by distributing the burden unfairly, and almost exclusively, on the middle class. It is not as though the Fed has a grudge against the middle class. The reality is that the poor have no savings that the Fed can tap into, and the super-rich escape its regulatory ambit by using hedge funds to park their savings, which in turn follow global returns. The only people with savings that the Fed can access through its hold on the banking system is the middle class that uses domestic asset classes to park its savings. This class, unfortunately, bears most of the burden of adjustment. The net result of the Fed’s effort to shore up bank capital has resulted in huge wealth transfer from the middle class to the banks. Barring a few lucky bondholders, most middle class savings, whether in 401k equity schemes, bank deposits or housing equity have simply vanished or diminished beyond repair. No wonder then that people past their 60s are looking for jobs and any hope of putting the third kid through college no longer seems practical. The level of pain being inflicted on the middle class invites revolts against the system. That is more obvious in Europe where the banking system took a larger share of the toxic mortgage losses than in the US.
What can be done to mitigate middle class pain and ensure more equitable burden sharing that also helps foster growth in the real economy? Warren Buffett has pointed to the way forward by suggesting taxes on the super-rich. It is necessary to understand the particular context of this suggestion before condemning it as a return to the evils of socialism.
The super-rich escape hidden levies imposed on savers through an artificially low interest rate regime, by parking their funds in hedge funds that follow global returns and pay no taxes in the US. Further, note the levies imposed by zero or negative returns are on accumulated savings of people and not current income so we are not talking of taxing incomes but accumulated wealth. More than that, much of the losses incurred by the banking system in trading credit derivatives resulted in humongous profits to hedge funds that went short in toxic mortgages. Nothing wrong with that. Trading is a fair, if zero-sum game, and if the banks were foolish and hedge funds smart, it is not anybody’s concern. But there is a caveat. Had the Fed not bailed out the banks, there is no way by which the hedge funds could have collected on the bank obligations due to them. Their profits, howsoever fairly earned, would have remained paper profits and would have had to be written off as unrecoverable. Net net, but for the Fed bailout for banks in full, there would be no real profits to hedge funds and their super-rich clients. These are the profits that Warren Buffett wants to claw back, not fully but in some measure.
Can it be done? Indeed as social tensions rise precisely because of the invidious nature of burden sharing, meaningful action to ameliorate the aggravation becomes less likely. Note the route taken by the UK to adjustments by reducing transfer payments to the have-nots has already led to unprecedented rioting in London and elsewhere. Greece, Portugal, Spain, Italy are not finding the money required to fund their deficits and may have to cut back on subsidies. The US is better off because of the dollar’s safe haven status. But it too will find social tension spiral upwards. It is society’s goodwill that gives currency to the wealth of the super-rich. Charity is one way to recycle some of the profits back to the have-nots. Under normal circumstances that is the preferred way to do things. In extraordinary times like the present, the way suggested by Warren Buffet may be the only viable way to go, albeit for a limited period of two to three years.
To us Indians, this form of less than fair returns on savings through artificially low interest rates is nothing new. It was standard practice from the 70s to the 90s and was one of the bad habits that the government of India kicked in as part of reforms. Pranab Mukherjee brought it back with a vengeance upon his return to the Ministry of Finance (MoF). After two years of being relentlessly fleeced stealthily, the middle class is out on the streets screaming for blood. It may not know why it feels let down, and maybe protesting generalised corruption, but in reality it has seen its wealth and options erode considerably under the second United Progressive Alliance (UPA-2) government. That angst may be the underlying discontent that Anna Hazare has tapped into.

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Market Notes: 8/17/2011

August 18, 2011 12 comments


The $ Index has been in a down trend since the 1985 high of 130, making a low of 81 in April, 1992; followed by a lower high of 120 in Jan 2002 and then again to a low of 73 in April 2011. The downtrend over a 26 year period has been severely tested the 74 to 80 range twice and held up well.  After a long correction, the $ looks technically sound on long term charts.  The prognosis for the $ through to 2012 is bullish and the $ Index could test recent highs of 87 during the year.  The currency markets don’t appear to support $ weakness relative to its trading partners.

The FeD has promised low interest rates through to 2014. 10 year treasury notes at 130 are at their peak valuation of 130.5 achieved in Dec, 2008.  While interest rates are at their lowest, they can continue to remain low but are unlikely to go lower. On the other hand, inflation has picked up slightly.  Hence going forward 6 to 12 months, interest rates could head up a little.  Their impact on currency and equity markets will be insignificant.

The Russell 2000 Index, a good proxy for the US markets, began its downtrend in November 2007, making a top of 860. Since then it has been in a down trend, hitting low of 350 in Feb., 2009. A corrective bounce from that low has seen it retest its previous top at 860 and fail. The downtrend continues. From the current level of 640, first support lies at 600, followed by a more significant support at 500.  The down trend is likely to continue in the next 6 to 12 months.  However, the slide could be punctuated by very sharp bear rallies since we are towards the end of the bear trend that began in November 2007.  Within the larger US markets, the NASDAQ representing the tech. and bio-tech sectors, appears to be the strongest.

The Shanghai Composite started its downtrend in the November of 2007 from a level of 6050 making a low of 1650 a year later.  Since then it has bounced back 3355 in November 2009 but failed to hold the lower high. The last leg of its current downtrend commenced 3130 in November 2011 and the market currently stands at 2550.  Its first support lies at 2340.  Among the world indices, it is closest to completing its downtrend that began in 2007 and should do so towards the end of November.  The last leg of the fall is usually marked with very high volatility. It is pertinent to note that the Chinese market nicked its long term uptrend that started in May 1991 in August this year.  It has since tried to climb atop the trend line.  As the break comes towards the end of the bear market, it probably represents an attempt to shake out the last of the stale bull. It is time to accumulate cautiously and slowly in the Chinese market.

The BSE SENSEX presents intriguing possibilities. Firstly the index continues in a very long term trend stretching back to 1979.  The lows of 2003 and 2009 tested this trend line and held up. Secondly, the down trend that started after nearly testing the previous 2007 top 20,900 has been very orderly and appears to be testing the 15,500 area of support.  Thirdly, the downtrend from Dec., 2010 should end by early October 2011.  That times nicely with the Chinese market.  Could the two together delink from the world market and chart their own course?  Barring a very unlikely scenario where the 15,500 area is taken out, Indian markets are worth looking at between now and October this year.


NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

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Did the FeD bet the bank on betting money?

August 15, 2011 Leave a comment

Why is the FeD unable to kickstart the US economy despite pumping in Trillion of dollars into it?  Have Keynesian techniques of stimulating slack demand failed? As the world wades into the swamp of another recession, the question takes on urgency.


Banking crisises are not new in history. Some suggest they follow a 50 year Kondratieff cycle. A Credit crisis is caused by a fractional reserves banking system that allows credit expansion far in excess of what is required to support the real economy. Excesses create loans that cannot be repaid by known income streams.  This eventually causes new credit creation to stop and a downward spiral of credit contraction results. The crash of 2008 was essentially a credit crisis brought on by excessive debt.


If credit crisises are that well known then so must be the solutions. Unfortunately that doesn’t appear to be true. To see why, we must briefly examine the changing nature of debt created by banks over time.


Good old debt isn’t what it used to be. Time was when debt was a loan you took to create an income creating asset. Over time, the income was sufficient to pay down the loan and leave a surplus. Hence debt was economically productive and helped spur growth by giving innovators access to capital with which to exploit new opportunities. Excesses were possible due to a herd chasing the same idea creating an oversupply.  But it was easy to stop the process, recalibrate valuations to reality, take the losses and start over again in a relatively straightforward way. Capitalism worked by weeding out the inefficient and making room for the efficient.


When you add consumer credit to the mix of debt that banks create, the nature of the banking crisis changes.  Consumer debt is basically preponed consumption against existing streams of income. If you are young, and being rapidly promoted, increasing income may justify a permanent hike in living standard.  But in most cases, when you take on a consumption loan, the repayment has to come, not from income growth, but from reduction in future consumption. This is true in terms of housing loans as well. You may be justified in buying a house with a loan paid out of future savings. But the essential difference with a productive loan remains. You are looking to future savings to pay off your loans; the loan is not self-liquidating from income generated by it. Sadly, in recessions that follow credit crisises, incomes shrink.  So it is that much more difficult to stimulate your way out of a credit crisis caused by excessive consumption. It takes more time to train and move a labor force to a higher level of productivity.


Even that would be manageable but for a new and strange kind of debt that began to creep into the system in 90s. For want of a better name, we shall call it derivative debt. Consider writing a call option. To do so, one would [1] buy the underlying asset laying out money, owned or borrowed, [2] Buy a put from a put seller to hedge against the possibility that the price might fall exposing one to a loss, and then [3] sell the call, valid for say 30 days, to the call buyer. At expiry, the value of the call if any would be paid out to the buyer by selling the asset at the market price and repaying the money to self or to whoever it was borrowed from. If the call has any value the put expires worthless. So derivative debt is self-unwinding so long as the options written have an expiry date and the whole chain of transaction is unwound in an orderly fashion at expiry. But for the duration of the call, or put, credit to buy or short-sell the underlying asset is created, usually by banks, and remains outstanding. For the duration, this credit creation is real, not imaginary.


Starting early 90s, banks were not only writing long term options, swaps etc over the counter but also warehousing these internally. Long term options don’t self-liquidate like the 30 day call we examined above. The credit they create persists in the system. Worse, such credit gets “delinked” from the underlying written options as credit by itself is traded as a commodity. In short, we neither have a measure of the “orphaned” derivative credit so created by the banks nor do we have established “clearing houses” in which to settle these OTC options in a transparent fashion.  When you don’t know, you can’t regulate. As events after 2008 showed, these transactions, and the derivative credit associated with them, had overwhelmed the normal asset backed loan making function of the banks many times over.


How is “derivative credit” repaid or unwound? Imagine some people placing bets on the outcome of a match. The bets are placed with a bookie who collects all the money before the match. Let us assume the bookie doesn’t bet himself. When the match is over, the bookie pays out all the bets and should be left with zero in his kitty barring his commission. Only if the bookie miscalculated the odds, or took a position himself, would there be a deficit or surplus. Betting is a zero sum game no matter how many players play and what the nature of odds.  The same is true of the whole game of trading derivatives. There is utility to the trades beyond the game in terms of risk mitigation for some. In the immediate context of such trades, somebody’s loss is an others gain. So the big question is: if the banks and institutions were simply running agency accounts in derivatives trading, how did credit losses come about?  Were banks lending for speculation?  Or were they speculating for their own account? We still do not know the true extent of such transaction though we know they were humongous.


Betting losses have to squared off, settled or cancelled. Investment banks in the US were betting shops not lending shops. Some like AIG, though an insurance company ran huge betting shops in the name of credit assurance basically writing puts on toxic assets that went wrong. They also speculated on their own accounts. When the music stopped, most were left high and dry by defaulting counter parties and own losses. FeD stepped in, not to force their liquidation, but to bail them out. Hundreds of billions of dollars were paid to add cash to the betting pool that should never have been in deficit. Furthermore, FeD purchased trillions of dollars of assets far in excess of their market value in order to shore up bank balance sheets indirectly adding billions of more dollars to betting pool. Which future stream of income does the FeD have to recover these payouts?


FeD effectively assumed the betting losses of the banking system. Fine. But to pay for them the US Government can raise taxes, resort to negative real interest rates or debase currency. Or resort to a combination of all three. Spending in recession is used to stimulate demand. Instead FeD is using it mend holes in the banking system that neither creates additional demand nor jobs. In the process the weak haven’t been weeded out and continue to bleed profits from the efficient. FeD has negated the basic creative-destructive force of capitalism.

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Does India live in its villages?

August 8, 2011 4 comments

The Indian economy appears to be running out of steam as fractious politics and unprecedented corruption combine with policy paralysis to take their toll on growth. Suddenly capital is predatory, industrialists and politicians are crony capitalists if not robber barons, the rich are getting richer and the poor getting poorer. Fossilised minds are busy churning out regurgitated wisdom that never quite left our elites. Predatory capitalism is to blame. Punditry is trotted out that it is perhaps time to turn to ‘inclusive growth’. Never mind that the ‘inclusive growth’ chariot is drawn by a couple of Trojan horses that conceal the old state controls designed to smother enterprise, energies and dreams of a billion plus people. Once again the cry is not to let a thousand flowers bloom but to prove that flowering is a wholly wasteful activity unbecoming of our ideals and culture. Now, as before, such stunted visions hide the self-serving motives of those who are already aboard the gravy train to dissuade the ones not so lucky to stay where they are. Think agriculture.
India lives in its villages, said Mahatma Gandhi. Has anybody asked the villagers if they want to live there? Had we not been keen on keeping the hoi polloi away from our own habitats, we would have noticed a singular disinclination on the part of the villagers to confine their aspirations to the villages. Even when there was no cable TV, villagers sacrificed all to give their progeny an education to escape from the clutches of rural poverty. This shows the aspirations that animate the dreams of our peasants for a brighter future. It is time we treated them as equals and paid attention to them in terms of what they really are rather than in terms of what we wish to believe of them. The simple life of idyllic villages is just a myth that blinds us to reality.
Why must an Indian farmer pay the going international price for steel but receive only one-third the international price of the vegetables he produces? This is not an isolated statistic. It is true of most things across the board whereby we underpay our farmers for their produce but charge them full for products and services they use. We do offer them stupidly designed subsidies on things like water, power and fertiliser. But these together constitute no more than 15 percent of the cost of production to farmers and the subsidy element in them at 33 percent would still amount to no more than 5 percent of the total cost. However, for this 5 percent subsidy, we underpay them 66 percent in terms of the price of vegetables! The old socialistic system we designed after independence is still at work. Working through a system of exchange controls, denial of export markets for agriculture, and direct and indirect price restrictions, it ensured transfer of wealth from the farmers to industry. The model impoverished our villages while we surreptitiously transferred their wealth to industry to fatten our middle class at the expense of farmers. Twenty years into liberalisation, we have barely touched agricultural reforms.
Class wars are not the answers to conflict of interests such as above; creative solutions are. Recall that the cost of daal (pulses) at your kirana (retail) shop is split half-and-half between the cost of production paid to the farmer and a whole group of expenses related to warehousing, processing, interest, wastage, branding, transportation and marketing. Who provides these services to the farmers on the one hand and consumers on the other? We call them middlemen. They are the proverbial bogeymen who eat away all the profits due to farmers. They are small town merchants that buy your daal from farmers and push it to you through kirana shops with varying degrees of value addition. Is this wholesale-cum-retail chain efficient? Can reforms help in releasing hidden values to benefit both farmers and consumers? Consider.
Reforming and opening up trade that moves produce from farms to store shelves is low hanging fruit ready for picking. The existing middlemen are essentially government agencies and small merchants. The existing system provides no feedback to farmers in terms of future prices, what to grow, seeds, agronomic practices that standardise produce, and a host of other inputs needed to make farming less risky and more productive. Existing middlemen have limited warehousing capacity, their best practices are substandard, wastage is high, interest costs usurious and price risk mitigation is unknown. Lack of price hedging makes them charge huge profit margins to compensate for losses in lean years. A reasonably capitalised, professionally managed enterprise with warehousing, processing and retailing services could cut these wasteful expenses to less than half. Further economic gains would accrue to the system as farmers respond to higher and less risky incomes by more investment in their farms. Agricultural marketing firms would expand existing markets and find new ones abroad by investing in logistics to make exports feasible. We have the world’s cheapest labour in agriculture and labour accounts for something close to 40 percent of the costs of agricultural production abroad. That makes us one of the most competitive producers of food. [For a success story, look at soya bean cultivation and exports.] Where we have failed is to build the infrastructure required to capture markets abroad by not letting in the organised sector. We have restrictions in the name of protecting the common man. Common man who? Who do we protect if we rip off our farmers, gyp our consumers and punish the economy with gross waste and inefficiency?
The politics of such a move to throw open the agricultural marketing sector to domestic and foreign capital is interesting. It involves deconstructing a few myths that have been used to blind us to reality. Consider the existing chain of middlemen that move daal from farmers to consumers. When we need a bogeyman to explain inflation, we turn to the despicable middlemen. Miraculously, these very people become small traders and common people as we talk of letting in competition into their business. Over 60 years we have perfected the art of political rhetoric whereby we can be persuaded to diametrically opposite conclusions depending on which cheerleader of what persuasion is leading the discourse. The net effect of the false discourse is that it serves the collective interests of the vocal middle class at the expense of those lower down the food chain. Agricultural marketing is but one example of our intellectual blinkers. Letting in the organised sector has many economic benefits. Equally, it also has the necessary political votes. The trader class in small towns and the kirana store-wallahs are smart, suave and articulate but their numbers are minuscule compared to the farmers in the villages who would benefit the most from reform. Politicians who help bring about the change can expect a political bonanza in the rural areas. Further, there are likely to be enormous benefits to consumers in general in terms of quality and price of agricultural products. Overdue reform in agricultural marketing may help break the logjam in agricultural growth, which in turn could push us to a sustained growth above 10 percent. Imaginative reforms in agriculture can be excellent politics. Ideally, one would combine these reforms with step up in education facilities available in rural areas to provide a visible momentum for change.

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Telcom Scandal – Who decided FCFS policy should continue and why?

August 1, 2011 14 comments

Quote 1:

“The PMO noted that “it was well known at that time that there were conflicting interests between existing operators and new entrants. The Prime Minister felt that this matter required detailed examination and deliberation by the Department of Telecom in consultation with TRAI and others.”


Quote 2:

“The Prime Minister’s Office has clarified on a file noting dated January 15, 2008 related to the 2G. The noting by his Principal Secretary said the Prime Minister wants to be kept at arm’s length on the issue of the sale of spectrum.”


Up there in those two paragraphs you have the heart of the Telcom Scandal. There was a clash of interests between existing operators, [read Bharti group] and new entrants, [read Tatas, Essar, Rcom] and Government was required to find a via media between the conflicting interests of the two groups. The existing players had been the ones who got their licenses dirt cheap in the first round of liberalization. They had been in business for almost 10 years and were running a highly profitable operation.  They were naturally keen to protect their turf and franchise. The new entrants on the other hand, were keen to enter the business having belatedly realized just how profitable the business could be. They wanted to enter the business as cheaply as possible. The existing players were keen to see that the Government charged them a high entry fee for their licenses.  That was the corporate war being waged behind the scenes. The PMO clarifications now establishes facts for the first time and confirms the clash of commercial interests for us as well.


Let us examine step by step how GoI went about resolving the commercial conflict of interest between the two warring groups forgetting its own vital interests in the process.  But first a word on the First-Come-First-Serve policy that GoI had adopted at the time of liberalization when the first bunch of Telcom licenses were given out in 2001.


FCFS policy has a rationale when [a] the Government is not able to properly price a service or a license and hence does not know what to charge, [b] the fee itself doesn’t matter in the overall public good and [c] the Government needs to be fair to all those who apply for the license or service. All three conditions obtained when the licenses were first given out to private players.  At that time, through stupor or whatever, Tatas, Rcom, Essar et al missed the bus because they never applied in time. They therefore have nobody to blame but themselves. The sole purpose of FCFS is to attract participation in a new venture being privatized for the first time because the potential is unknown. It is a one-time exception to the rule not a policy for all times to come.


By 2008, the Government had 10 years of data on private players in the Telcom field and was thus in a position to determine precisely the value of the licenses it was to give out.  Secondly, given the huge profitability of the existing players, the intrinsic value of the spectrum was known to be humongous.  Giving it away free should have been properly weighed against all options available to the Government including that of auction. There is absolutely nothing to show that somebody in Government carried out such an valuation exercise. Lastly, fairness demanded that existing and new players be treated differentially rather than on the same basis because existing players had taken on far more risk than the new entrants and thus were entitled to preserve their first mover advantage.  Hence, on all three considerations, there was no case for continuing with the FCFS policy in 2008.  That it was continued is itself highly irregular and the reasons that weighed for it to continue expose the real dimensions of policy errors that the Government made or was induced to make.


By the PMO’s own admission, the new entrants were actually fighting to get into the Telcom business by hook or by crook. If FCFS is meant to attract participation from potential players the very fact that they were fighting to get in shows there was absolutely no justification for FCFS from a public policy perspective.  Nobody was in any doubt as to Telcom’s profitability and attractiveness after 10 years of operating data from existing private and public operators.  The continuation of FCFS ipso fact is the single biggest contributing factor in the whole Telcom muddle.  Why did it happen?  This question has been neatly ducked by GoI spokesmen including Sibal as if the need for a level playing field among operators justified the continuation. That is logically incorrect. A level playing field in fact demanded the opposite!


An examination of the “level playing field” hypothesis trotted out by Sibal exposes a deeper contradiction in the way GoI went about resolving the corporate war between existing operators and new entrants.  As we saw, the existing players were within their rights to seek to preserve their first mover advantage in the form of a lower operating cost structure.  But let us put that aside and look at the matter purely from a Government’s policy perspective.  Government did not need to attract new players. They were fighting to get in and common sense shows they would have paid a fair price for the privilege of entry. Why not charge everybody, existing and new players, by auctioning the spectrum to be made available?  That would mean existing players would pay the same higher price for additional spectrum as the new players but also preserve the advantage on existing spectrum already with them.  So a level playing field for all.  But more importantly, GoI would earn a huge fee for the spectrum so auctioned.  As we know, this revenue could have run into a lac of crores or more. Not a small amount. So GoI gives up about 15% of its total annual tax intake just to ensure that new players are given the same benefits that existing players had with retrospective effect going back 10 years!  Does that make sense?


The question is who decided FCFS should continue?  On what considerations?  Was the alternative of auction considered?  Was the cabinet informed of the revenue loss implied? Who recorded the justification for continuation of a onetime exception to policy that the FCFS is.  Please note the subtle way in which the whole discourse around the Telcom scandal has been shaped to deflect people away from the core question of why FCFS was continued into side issues.  The main revenue loss to GoI and the consequent bonanza conferred on new entrants was occasioned not by Raja’s side show of out-of-turn shenanigans but by continuation of FCFS.  And corporate interest now forbid bringing that issue into central focus. But to get at the truth that is where we must focus, not Raja.


The revenue loss occasioned by FCFS has been justified on two counts by Sibal in debates.  Firstly, FCFS was a policy issue and GoI was well within its rights to continue an existing policy of the Government.  We have seen that to be specious and grossly incorrect because continuation of a onetime exception 8-10 years after it was made is ludicrous.  Secondly, Sibal has justified the revenue loss saying it translated into reduced tariffs.  That claim merits careful consideration.


We will never know how much of the revenue loss was indeed passed on to consumers by Telcom operators in the form of lower tariffs.  In Sibal’s favor one must concede that Telcom tariffs in India are among the lowest in the world. But was all of the bonanza conferred on the operators passed on to consumers?  That is unlikely to have been the case.  But Sibsl’s defense is bogus for a far more subtle and deeper reason of public policy.  Remember, the revenue lost from spectrum sale belongs to the General Budget as a capital receipt from where it could have been used to construct schools, hospitals, build roads or whatever.  Who is to decide if passing on lower tariffs to Telcom consumers is a more desirable policy goal for GoI rather than building schools or hospitals?  That decision cannot be an un-scrutinized decision of the DoT or the PMO.  Both have no business making such decisions. The proper course for GoI was to charge a fair fee for the spectrum and to make those funds available for allocation from the central budget.  Why should Telcom consumers be favored over say school children or rail and road users?  Hence Sibal’s attempt at explaining away the revenue loss is not only designed to mislead but is also deeply flawed conceptually.  Pity that Sibal’s obfuscation has not been subjected to due scrutiny.


The inescapable conclusion is that FCFS was continued in 2008 to favor the new entrants.  This favor went far beyond the contours of just a corporate squabble between new and existing players as it conferred a bonanza on both the groups far in excess of their dreams of avarice running into a lac of crores and more.  Why was this done?  The need for a level playing field is a red herring designed take focus away from the real policy error, induced or innocent one cannot say at this stage.  Furthermore, the people who should be scrutinized afresh are those who made the decision to continue FCFS and that means many more people than Raja alone. Only then will the full scale of policy manipulation come to light.  Raja may have had his own little scam on the side in terms of out-of-turn favors to other operators which the CBI is looking into.  But that wrong doing pales into insignificance compared to the loss occasioned to the exchequer by FCFS. Who decided FCFS must continue and why?  Was the revenue implication of such a policy examined?  If not why not?  If it was examined what was the estimated loss to the exchequer?  Who then decided it was well worth forgoing this revenue in order to create a level playing field for new entrants?  How was such hugely important revenue sacrifice justified?  Surely any responsible Government would have papers on record covering these questions?  Where are they?  Can they be laid on the table of the Lok Sabha to dispel any doubts that we have re bonafides of these decisions?






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