Which way: More Pain Ahead

The economy will not improve on its own; and this government can’t do much

From a little above 4,700 on 9th June, the Nifty had embarked on a major rally that took the index all the way to 5,621. As happens, the rally came against the backdrop of a dismal global situation and absolutely no improvement in the domestic situation. And yet, in less than two months, foreign institutional investors pumped in billions of dollars into the Indian markets with the hope that the year-long bear market is over. Since price action is an important factor in our analysis, I labelled the market move ‘Baby Bull’ (issue 9 February 2012). Price action was important to focus on, since we were in the middle of a quarter and were not in a position to estimate how good or bad the corporate earnings were.

In the event, corporate results turned out to be poor. It was the same old story. Demand is strong and so sales growth was robust but cost pressures leave companies with poor profit growth. Of the 1,150 companies Moneylife tracks, 703 companies reported profit growth of just 6%. Given the poor earnings growth (including those of bellwether stocks like Infosys, Hero Honda and Tata Motors), institutional investors were disappointed. But greater disappointment came from a totally unexpected quarter.

Over the past couple of years, export growth has been robust which was surprising. But last year, a fine piece of research by Kotak Securities questioned the quality of the data. Among other things, Reliance was exporting billions of dollars worth of petroleum products to the Bahamas while, intriguingly, engineering exports were rising by 80%. We believe a lot of exports were dubious and, predictably, this year, exports have collapsed. Meanwhile, imports, which are real, especially crude oil imports, have surged, leaving a gaping hole in India’s balance of payments and sending the rupee on a long slide. A rupee value of Rs56/US$ means importing more inflation, especially since we are in no position to cut our import bill substantially. This also means that interest rates will not come down. Fixed-income products will remain more attractive than equities. A sliding rupee also means that foreigners feel discouraged to invest in India. Lower capital inflows means higher chances of the rupee remaining weak, discouraging portfolio investments further—a vicious cycle.

To thoughtful economists, this is not news. They have been talking about the impact of poor fiscal management and trade deficits for a long time, but who listens to economists? In securities firms, they are not seen as performing a ‘line’ function. They are in ‘staff’ functions. Fund managers are focused on what companies do and that, too, solely on their financial performance or sometimes on ‘stories’ (consumption story, for example). They are, therefore, often blindsided by two factors. One, corporate governance issues and, two, worsening/improving economic conditions.

They may make a third mistake: assume that the government will do something, now that things are getting quite alarming. The government has two years to face the general elections and will muddle along. We expect no improvement in the macroeconomic picture and this will keep corporate earnings under pressure. The market has now turned down decisively. Indeed, the Nifty can slide all the way to 4,200. We will explain the math behind this in the next issue. We have turned neutral for now.

(Feedback at [email protected])


Public Interest Exclusive
Indian Railways: Death Trap

Is railway safety ignored because it is a middle-class issue?

On 22nd May, 24 people were killed and 35 injured at dawn when the Hampi Express collided with a stationary goods train in Andhra Pradesh. This is after two railway accidents on one day (20th March) had killed 15 people at Hatras (when the Mathura-Kasganj Express rammed into a van at an unmanned crossing) and, separately, the Aishbagh-Pilibhit passenger train rammed into a truck injuring several people.

The media dutifully reported the accidents but it was a one-day flash and a few tired editorials; no real outrage. We, the people, seem to have become deadened to the sickening loss of over 1,000 lives to railway accidents every year.

Why is the Congress-led United Progressive Alliance (UPA), which otherwise takes pride in its bleeding-heart subsidies that are bankrupting the exchequer, so unconcerned about railway safety? Isn’t the aam admi worst affected by the fact that railway safety is in a shambles and every safe journey is a miracle? This isn’t an exaggeration. It is first-hand feedback from former railway minister Dinesh Trivedi. It is not a case of sour grapes either, because Mr Trivedi raised the safety alarm well before he went on to present a path-breaking Railway Budget in March that cost him his job.

After the Kalka derailment in 2011, Mr Trivedi told the Lok Sabha: “My focus will be safety, safety, safety.” He announced plans to set up an independent railway safety authority, based on the recommendations of a high level safety review committee headed by Anil Kakodkar, former chairman of the Atomic Energy Commission. This plan was unceremoniously discarded after a budget that caused Trinamool leader Mamata Banerjee to demand Mr Trivedi’s resignation.

The Congress and prime minister Manmohan Singh buckled under pressure; but don’t they owe us, the ordinary railway travellers, an explanation for why the safety plan has been jettisoned? As Mr Trivedi says, “Remember, the rich travel by air and by car. It is the common man who dies in railway accidents. How many ministers or members of parliament (MPs) travel by train? Not even the railway minister. It is a cruel joke.” The 65,500 kilometres Indian railway network, carries over 21 million passengers everyday—isn’t the government answerable to these people?

We have to turn to Mr Trivedi again for some blunt speak. Calling the Indian railway operations ‘a death trap’ he says, “Anything can happen to any train, as safety is nobody’s concern. If you recall, I had mentioned (at a Moneylife Foundation seminar) that I would be concerned to travel by night train. During my time, messages of extra alert were sent to all.” Indeed, soon after he resigned as railway minister, Mr Trivedi had told us how he would worry every time the phone rang at night, wondering if it would bring news of yet another accident. That is the extent to which the maintenance and safety systems have been eroded because of losses and mismanagement.

Let’s look at what has been scrapped with the Anil Kakodkar committee’s recommendations. The committee flagged poor safety standards and practices of the railways as the reason for the alarming increase in accidents over the past few years. It said that the Railways would need to spend at least Rs1 trillion over the next five years to ensure the safe running of trains through drastic technical and technological improvements, upgrading of safety and maintenance infrastructure and elimination of unmanned railway crossings, installing advanced signalling and train protection warning systems as well as new LHB (Linke Hofmann Busch) design coaches. Earlier this month, the comptroller & auditor general (CAG) confirmed the Kakodkar committee’s findings in its indictment of the railways for its financial mess, the massive 93% erosion of accumulated funds and the gross underutilisation of Rail Safety Fund (RSF) indicating a low priority being accorded to safety works.

What a long way downhill we have come from the time when Lal Bahadur Shastri had resigned owning responsibility for a railway accident! On
22 May 2012, the killer accident of the Hampi Express didn’t even evoke a token demand for the railway minister Mukul Roy’s resignation. This too is not surprising, given how outrageous Roy’s brief stint was as minister of state for railways in 2011. I think a recap of Mamata Banerjee and Mukul Roy’s tenure is in order, given the Trinamool Party’s even more strident claims of concern for aam admi.

Mamata Banerjee, as the railway minister, brazened her way past a dozen accidents from 2009 to May 2011, when she quit, to become chief minister of West Bengal. While 2009 saw two accidents, there were seven in 2010. In these, 15 died in three accidents in Uttar Pradesh (UP) in the January fog. In May, 148 were killed in the Jyaneshwari Express derailment in West Bengal; 60 died in July (Uttarbanga Express rammed into the Vananchal Express); four in August (Faizabad); and 15 in September (goods train hit Gwalior Intercity Express in Madhya Pradesh). The year 2011 saw another six accidents. There were no casualties in the first two (a derailment at Ghaziabad in January and Rajdhani Express fire at Ratlam in April); 30 died in the train-bus collision in Uttar Pradesh (July 2011), 70 died in Kalka Mail derailment near Fatehpur (July 2011), and three were killed in the Guwahati-Puri Express derailment (July 2011).

The three events of July are crucial. After Mamata Banerjee returned to Kolkata as chief minister, the ministry was handed over to Mukul Roy, her chosen successor, but as a minister of state. The horrific Kalka Mail accident happened immediately thereafter and Mr Roy famously refused to visit Fatehpur. He had the temerity to tell a TV channel, “I am over 1,000km from the spot of mishap, if there is a necessity, I will visit the site. I am the minister of state not the railways minister. I will go to the spot if the PM tells me to do so.” When the Guwahati-Puri Express derailed soon after, Mr Roy did it again. He ignored the PM’s instructions to visit the accident site and instead sought a report from the railway’s general manager.

We learn that it is this that led to Dinesh Trivedi’s appointment as railway minister, but he was sacked for doing what was right—trying to make the railways safer and spending on infrastructure and modernisation by raising passenger fares after nine years. Haven’t the prime minister and the Congress Party betrayed the people by allowing Mukul Roy to return almost as though the ministry has been given away as a jagir to the Trinamool Congress? And isn’t the entire political class a party to this betrayal by acquiescing in this situation?

One reason for this could be that railway safety is seen as a middle-class issue that does not affect their core vote banks. The aam admi that politicians pay lip service to, is too poor even to travel. So it is up to us, the people, to raise our voice against misgovernance and ensure that the Indian Railways don’t go the Air India way.




5 years ago

Preventive maintenance and post-accident rehabilitation/compensation(read adequate compensation) are totally neglected areas in India especially when it comes to infrastructure and services used by aam admi and when people involved are not from the high net-worth category.
Government and public sector organizations are attracting avoidable criticism by ignoring the need for:
• Timely replacement of obsolete or defunct equipments,
• Ongoing preventive maintenance,
• Ensuring competent skilled staff in position and
• Concurrent ‘audit’ of accounting and performance in service establishments.
Many who die or get injured while traveling by rail or road(including pedestrians) even go unidentified. Carrying an identity proof should be made mandatory for using rail and road travel facilities.

Nagesh Kini

5 years ago

Well done Sucheta,
If at all anyone is responsible for making our railways the blame lies with only Mamta, who has thrown passenger safety to the winds.
What is the point in having an atomic scientist to suggest and throw the report.
That we have a series of accidents from the north, south and east, only the west has not yet seen any so far, God forbid.
High time the PM asserts himself and takes over Railway portfolio that stands messed up by the likes of Laloo and Mamta.
Enough is enough.
One more accident demand for the head of the RM but also the entire UPA2 for gross failure of safety standards.


5 years ago

Thank you, and the need for safety can not be emphasised more, especially as "statutory enquires" have become shams and jokes. Held in-house, increasingly without public participation or providing access to electronic recording by media, these are delayed for years - the final report on the Sainthia disaster of July 2010, for example, is still awaited.


Fire in Jet Airways plane; passengers safe

The Jet Airways plane was on the taxiway when the follow up vehicle saw a fire in the left engine of the aircraft

Mumbai: About 158 passengers on board Jet Airways Riyadh-Mumbai flight on Monday escaped unhurt after a fire broke out in the left engine of the aircraft on its landing at Mumbai, reports PTI.

The incident took place when the flight arrived around 5.40AM, airport sources said.

The Jet plane was on the taxiway when the follow me up vehicle saw a fire in the left engine of the aircraft.The pilot was told to hold and shut the engine, they said.

"However, the fire was immediately put out and all the passengers were deplaned safely," they added.

In a statement, Jet Airways said the flight 9W523 (Riyadh-Mumbai) was advised by the ATC to return to base as there was slight visibility of smoke from the engine as also observed by the cockpit crew.

"As per standard operating procedures, one engine was shut down and passengers were deplaned safely. The flight operation was stopped for about ten minutes," the statement added.



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