Thursday, February 23, 2012

Response to FT article - India's 'bumble bee' defies gravity

Dear David,

I recently read your article titled "India's 'bumble bee' defies gravity” published on Financial Times dated February 16th 2012. Here are some of the after thoughts that I wanted to share with you.

The front page of ‘Financial Times’ referred this article with the reference 'Undependable India'. That description was quite damaging. I do not agree with that. India has been an open democracy with the much open market for the last 2 decades. If today's India not dependable, then a communist China or an ex-Soviet Russia is more dependable to the capitalistic world is it?

Unlike the west, India does not have the ‘sophisticated’ incarnation of bribing called ‘lobbying'.
India is not a banana republic as you quoted somebody’s words in the article. It’s the largest democracy in the world. You should also understand that India is still trying to recover from devastation of the centuries of external aggression. It is a country where the national reconstruction is still under progress. The western world would interpret the word 'National Reconstruction' as ‘a contract to rebuild a country’s infrastructure after bombing that country . The 'National Reconstruction' that I am referring is a much deeper meaning. If a country is under continuous external aggression for centuries, the society would become rigid & selfish and divided. Rebuilding such fractured society into a vibrant nation is what I am referring as National Reconstruction’.

India is perhaps the most capitalistic country in the world today. We don't run ‘Government Motors’ (GM can also be called that way). We don’t have to bail out banks, insurance companies and mortgage agencies. We don’t have a large 'per capita external debt' that we cannot grow out of. Countries with those characteristics are the undependable ones, you never know when they will go 'bust'.

I personally feel that Vodafone should have been asked to pay the tax that was due ($2.9 billion) & that verdict was wrong. It has also sets a wrong precendence.

Other hand, the mentioned court verdict on the 2G spectrum case is a very positive one. Even during the court proceedings the corporate executives who tried to bribe were behind the bars. The judgement to cancel 2G licenses sent a very loud & clear message that 'if your company thinks that it can get a favourable deal by influencing the government, that deal may not last for ever'. Isn't it a positive message? It is. Especially for the people of India who have been let down frequently all the 3 pillars of Indian democracy (executive , Legislature & Judiciary)

It might not be positive for European companies like Bofors / BAE, (or even American companies like 'Enron' ) which are used to bribing governments to get business deals.

Business deals & asset valuations are not written 'on stone’. They should be re-negotiated with changing circumstances.

I don't agree with the cry that decision like this will impact 'Foreign Direct Investment' into India. ‘The verdict has not singled out any foreign companies. What is even more important is that ‘the foreign companies are NOT treated specially’ like the case of Vodafone.

Even if the 'so called' foreign direct investment dries up, it’s not a big deal for India. The statistics on foreign direct investment in India shows that the FDI is 'very little' compared to the investments derived from savings of Indians themselves. Most of the foreign money coming is the name of investment is 'hot money' chasing the stock market, which you cannot consider as long term capital investment.

You will not hear these opinions neither from the Indian businessmen in the cocktail parties that you attend / nor from the regular Indian English media. It is the voice of strong and vibrant, resurgent India.

Thanks for your closing remarks in the article. I am quoting it again, 'If India had a strong government, less corruption and more policy visibility', just imagine how high it could fly'.

with regards
Arul Krishnamoorthy
4mythoughts.blogspot.com

Monday, February 06, 2012

India pays for oil imports from Iran in Rupees

It is a major break through that India has worked out a Rupee based payment strategy with Iran for its oil imports.

The nuclear sanctions from the West (especially U.S) are irrelevant to India. It is an established fact that 'Abdul Qadeer Khan' was running a 'nuclear walmart' and was supplying technology to Iran, Libya & North Korea. Perhaps God knows (sorry Allah knows), who else bought the technology from that 'nuclear walmart'. Did U.S impose any sanctions on Pakistan. NO.

U.S does not import any oil from Iran. That's one of the reasons for sanctions. There will not be any 'oil shock' for them. That's not the case for India, which import 12% of its oil from Iran.

If Iran is a threat, what about Saudi Arabia. It has one of the most militant forms of Wahhabi Islam. It is not just a co-incidence that '16 out of the 19 hijackers' of 9/11 were from Saudi. Osama bin laden was from Saudi. Will U.S impose oil sanctions on Saudi Arabia.? NO. It will not becuase it is second largest oil supplier to the U.S. To protect this oil interest, the 2500 member Saudi royal family is protected by U.S troops.

So, the oil sactions are irrelevant for India, even if it gets the blessing of the United Nations. U.S acts to protect its own interest, similary India should protect its interests too.

The actual brighter side of the payment agreement is mode payment being Rupee. This was done to beause the current Euro based payment that go via Turkish banks will get blocked due to new sactions. The deal is for 45% of the oil imports from Iran totalling about $ 5 billion.

It is not just $5 billon worth of oil that India has managed to buy, but also the '$5 billon U.S Dollars that India did not have to buy'. (or an equivalent billons of Euros that India did not have to buy).

China also imports oil from Iran. India & China more import oil than all of Europe combined (second only to U.S). If both these countries start paying with their own curencies for their oil imports, just imagine the impact for U.S dollar & Euros. The key demand for these currencies in the form of oil payment will get reduced. The above currencies will take a bigger impact and Indian Rupee will appreciate against them.

A stronger currency is good for stronger India. I fully understand the compulsions with which this payment arrangement was made. Irrespective of the sanctions, I think India should try to push for Rupee based payments for oil imports, for India's own benefit. This was one of the developments that i forecasted ( yes. not a wish list anymore ) in my earlier 'letter to Mr. Soros' ( http://4mythoughts.blogspot.com/2012/01/letter-to-soros.html ) . I am glad it has started already started happening. Thanks U.S, for the oil sanctions imposed on Iran.