Reviving Sleeping Dinosaur

India’s ON and OFF Policy
In today’s uncertain world, a few countries stand out on
their own, of which India is one. There is everything
one can think of finding – higher education, high
savings rate, less papers or derivatives, huge
population, efficient stock market, several millions of
rich middle class wage earners, less debt, huge
savings in real wealth like Gold and Silver, classy high
tech manpower, world’s best design source, above
average entrepreneurs, great creative and entertaining
industry, least gambling resources, and a great
democracy.

And yet, this giant dinosaur has been unable to find a

single genuine pace bowler for its Cricket team, enough
players to win the Olympic gold medals, really creative
Prime Minister, Finance Minister, and Chief Operating
Officers for SEBI (equivalent of SEC), and RBI
(equivalent of FED in USA) from its thriving millions of
population running across the country in every street
and corner, sweating, smothering, bothering and yet
smiling amid all odds against its existence.

What is wrong with this country? Its culture, Nay;

Collectivism, partly; education, Nay; poverty, Nay; democracy, Nay; Contentment, yeah and lack of
Killing Spirit – certainly Yes. Indians are notorious for self egoism, false patriotism and above all
“eternal contentment” for whatever it has. Its desire for yearning is least. “Why do we need this? It is
enough. We are happy with what we have” And that sets it apart from the rest of the dynamic western
world.

India’s Info tech Glory and Visionary Jawaharlal Nehru

Indians have the extremely bad habit of not giving the credit where it
is due. Take the example of its InfoTech Industry – now on the lips of
every technocrat all around the world. It’s main creator and originator
is forgotten as “Cause” and the “Result” is worshipped like a demi-
god.

The seeds of high end Info tech were sawn by its first and most
charming Prime Minister, Jawaharlal Nehru, a great visionary. With
extremely limited sources at his command in early 50s, he
maneuvered to obtain the great alliance with prestigious MIT in the
United States, to set up 4 finest technical institutes – Indian Institute
of Technology. And in remaining 60 years, the successive
governments with almost 50 times monetary and ample human
resources at their command could set up only 3 such institutes. He
made the technical and engineering education so cheap and
affordable, that India could produce talents at the cheapest cost.

His investment by way of subsidies in education, basic industries and oil refineries returned 100 times
return in recent years. What he spent in millions on IIT brought in billions of dollars in Forex through
thriving Info Tech industries. Even this author got 4 degrees for just Rs 4000 or $80 in 4 years.
When the British left India in 1947, they built 9 platforms at Bombay VT railway station when India’s
population stood at 300 million; whereas in next 60 years, the successive Indian governments could
build only 4 platforms at Bombay’s Church gate railway station with over 1 billion population! It is said
that India is always on “Auto Pilot”. No one knows how it runs – it just walks in the wilderness.

Nehru dynasty gave leadership in the form of Jawaharlal Nehru itself,

then Mrs. Indira Gandhi, Rajeev Gandhi (Son of Indira Gandhi) and now
Mrs. Sonia Gandhi, head of ruling Congress party, and wife of Mrs.
Gandhi’s elder son Sanjay Gandhi.

Even the Kennedy dynasty nowhere stands near the Nehru dynasty.
The greatest contribution that Mrs. Indira Gandhi made was the green
revolution and killing of all strength of pre-1947 Pakistan into two
separate nations – Pakistan and Bangladesh.

And yet, all credits are given today to the likes of BJP Leader Vajpayee,
the charismatic Prime Minister who merely exploded the Nuclear Bomb
(It was built only with the vision of Nehru and Mrs. Indira Gandhi), Man
Mohan Singh, the Prime Minister and P Chidambaram, the Finance
Minister today for doing nothing substantially positive and lots of
negative.

India has come a long way since 1950. Knowledge is no longer a power of a few. However, the kind of
progress expected has not been achieved by India, and in fact, it is on the verge of losing major
advantage if nothing is done now.

India’s disastrous policy measures in past, its effects and how that can be reversed with ease?
India’s de facto Central Bank – Reserve Bank of India – similar to FED in USA or Bank of England in
UK, is a most revered institution in India. So also, Security and Exchange Board of India known as
SEBI, equivalent of SEC in other countries, and stock exchanges like Bombay Stock Exchange – BSE
and National Stock Exchange (NSE). They are given the status of demi-god by the admiring and
ignorant semi educated urban class in India. The result is that these institutions, with possible exception
of NSE in some cases, have become monolithic and inefficient organizations, with RBI leading the
pack.

The officials of these bodies do not

have experience in global money
market, how certain powers
manipulate the word market with
ease, and therefore are very
dogmatic in their views. They blindly
follow the theories and practices of
western and eastern world. As result,
the economic, monetary and social
policies fell far short of desired goals
in last 50 years.

They do not realize that if certain

standards with reference to which
their policies are tailored are not
yielding desired result, the
standard itself must be wrong. As
result, the measures initiated to
adjust the imbalance often fail. Let us
see the measures that failed India:
Belief, Policy Measures, Expectations and Final Result with Causes
Actuator: Finance Ministry, Reserve Bank of India, SEBI
Policy No.1: Exchange Rate

BELIEF & PARADOX (In small prints)

1. Weaker Rupee helps exports and earns FOREX
2. Domestic Industries are protected against excessive and expensive imports
3. Jobs in domestic industries are protected and also promoted
4. Foreign Debt reduces due to FOREX earnings out of exports
POLICY MEASURES: Switch ON
Weaken Rupee by all means
1. RBI: Reduce NRE deposit rates – pay them much less than domestic deposit rates (6% less)
Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of
England. NRI were treated like disposable towel
2. RBI: Do not let FII to buy Rupee from the market. Let them come to RBI directly to reward
them with much higher rupee rate as enticement not to go to the market.
Even if it costs national exchequer hundreds of crores of rupees
3. FM, RBI: Sterilize any rise in the market by buying back dollar against rupee
Even at the cost of higher money supply leading to inflation
4. FM, RBI: Allow Indian Businessmen to invest overseas so that they buy dollars and sell
rupee to cause it weaker and weaker.
While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India but
invest overseas, as though India had become one of the richest countries in the world. Even China after
receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to invest
overseas
5. FM, RBI: Allow Indian citizens to remit overseas US$ 100,000 without RBI approval, so that
pressure on rupee is reduced by letting them sell rupee and buy dollars.
While permission was not given to individual foreign investor to invest into Indian stock market as logical step
further to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas,
even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads,
sewerage, water filtration plants to reach every nook and corner of the country
6. SEBI, RBI: They introduced P-Note measures to scare away the foreign investors from India so
that upward pressure on rupee is diminished.
7. SEBI: introduced arbitrary circuit breakers for market and individual stocks in the name of
maintaining order which again scared the foreign investors who were faced with illiquidity in the
invested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixed
arbitrarily.
SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at any
time without hindrance. Even in market crash such as now, and in January 2008, the foreign and domestic
investors were not able to sell the stocks at market because there was no market.
8. FM, RBI, SEBI: prohibited short selling on selected counters to arrest the market fall
If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000
(over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?. In any healthy system
there is inlet or outlet to maintain the equilibrium. If there is only inlet, everything including wastage is
accumulated, that poison the system ultimately.

Dogmas, False Policies and Misplaced Priorities

I have said often that if certain policies do not work with reference to standard for long time, there is
something wrong with the standard itself. Such erroneous standard has to be abandoned. However,
most of the policy makers and economists have been groomed in high end business schools that rely
on outdated textbooks. These guys are not wise men but guys, who never worked on the front line,
never gained first hand experience, always sat on the back bench, followed the books in full literary
sense, and almost forgot that they too have common sense distributed by the God equally regardless of
class, religion or nationality. This intelligentsia jettisoned the common sense and practiced high end
intelligence that had no applicability in real world.

Why Rupee should be allowed to appreciate?

The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers,
Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week
and 365 days a year for over 60 years. Rupee was devalued from Rs 4/$ to Rs 50/$ today with no
tangible result.

Currency is an Ambassador of a Nation – it has to be strong

Currency is the first sign of strength of any country. Currency is a child of the nation by which a nation
is recognized, same way the parents are recognized by their own children. Ask your self – Do you want
strong children or weak children? You always say my son is this; my son is that, my daughter did well
here; my children became engineer, doctor or MBA who will get us decent life from their earnings.

And what the same guys are doing while in charge of the country? They want their currency Rupee
weak, so that it earns less, expends more, exports undersells country’s assets, imports overpays for the
good, and the external debt soars only because of depreciation of the currency. These smart guys in
RBI, SEBI, Finance Ministry and Prime Minister’s office know nothing, absolutely nothing. They are
monkeys imitating blindly the western world, who want your national currency weaker so that they can
buy cheaper from you and keep their inflation in check.

Weaker Rupee may help Exports, what about Imports?

The View is that stronger rupee will hurt exports! Really? What about imports? Are you not overpaying
for the gigantic oil bill. Are you not overpaying for debt servicing? If Rupee is at Rs 45 and foreign debt
is $100 billion, the national external debt is Rs 450,000 crores. If the rupee goes to Rs 39 as it did, the
national debt reduces to Rs 390,000 crores. If rupee was allowed onward journey, it would have gone
to Rs 26, and in that case, national debt would have come down to Rs 260,000 crores. You therefore
saved Rs 190,000 crores just by letting the Rupee getting stronger.

And I do not say that manipulate rupee to get stronger (the way US does for dollar). What I want to say
is that let it find its own level. Do not intervene there is natural tendency to get stronger. Do not sterilize
its rise. The sterilization operation is antibiotic. Continued practice of sterilization will kill its natural
power to grow and get stronger. It is more like a person not wanting a child uses condom or birth
control pill to sterilize the fertility for over 10 years, finds difficult to have child when he wants to,
because the body has become immune to its natural power to produce. Treat economy like a body, and
RBI’s sterilization and SEBI’s P-Note measures like birth control pills, and you will understand complex
economics in a flash.

A person in a gym uses all equipments and tools to make every part of his muscle beautifully contoured
and in shape. He then takes in healthy food, without which entire body will not respond to various form
of physical exercise. Consider body as economy, policy measures as various tools for exercise and
Rupee as lifeline food. If the food is weak or debilitating, the whole body is destroyed. It is a job of
Finance Minister to imitate that practice to make every section of the economy well contoured and
strong. The currency policy should be conceived and directed as suitable to the national needs, not
international or IMF demand.

How External Debt gets reduced by Stronger Rupee?

If you want to earn Rs 190,000 crores by way of FOREX earnings out of exports, and if the export
margin is 10%, the exports have to be additional 1,900,000 crores, provided none of the debt going
bad. Further, if rupee had gone higher, Government could have reduced the external debt by simply
selling rupee, buying dollars and liquidating the debt say, $ 15 billions.

False Praise leads to Wholesale Destruction

Often the names of financial officials in the country were mentioned on the top covers of magazines like
Forbes, Fortune, International Banker, IFR, IMF Review etc. Whenever their names appear on such
magazines, take for granted that they are least qualified for that post. Those who do not get proper
jobs in their own country lend up at world Bank and IMF, where decisions were never taken and
such posts were official retirement with full pay every month. It is a warehouse of inefficient. That
resume however works in India.
India is a country that believes in enormous adulation. Gods, Goddesses, Gurus, Cricketers, Hollywood
actors, high court judges, politicians and officials in RBI, SEBI, NSE and BSE are all elevated to the
extreme status. Gods and Goddesses never listen, Gurus always need bhakta jan to wash their feet
and drink that holy water, Cricketers and Actors are easy pass time, and inefficient judges in various
courts who have been caging justice for over 20 years, take 3 times vacation, larger than your own
children, never deliver justice in time prompting citizens to approach for alternative judiciary of Mafias or
Bhais to give them “Supari”, politicians like Advani go on blurting about building Ram Temple, instead
of building mass housing for the poor Indians, and officials in RBI go on having “condom sex” with
economy by sterilizing operation, and officials in SEBI go on inventing rules like P-Notes how to drive
out the Foreign Investors. When they were coming, they were asking why you are coming, and when
they are going, they are asking why they are leaving. What the hell do you want, you fickle minded
babus?

Indian never Saw Lower Oil Prices at Rs 10/ltr when Oil fell all time low to $10/brl
Due to consistent weaker rupee, the petrol prices always rose like mercury in thermometer. When the
oil fell all time low to $10 per barrel or Rs 400 per 159 liters or Rs 2.33 per liter, Indian never saw petrol
or diesel prices falling to Rs 10 per liter. This is what the misguided Rupee policy did for Indian
consumers

Currency (Rupee) Never Remain at Same Level – like Water, it finds its own level
During BJP administration, Rupee was allowed to appreciate to Rs 43 from Rs 48. This was the single
most contribution from BJP government for national good. It continued to Rs 39 during Congress
dominated coalition administration when the officials in RBI and Finance Ministry were alarmed. SEBI
started talking about Rupee when it was none of its business. These are a fiscal and monetary matter
that is the domain of RBI and Finance Ministry. SEBI invented P-Note related measures that were the
harbinger of downward movement of Rupee. It just dropped from Rs 39 to Rs 50 yesterday, when
Indian economy was supposed to be having highest growth in the world, Forex reserve at over $300
billions, and every sector of the economy was on four cylinders.

These wise guys applied screeching brake with the result that money simply evaporated, stock markets
crashed, rupee crashed, interest rates rose, inflation rose to over 13%, oil subsidies went through the
roof, and many other countless collateral damage such as recession, lower home prices, higher food
prices, and what not.

If Islamic punishment of stoning to death were to be allowed in India, the officials in Finance Ministry,
Reserve Bank of India and SEBI fully deserved that capital punishment. They destroyed vibrant
economy; they dealt death blow to the aspirations of Indian people, they sank India into deeper external
debt (by additional at least Rs 60,000 crores), they caused Oil bill to rise by Rs 16000 crores due to
depreciation effect of the Rupee, they caused budget deficits mainly due to oil subsidies running into
60,000 crores (US$ 15 billions) which would not have been there had Rupee been allowed stronger,
they caused first time home owners life miserable by increasing their EMI by over 6% per year or Rs
3000 per month per Rs 100,000 of mortgage loan, they raised the borrowing cost of almost all business
enterprises by minimum 3% , cost of energy rose by 20%, and only the life of human (Made in India)
became cheaper.

Due to single most reason –One and only One- Weaker Rupee.

(To be continued further that will be appended here. Full article will then be converted into PDF file for download)

Kalidas, Hong Kong

Ref: 08-008 – India’s ON and OFF policy
21-Oct-2008