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LOADED WITH DEBT

Akhilesh Bhargava

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As the banks initiate liquidation proceedings against their biggest defaulters, under the RBI diktat, to recover their lost dues, all the skeletons, so dubiously/dextrously hidden in bank cupboards (which the seniormost bankers did by manipulating their accounts), are falling out. The biggest of Indian corporates are either defaulters, or are on the verge of loan defaults and are thus desperately downsizing. Essar has already sold its oil assets to Rosneft Russia, Tata has sold off its illfated Corus Steel UK which it had acquired at a highly inflated price, Anil Ambani is looking out for buyers for an entire menu card of his assets on sale, as other big names like Bhushan Steel etc. face liquidation proceedings. It is apparent that their debt funded expansion in the last decade was mindless and due to their influence in the corridors of power, it was recklessly funded by banks. Both the lender as well as the borrower, threw prudence and caution to the winds. These corporate leaders are now sitting on huge bank loans, which they are unable to repay. The shocking part is that there are no matching assets against these gigantic loans given. CRISIL estimates that these loans have a mere 40-% asset cover, implying a 60% haircut for banks in loans recovery and a loss to that extent. This saga of reckless/fraudulent lending explains why, in the last three years of rising loan default, the growth  of India has been largely  funded by government spending and the private sector investment has been missing. The private sector is loaded with mountains of debt default, ruling out any fresh investment by it. Much as the government needs to desperately get the private sector into the growth game, to create genuine and sustainable market dynamism, its efforts are unlikely to succeed. If the big guns of Indian business are already struggling, defaulting and downsizing, then where is the question of their ability to invest in new projects. That’s ruled out at present. In such a scenario, with the government making it more and more easy and attractive to invest in India, the foreign investors are having a field day. It is they who are investing in India in large numbers and are reaping the growth opportunities of the present era. As India’s debt laden private sector misses the bus, it is the foreign players who will reap the benefits of the rapid growth that our economy is expected to witness. If they pumped in $62bn last year, it will be much more in the years to come`.

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International Economy

BOYCOTT MADE IN CHINA

Akhilesh Bhargava

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The meteoric rise of military China in recent decades, is primarily due to the prosperity it earned, by becoming the world’s factory. Visit any mall in the USA and you will find that most of the products there carry the ‘Made In China’ tag. These products have been in demand, purely because they are cheap; cheap in price as well as quality. The Chinese goods have captured the Western markets to such an extent that it is as if that their entire demand for household goods is met by China. These markets have given huge profits to China, which now has foreign exchange reserves of about $4000 bn. If you compare it with India’s present  forex reserves of about $400bn, you will understand the financial might of China today, which is being strategically transformed into military might. It has provided the China bully with the resources to bolster its muscle power and also its regular face offs with its numerous neighbours, with territorial ambitions to usurp territory. China has a long history of illegally occupying territories, with Tibet being just its most famous example. With a strong and nationalist Indian leadership, which has diplomatically decimated/isolated Pakistan (China’s all weather friend) in global circles, China has scaled up its belligerence towards India. It is now colonising Pakistan through the controversial CPEC project and seeks to contain India, by a twin strategy of increased skirmishes on the Pakistan border and the ongoing stand off in Bhutan. Xi, the powerful and ambitious Chinese leader also sees it as a means to consolidate his power, at the impending Communist Party elections in September. India’s real enemy today is China and not the puny Pakistan. To top it, in our trade, China enjoys an annual surplus of $50bn. That’s the extra cashflow we provide to China, ironically to fund its face offs with India. We are thus arming our own enemy against us. Buying Chinese products means providing resources to our enemy and strengthening its armoury against us. Indians need to boycott Chinese products. The tag on such products is not ‘Made in China’ but ‘Made By Enemy of India’.  

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International Economy

THE CHIDU CONSPIRACY

Akhilesh Bhargava

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image source : http://indianexpress.com

The INX Media-Kanti Chidambaram (KC) case is an incriminating one, as is evident from the emanating facts. It all began in 2007, when P Chidambaram (PC) was India’s Finance Minister. The Forign Investment Promotion Board (FIPB) that PC headed, gave an approval to INX Media, then owned by the criminal duo of Peter/Indrani Mukharjea,(now  languishing in Mumbai’s infamous  Arthur Road Jail), to receive foreign investment of Rs.4.62 crores. The FIPB permitted no downstream investment out of such funds, since it violated the FDI regulations. Against the FIPB approval of Rs.4.62 crroes, INX Media, brought in a mind boggling Rs.305 crores from Mauritius and also blatantly made a downstream investment in INX News, wholly contrary to the FIPB approval.

The Financial Intelligence Unit, spotted this audacious violation by INX in 2008, and informed the Income Tax Department, (ITD) which in turn passed on the news to the Enforcement Directorate. While the ED began investigation in 2010, the ITD being directly under the FM, did nothing. INX Media, in order to regularise its gross violations, used the services of KC, to ‘amicably resolve’ its transgression of law. KC used his good offices to telling effect. FIPB ‘requested’ INX News to put in a fresh application, which was promptly accepted and its serious irregularities were buried. This approval by FIPB under KC’s intervention was deceitful and fallacious. INX went scot free, while KC was richer by a few crores, for ‘services’ rendered.

PC is not the FM any more. This outlandish crime, which should have been in hot pursuit by the investigating agencies, is now being pursued. KC was raided by the ED a few weeks ago, followed up IT and CBI raids yesterday. A defiant PC and the Congress Party calls it as political vendetta to silence his writing and speaking. While the courts will ultimately decide the case, the dots connect easily and put KC/PC in the dock. The raids are heartening  to the common man. The high and mighty are being held accountable for shocking misuse of power and utter corruption and it looks that no one is above the law of the land. A corrupt person is of the same ilk, respective of the power he weilds. The law should not differentiate. The government too should not cherry pick and should punish the wrong doers, irrespective of their political affiliations.               

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International Economy

FOREIGN BLUNDERS

Akhilesh Bhargava

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A decade ago, when global corporate takeovers were touching record highs, the Indians too, joined the fray, with big-ticket acquisitions. In mega-billion dollar deals, Tata Steel acquired Corus Steel UK, Hindalco bought Novelis, JSW bought steel plants in the USA and many like the Adanis and Lanco bought coal mines abroad. These foreign acquisitions by Indian corporates were amidst great fanfare and accolades and the business newspapers excitedly announced that India had arrived on the global takeover stage. A decade later, most Indian corporates are bruised and licking their wounds, eager to find a buyer for their poorly strategised acquisitions. All big deals have gone sour and have eroded shareholder wealth, instead of building it. Tatas have sold Corus for a song, Novelis has not made money for Hindalco since a decade, JSW has written off its American investments and the Adanis are struggling to make sense out of their Australian acquisition.

It is a time to take stock and realise what went wrong, such that the Indian MNC dream proved to be a non starter. The best of Indian corporates ventured abroad, but failed. Is it that Indians are unable to manage ventures beyond the India shores? It would be wrong to say so. Merely because some acquisitions in an era failed, cannot create doubts about our world-class managerial/entrepreneurial skills. A common feature of the failed takeovers is that the timing and pricing were both disastrous. The overseas companies were acquired in boom times at peak prices, that preceded a global commodity/financial meltdown. Buying an overpriced asset only gives losses and that’s what went wrong. Moreover Indians acquired commodity companies which face merciless trade cycles, instead of buying companies with brands/technology, that can withstand downturns. The Indian groups like Tatas/Birla are large and have managed to absorb the huge losses, but their shareholders got no returns from such mega takeovers. It is time for Indian firms to cut their losses and focus on a booming India and to ensure that their future takeover strategies are not flawed, as they were a decade ago.

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