Movie Reivew: Well Done Abba

Often serious messages can be communicated through a light hearted story and this movie is one such attempt. I recently watched a 2009 release movie “well done abba” a satirical comedy by Shyam Benegal and starring Boman Irani, Rajendra Gupta, Ravi Krishan and Rajit Kapur. The story is about Boman Irani’s quest to avail a government subsidy for digging a well in a drought prone village. His each and every interaction with the bureaucracy results in demand for bribery. Each official has coined a humorous lexicon to negotiate the terms of the corruption which makes the first half an interesting watch.

In the second half, Boman Irani realizes that against a 1 Lakh disbursal from the government, only 8,000 actually reaches him. Frustrated he gathers all the fake proof he has obtained to prove that his “Well has been stolen.” Although, he himself is depicted as illiterate, he has taught his daughter well. Also unlike the conservative Muslim family, she does not wear a veil/burqa making her modern and a true asset. She gathers 75 similar families who have fake documentary proof including pictorial evidence on a well sponsored by Government of Andhra Pradesh. Together they launch a peaceful agitation shaming the bureaucracy and forcing them to construct the well.

The movie beautifully depicts that bribery is futile and even counter-productive. It only results in shrinking kitty to do the actual work and needless wasting of time. It also shows the masses how RTI (Right to information) if used properly can keep the government bureaucracy under check.

CPSE fund FFO 18-20 Jan 2017

As per the prospectus, (kim-cpse-etf-ffo-form)The 5% subsidy is without any lock-in. Also in today’s paper EPFO has been mandated to subscribe to 50% of the total fund offering i.e. 2,800-3,000 cr INR. Add to it LIC and other agencies managed by government. It is likely that there will be a healthy secondary market allowing the investors to exit by 10th of Feb. So there is a cushion of 4-5% on your investment. I guess it is not a bad deal for short term. The question I want to answer is for the long term does it have merits?

I am wondering why each and every one of the stock trades at a discount in the futures market? If markets are efficient, then the future price should be higher to accommodate cost of funds/interest. Will I be better off investing directly in the futures market rather than going through the fund itself?

For those who don’t understand F&O market, open the details of your favorite mutual fund and look at the weight-age of the that fund to these stocks. Most likely it will be less than the weight given by Nifty. This indicates that these stocks are likely to under-perform the market and fund manager can beat the market by staying away.

stock weight spot future price (Feb/March) expected returns
ONGC 24.39% 195.2 193 -1.13%
Coal India 20.57% 307.8 292 -5.13%
Indian Oil Corporation 17.99% 352.25 344 -2.34%
Gas authority of India limited 11.19% 442 435 -1.58%
Power finance corporation 5.59% 137.05 132.15 -3.58%
Rural electrification corporation 5.22% 143.7 137.45 -4.35%
Container corporation 5.05% 1201.95 1189.55 -1.03%
Bharat Electronics 4.33% 1513.6 1505.1 -0.56%
Oil India 3.39% 341.4 335.8 -1.64%
Engineers India 2.26% 153.9 153.5 -0.26%
Total 99.98% weighted avg -2.49%

Take the recent petrol pump swiping chaos. Modi announced a 0.75% cash back on digital payments at petrol pump without ever explaining who will foot the bill. Later on Finance minister waived the 1% transaction charge on petrol bunks without informing oil marketing company, bank, credit card or petrol bunks who will foot the bill. When will government understand that commodities work on wafer thin margins and government has no business in fixing the prices or promotion schemes on behalf of these Navaratna companies.

No wonder while the government keeps on cribbing the energy subsidy bill bankrupting the government, the retail prices for fuel are higher than those in America, where there is no subsidy. Taxes, inefficiency, distribution losses and poor customer service are the black holes where the tax player money is going.

The fund management fee of 64 basis points for a passive fund is high. If there is no turnover, ETF means that the fund manager is under no obligation to sell the holdings to honor redemption, where is the money going. Well it is a separate discussion on how distributor & fund managers are able to corner such a large fees in India.

CPSE ETF fund subsidy

cpse-etf

My first reaction was: “What a joke, public sector companies are now planning to make profit.” On a serious note, I am unable to understand why government is providing a 300cr subsidy. the three possibilities:

  1. Government of India is providing a 5% cash incentive to help Reliance Mutual funds raise funds.
  2. This is a market manipulation tactic. 6,000 cr of fresh capital locked in PSU ETF will prop up the price and help GoI realize better proceeds during disinvestment.
  3. This is GoI’s way of compensating the investors for the mismanagement and systematic robbing the investors of PSU companies.

There is no social benefit that I can think of government doling out 300cr of cash to individuals. Whatever be the reason, this 5% subsidy is the only only reason why you can consider this scheme. After all 10k of free money is hard to pass on. Additionally the dividend yield of 4.3% is not hard to ignore. However PSU companies constituting a portion of your portfolio is suicidal and should not be part of part of your long term portfolio.

The argument that investment in 10 companies is very concentrated is also illogical as it is a good diversification. 65basis points as management fee however is very high. However the root question is how much PSU stocks do you want in your portfolio esp when the market is touching 8,400 levels.

 

Democracy inside political parties

There is not even a shred of democracy or transparency in the political parties today and yet they claim to uphold the secular & democratic values of the country. How can we trust the politicians to reform, bring transparency in the country when their own house stinks more than a cesspool? Why don’t political parties submit audited account books? Why they don’t hold elections to elect their ranks & office bearers? On what basis is the CM candidate is being nominated by each political parties?

Political party leadership is not a personal dominion of a person that be transferred out of free will. It is a leadership position that the office bearers need to elect as part of the mandated organizational elections.

Shashikala’s Wikipedia page is an interesting read, because it has nothing. I was unable to locate any speech of the new general secretary of AIADMK. Except her ability to be a loyal personal servant to Jayalalitha, there is no other merit that makes her eligible for this position.

Mulayam Singh treats the SP as his personal jaggir or fiefdom. Son’s uncles, nephews, even bastards and second wife hold all the positions in the party office. Anybody can be expelled, inducted and re-expelled without any meeting, discussion or deliberation.

Congress is digging an ever deeper abyss for itself. There is a sheer lack of leadership, presence of mind or even a plan in the heads of Rahul Gandhi or any of the spokesperson of Congress. It’s like having a IQ of 50+ makes you ineligible for any leadership position in the party.

BJP has become a one-man band riding high on nationalistic fervor. Opposing Modi is equivalent to being unpatriotic. He has become like the great Banyan tree which does not allow the second level to even breathe. No wonder he is increasingly becoming isolated and is lacking the detailed plan & execution needed to realize his grandiose visions & ambitions.

Indian constitution does not have a concept of chief minister candidate or prime minister candidate and for good reasons. People elect their representatives as MP or MLA and these individuals in turn elect their leaders. However, the leadership selection starts only post forming of the house. Yet in the upcoming elections everyone is projecting the CM candidate, not sure for what reasons.

Ashok ruled an empire with 50-60 million population in 250 BC. Auranzeb ruled a population between 100-150 million people in 17th Century. The Marathas ruled 1740 under Balaji BajiRao ruled ~30% of the country. Today’s India is 1.3 billion citizens and there has been no rural in the world that has ever ruled this large a population. Furthermore, almost each great rural is succeeded by an ineffective heir who only brought downfall to the kingdom. Then why are Indians insisting on bringing back kings, dynasties & fiefdom back to India?

Is it a crime to be rich?

Why should the prime minister need to single out residents of high rise apartment & car owners in his new year speech? I was so disturbed that I waited to hear the congress analysis on the speech. Which was so insipid and a total waste of time that I wonder is there any alternative leader left in the nation?

How much I earn and how much taxes I pay is a concern of my accountant & Income tax department only. I don’t understand why a prime minister has to incite a mob to investigate my tax declarations? What good can come if the vigilante start knocking doors in high rise apartments or stopping cars on the road to do an on-the-spot tax inspection?

We had the French revolution, the communist revolution and even the civil unrest during the land ceiling act during the fifties in India. None of them were surgical strikes and I suspect that several honest tax payers & salaried persons might also suffer because of this.

Enforcement through mob is already on the rise in the nation. So many movie screening, art galleries have been shut down. Valentine’s day is one favorite day where the Bajrang dal & BJP affiliate parties openly demand couples to produce their marriage certificates or witness their wrath? Why hasn’t any mainstream media picked up the impact of a new target that has been painted on the backs of the urban rich.

on a side note: if past is an indicator of future, then this critique of Modi’s speech might shed some light.

EoQ & Cash withdrawal limit

I tried to apply theory of Economic Order Quantity on the ATM cash limit imposed by the Prime Minister.

  1. Q is the 2,500/- that ATM are advised to dole out.
  2. D: monthly consumption of cash
  3. K: cost to order: Even the poor & unemployed are charging 200/- to stand for 2 hours in the ATM queue. Actual cost should be higher for white-collar professionals but lets go with it.
  4. H: holding cost = foregone interest “4%/12”

2,500=√((2*D*200)/(4/12))

2500=√(1200*D)

D = 520/- monthly or 17.3 daily.

All this exercise makes me derive two conclusions:

  1. If you are spending 20/- daily in cash, then you are not digitized enough.
  2. ATM machine disperses a single 2,000/- note which is 120 days of expenditure. So should I cut it into 120 pieces and use it for the next 120 days?

I am still unable to comprehend why I am facing so much problem in obtaining a single pink slip of paper while politicians have stacks already assembled in their homes?

Demonetization reduces corruption?

Let us talk about the latest amnesty scheme, the second one in 2016 which is ratified by the parliament.

A thanedar asks a thief what is he carrying. “Open it and show me.” Chor replies, “huzoor, it is ill gotten gains that I stole.” The police officer smiled and said “Are koi gal nahi. 50% jama kara de. Ja, ab tu imandar ho gaya.”

On a serious note, there are four forms of corruption:

  1. Highway robbery: It can be as simple as LPG delivery guy extorting extra money for the cylinder delivery to low level officials asking bribe to perform their designated duties
  2. Fraud where management, directors & proprietors collude to steal from shareholders, banks, government and even employees by over-invoicing & cooking up accounts
  3. Neglect of duty & fiduciary responsibility: Also called as high level political corruption which involves deliberate tinkering with the laws and policies for personal gain & influence
  4. Corruption need not be always monetary. Polarization of the masses and manipulating their emotions is also corruption. Debasing the population can be achieved through deliberate propaganda, false information and misrepresentation.

My question to all of you is “how do you think any one of these four evils will be curtained by demonetisation?”

It is easy to rally the voters to wage the war against corruption & black-money. However the leadership needs to realize that it is not an war against a single individual or region. It requires a planned systematic cleansing of the entire eco-system. If you want to keep corruption under check, here is the five point formulae that is globally accepted:

  1. Simple & practical rules: The easier it is to understand, interpret & implement it, the less scope there exists for manipulation & divine intervention by the signing authorities.
  2. Social stigma against the corrupt. Today the corrupt are revered for their wealth, influence and willingness to get things sanctioned. While the honest are marginalized as idealist who are not practical. I believe in the 10-80-10 rule. 10% of the people will be moral, no matter what. 10% will be always corrupt. It is the middle 80% who always try to “hitch their wagon to the star” they adapt to the circumstances and take decisions according to the reward & punishment environment that they perceive.
  3. Transparency & accountability: tender process even after the reforms & digitization is more complicated and less transparent than most of the world. PWD official is rarely held accountable for a bridge collapsing. Crony capitalism is on the rise as political favors wins contracts & eliminates competition through bending the rules & requirements.
  4. Making it difficult to spend & launder ill-gotten gains. The “no questions asked” income tax disclosure & amnesty scheme that are being rolled twice this year is actually a step in the reverse direction. As per economist magazine: Only 5-7% of the seized unaccounted wealth in the last 4 decades has been in form of Indian currency. Rest is in form of property, gold, foreign currency and other high value items.
  5. Speedy justice & extemporary punishment in the cases. CBI & CVC are not independent organizations like the election commission of India. Hence have been reduced to toothless tigers who often serve the political agenda of their masters. The court cases last for decades, leaving the accused enjoy the rest of their lives on bail while the witness live in exile for the fear of their lives.

Demonetization is no Sanjeevini booty that can cleanse corruption. Digitization can impact the laundering but we are here to discuss demonetization. You don’t need to purge the country into chaos to promote cashless economy and digital payments.

I am not here for a political debate or even comparing the short comings of one regime against the other. What I am highlighting, is that the system is rigged and demonetization is barking the wrong tree.

Each parliamentary election candidate spends a minimum of 5cr INR for campaigning & canvassing. Additionally, he bears a share of the high command expenditure on TV, social media, national rally and even political campaigns in neighboring states. The MP salary & pension cannot cover these costs. Further-more there is no audit or political funds. No donor discloses how much they contributed and to whom and no political party even records the names. Add to it the vagaries of political uncertainty & even the time till next re-election. How can one possibly stay clean and yet afford the required resources to get re-elected?

In fact, what my friends failed to appreciate, is that hard Indian currency is not the only form of corruption. Gifts, gold, silver, forex & foreign account transfer, shares to the company or property is often considered adequate payment. Harshad Mehta had difficulty in stuffing 1cr in a suitcase. Today’s 2000-rupee note is smaller and has higher value. So one can stack several crore in the same space.

I guess the only achievement is this whole 50 day drive is to raise the base price for any petty bribe from 500/- to 2000/-. In fact, it has open newer streams of corruption. Bank officials & agents helping launder the money. Shops, jewelers, co-operative banks etc. are back dating receipts to accept old currency. While I need to wait for an hour to withdraw a single 2,000/- rupee note from the ATM, hordes of new pink notes are neatly stacked in the houses of corrupt.