Friday, August 04, 2006

Destroying Public Wealth and PSU Navratnas for Populism

The aam admi loving UPA alliance and their finance minister PC has finally started destroying public wealth and Small investor wealth, to finance the wastage called public expenditure and their grandeous schemes for poverty alleviation, which has been the pet subject of the congress for the last 50 yrs.Thats not all they are planning a grandeous scheme to finance increase in reservation pie so as to include the so called other backword castes or OBCS, as a blatent method of securing OBC vote bank.
The Communists and DMK have been successful in shutting the disinvestment door tight.Their grandeous minimum wage guarantee program intended for the very poor (which is bound to fail due to a lack of accountability)is literally bleeding the coffers while they are finding themselves cash strapped.Globalisation and the constant rise in Crude prices havent helped either and inflation has started rearing its head as Corporates peg MRPs to international rates.On one hand the farmers are demanding a better MSP for their commodities while on the other the Govt babus want a revision in pay scales while not wanting to be accountable or to shed excess flab, have successfully armtwisted the Govt into making a new pay commission.The state of the state governments` finances is indicated by states such as Maharashtra which in the 1950s was one of the richest, while now it is sitting over a mountain of ever increasing debt. This Govt wants to please everyone and have the easy way out.
They are desparately trying to contain inflation, fiscal deficit and its financing costs or interest rates.
What has caused this increased inflation ? most visible being:-
1. Government expenditure, grandeous plans and uncontrolled spending, which has increased at such a pace that they have spent almost half the planned amt in the first quarter of the year.
2. Introduction of new taxes like VAT (while octroi and other state taxes still exhist) and increase in SERVICE TAX and its amibit and increase in State Govt Taxes
3. Increase in Crude Oil prices leading to a higher cost of import and duties levied on petrol diesel and kerosene and ridiculous subsidisation method of petro products like kerosene wherein it is supposedly(only on books) sold at 10 to 15% of production cost to bpl families, while most of it is pilferred.
4. Increase in international prices of essential commodities and foodgrains and hoarding and Mismanagement of Public Distribution System, FCI by agri ministry.
5. Increase in the international demand and Speculation for raw materials leading to increase in prices of Commodities and Metals like iron ore and copper.
6. Increased public and pvt holdings of Precious Metals like gold silver due to easy availability in nature of bonds and futures and tradablilty in commodity markets.
5. Increase in the international interest rates in Japan, USA and some countries in the Eurozone and increased fiscal deficit of USA and strengthening of EURO .
6. Indirect Increase in Income taxes, by using Fringe Benifit Tax and Tax Reforms and removal of rebates and deductions etc
7. Large Subsidisation of agricultural sector mainly benifiting rich farmers and a lack of political will to tax super rich agriculturists who are the main benificiaries of subsidys and sops like free power and water(mostly politicians).

Net net the UPA will do anything and scoop down to any level to keep their vote banks and their supporters happy.They r so shameless that they have not spared the victims of Mumbai blasts whose compensation is Techincally Taxable (though waved as a special case).As it is post real retail inflation real returns on FDS are NIL or Negative.Sadly the senior citizens have it real bad. They paid very heavy taxes in their youth and prime years in the protected economic environment and are faced with grim reality of no social security, growing inflation and overall price rise, falling returns increasing taxes,TDS and refund nitemares and curbing fd interest rates by the FM. Sucheta

To garner more revenues to pay for Debt Servicing the govts first target as allways is the urban salaried class,or the taxpaying class,well they dont want to spare the easy bakra and why should they?
their tax is cut directly from salaries, they are docile and mild mannered and dont resort to strikes and agitations and dont have a united voice.
Second on the hit list the OIL PSUS whose managements are now being shamelessly used by the government to finance the fiscal deficit indirectly.The OM M DEoda and FM P Chidambaram has, thru coersion, armtwisting and public policy forced them to sell petrol diesel kerosene and lpg far below market prices and to absorb the losses.
Technically when oil prices go up most at loss are Distribution companies like HPCL BPCL IOC, and those that gain are upstream companies like GAIL and ONGC who import crude.
The Distribution companies like HPCL BPCL IOC are in such a bad shape that they dont have money to manage day to day operations and are loosing something like a 100 crores a day and are selling their shareholdings in other companies to finance survival.Their share prices have lost substantially and are falling daily and future plans have gone for a toss and they are surviving on a promise of oil bonds.The Morale of the Management and staff is at an all time low and salaries are almost a 10th of that paid to the priate sector, and their Future is perilous.Hope this is not a prelude to facilitate their takeover by the Jamnagar beamoth.
Major portion of the losses are now being borne by the shareholders of upstream companies like ONGC GAIL who import crude and whose share prices are stagnant or falling slowly. They need massive cash reserves for future growth and RND and oil and gas exploration and their future is being jeapordised.This is a blatent fraud committed especially on small shareholders including long term investors who had purchased the shares during the ipos, expecting to profit from rise in oil prices, who are now forced to bear the govt subsidy burden.
In comparison pvt cos like Reliance are making hay, by exporting their refined products leading to a more than doubling in share prices.

This is not all, the FM Mr P Chidambaram is now planning to decrease shareholder wealth in PSU Banks mainly SBI,(Promoted by RBI which holds 59.73%stake) by curbing their autonomy to decide on Prime Lending Rates so as to control increase in interest rates.The finance ministry has made it clear to all PSU banks that they have to get clearance from their boards before raising interest rates(which will never come when most needed).
Worse is in 2007 they will have to directly compete with foreign banks as per WTO. REDIFFDNA
PSUs were formed via takeover and nationalisation of large companies by Nehru-gandhi family as a socialist policy innitative to Industrialise India thru funds garnered by heavily taxing mainly the Middle class and the Rich and thru various indirect taxes and public debt.Sadly Political interferance croonism and poor management has made most of them sick,unprofitable and unviable.
Classic case is the beamoth called SAIL which was made by J Nehru. Overstaffing unionisation and massive interference got the company close to bankrupcy, and needed a massive cash infusion for it to turn around.In comparison the steel baron Laxmi Mittal who picked up the very same executives of SAIL, gave them freedom, autonomy,and a good pay packet and look at the status of MITTAL STEEL now.

The second example on how psus r run is the public monopoly AIR INDIA, which is solely surviving due to the largess of taxpayer money.


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