The Indian government has turned itself into the theatre of the absurd when Robert Vadra, Salman Khurshid and Beni Prasad Verma made startling remarks
The Congress-led United Progressive Alliance (which became UPA-2) government when it returned to power in 2009, not only gave a shock to BJP and its associates, but even surprised itself with the election results. However, the last three years have seen more smoke and fire and when the shove came to the push, that perennial fighter Mamata Banerjee walked out of UPA-2 coalition, putting the very survival of the central government at stake. The doomsayers had field day predicting the imminent fall of the government for want of numbers.
On the other hand, the more experienced political hands were clear that parties like Bahujan Samaj Party (BSP) and Dravida Munnetra Kazhagam (DMK) were in no hurry to destabilise the government as they were not keen to face elections at this stage. Though the UPA-2 has lost majority in Lok Sabha, it continues to be in power with temporary props. Today the country has a true lame duck government, surviving at the mercy of disparate parties who will keep on supporting the government till they are ready for general elections.
Post-election of Pranab Mukherjee, as President of India, and separation of Mamata Banerjee from the UPA-2, the Manmohan Singh government has been trying to display new vigour on the economic front. The government’s effort to impress the investors, particularly of the foreign variety, gives the feeling of a person who is sinking fast but is making a last ditch attempt to fight before drowning. Suddenly, the Government of India (GoI), that was comatose for a long time, has started to show signs of life, albeit slowly.
Hardly had the brouhaha over Foreign Direct Investment (FDI) policy subsided that the Congress party was hit by a tornado in the form of an expose, by Arvind Kejriwal and his India Against Corruption (IAC) movement, over alleged wrong doings by Robert Vadra, the son-in-law of the First Family of the Congress leader.
Few days back Kejriwal accused Vadra of getting an interest-free loan of Rs65 crore, along with substantial bargains on property, from DLF. The allegation is that there was a quid pro quo between Vadra and DLF. Even the Haryana government had shown him favours. Congress leaders, who know only one way of protecting their supreme leader, came out in full strength in defence of Vadra and rubbished the claims made by IAC. Minister after minister made statements in defence of Vadra, while official spokespersons of the Congress party were busy defending Vadra on various TV channels. It seemed as if the entire Cabinet had descended on the media to protect him. Perhaps, the son-in-law was seeking his share of dowry, not from the in-laws but from the country itself.
Then, as if on a cue, the very next day, Congress leaders started singing a different tune; this time they claimed that Vadra was a “private citizen” and it was totally unfair of the media and IAC to target him. Surprisingly, neither the media nor Kejriwal’s team grilled these leaders that if Vadra was a private person then how come minister after minister were out in the open to defend him, on various media outlets, even if Vadra was not a member of the Congress party.
The shenanigans of Vadra are now in public. He has no respect for the common man of India when he cheekily stated “Mango people in a banana republic”. This was rightly condemned by the citizens throughout the country. The biggest indictment of Vadra is the open statement of senior IAS officer Ashok Khemka, the then Director General, Consolidation of Holdings – Haryana. Since then the officer had been transferred out of the department to minimise further damage to Vadra. Today, Khemka and his family are living in fear. Thus, it is our duty to ensure that such a courageous person is not gobbled up by the system. The media should keep him in the limelight to ensure that he is duly protected against the threats.
Amongst the several ministers who came to the defence of Vadra included Salman Khurshid, Union law minister and grandson of late Zakir Hussain, the highly respected former President of India. In a curious turn of events, few days later, Salman Khurshid himself had to face charges from Kejriwal in respect of a trust managed by him and his wife, which supposedly served the cause of handicapped persons. When the charges were first levelled against him, he was abroad. After returning to India he vehemently denied all the charges. However, at the press conference called by him to clarify his position, he lost his usual cool demeanour and started shouting at the journalists who were asking him tough questions about his trust.
However, the things did not stop there; it is the tragedy of the times in which we live that Khurshid virtually came down to a street fight with Kejriwal. In the language befitting a ‘Don’ or a local goon, he gave a veiled threat to Kejriwal, who had announced to shift the venue of protest against Khurshid to his Lok Sabha constituency in Farukhabad. The nation was aghast that a sane person holding such an important position in the GoI had stooped so low and brought the government and the country into disrepute. But then Congressmen are made of sterner stuff and they know one thing—when faced with a difficult situation—just deny everything. Although what Khurshid spoke was very clear, the Congress party remained in denial in public.
As if all this was not enough, another cabinet minister by the name Beni Prasad Varma had the cheek to mock and claim that Rs71 lakh was too small an amount for a cabinet minister to indulge in. If it had been more than Rs71 crore, perhaps he would have taken the issue seriously.
The question that begs an answer is what will happen to the future of the country if its law minister himself becomes ‘lawless’ and resorts to street language? What will happen when a cabinet minister mocks at the corruption charge and dismisses the same as of no consequence? The first thing the government should have done was to remove such ministers from the Cabinet. But then it would be too much to expect Manmohan Singh or Sonia Gandhi to do this; one is too weak to do anything while the other is the direct benefactor of these ministers. So we, the seemingly hapless citizens of India, continue to be subjected to the shenanigans of the lame duck government and its lawless ministers, all this is nothing less than the theatre of the absurd, but alas it is the country that is paying the price and we are the unwilling audience awaiting our turn to vote.
(Dr SD Israni, advocate & partner, SD Israni Law Chambers, is one of India’s leading authority on corporate, commercial and securities laws. He was a member of the Naresh Chandra Committee for simplification of Company Law relating to private and small companies. He has been on SEBI’s committee on disclosures (called the Malegam Committee) and the one on buy-back of shares. Dr Israni has been a member of the Legal Affairs Committee of the Bombay Chamber of Commerce and Industry, Indian Merchants’ Chamber and Indian Council of Arbitration. Dr Israni is an active member of the Institute of Company Secretaries of India and was on its Central Council for four terms and headed the Capital Markets Committee of the ICSI.)
The Nifty is sill waiting for a breakout. The medium-term trend is down
Global demand remains weak due to an uncertain economy, putting pressure on the profit margins of steel makers
Posco, a South Korea-based company, Asia’s third-biggest steelmaker and the world’s fourth-biggest steel producer by 2011 output according to rankings by the World Steel Association, cut its 2012 sales forecast for the third time this year after quarterly profit missed analyst estimates due to a poor demand and decline in prices. Standard & Poor’s Ratings Services (S&P) also cut Posco’s rating. S&P expects Posco to encounter continued tough steel industry conditions in the region over the next 12 to 18 months as a result of slowing demand amid significant overcapacity.
Macroeconomic uncertainties make it unlikely that the global slowdown in demand for steel will turn around quickly. The recovery is expected to be delayed as the global economy remains gloomy due to fiscal crisis in advanced economies.
This is the case with other companies of the same sector in India, as well. The steel industry’s profitability, which had risen sharply from FY04, is on its way down, according to a recent report from Credit Suisse. In the past eight years, there has been a remarkable surge in mining as well as smelting operating profits, but pressures have emerged on both smelting and mining profits, and are likely to continue going forward. There has been a remarkable surge in iron ore and coking coal prices, which seems to be unwinding now. The slowdown in the Chinese economy and the debt crisis in Europe have restrained the demand growth and profit margins have declined.
As per the Credit Suisse report, over the past years the dramatic increase in profitability was due to cheap raw materials, either through direct ownership (e.g., SAIL and Tata Steel), or just geographical proximity aided by tariff barriers (most Indian steel makers). For Indian firms smelting margins were weak despite import duty protection, and Free Trade Agreement (FTA)-related imports have now brought domestic prices closer to international benchmarks, says the report. Indian steel equities are down, but are not cheap and with rising leverage below the operating line, run the risk of book value erosion.
“In the last four years, however, steelmaking margins, or smelting margins have come down sharply, hurt by the erosion of end-demand, and the lagged commissioning of capacity increases planned during the period of shortage. Over the past few months, as iron ore and coking coal prices have crashed, there are fears anew about the impact on the steel industry of the Chinese economy moving away from investment, and towards consumption.,” says the report.
The sheer scale and growth of Chinese steel demand was the root cause of the remarkable rise in iron ore and coking coal prices over the past five to six years. This is because supply takes a while to come up. The premium of steel prices in India over global prices has started to erode so much so that even without the import duty impact, Indian prices are barely higher than global prices. This has a structural implication on steel company profitability in India.
The report mentions that the Chinese steel production is unlikely to fall from current levels and growth is likely to be slow going forward, as it has been for the past few quarters. Further, the pressure on utilisation keeps rising because of steady commissioning of new capacity. In the past few years Chinese regulators have reacted to surging exports by raising barriers, the agenda being to keep steel prices low so steel-using industries (e.g., heavy machinery, ship-building) could become more competitive globally. This time, however, the need to maintain high utilisations may supersede such concerns.
Worryingly, domestic oversupply concerns are still real and can only further hurt local profitability. The reset on Chinese demand growth expectations have hurt raw material prices, and the continuing capacity growth is creating an overhang on already weak smelting margins. Despite some of the highest steel prices globally, smelting margins for Indian firms have been disappointing.
Steel creates its own demand, this combined with the fact that given its permanence, especially in its use in heavy infrastructure/real estate, there can be long periods of ‘digestion’ of steel use, causing a demand downturn. From a pricing perspective, there is a non-linear impact—when regions with a concentration of raw materials start to see a surge in economic activity, costs start to go up (currency, wages, other operating costs), pushing up the cost curve sharply. When this reverses, the cost curve deflates as rapidly.
Credit Suisse expects that in early years the decline in per-capita steel use globally going forward may not be steep, but even a flattening of demand could have a disastrous effect on both smelting and mining margins of steelmakers.