Investment in the Times of Recession

Want to increase your income in these tough times of recession? With bank interest rates as low as ever and the prices of stocks, property and even metals fluctuating every day, not sure where to invest your hard-earned money.....well here's the full-proof solution....Invest in Politics....Jai Ho!! (Pitcure Courtesy Yahoo News!!)


Aapka apna, jo karde aapka Money Dugna Portfolio Manager

-Kartavya

Outsourcing: Can It Be Stopped?

Indian elections are finally over....Phew!! While most of my previous posts were related to elections, I thought of taking a break from the ever enthralling and interesting Indian politics and move over to the charismatic world of business.

A few months ago, Barack Obama created ripples in the outsourcing industry worldwide by proposing to tweak the US tax law by eliminating the tax breaks provided to companies sending the jobs away from US and rather providing it to the companies which create jobs at home. I agree with Mr. Obama that in these hard times of recession when nearly 5 million Americans have filed for unemployment benefits and another 1.7 million are working as part-timers, he as a President needs to ensure that Americans don't loose jobs to other countries. The aim of the proposal, however, seems to be two-pronged - to create jobs which will boost the confidence of a common American and result in an increase in money flow in the market and sustain recession, and to curb tax evasion (companies who derive profits from overseas operations and are not giving it back to the US). If the US tax pundits are to believed, any such legislation will make the US treasury richer by a whopping $60 billion between 2011-2019.


However, in the current economic downturn when companies are applying different cost-cutting measures to survive & grow, and outsourcing being among the tested one, how feasible will it be for Obama & Co. to push companies to do something which is not in their best economic interests. As rightly pointed by the vice-president of one of the outsourcing firms based in Nashville,TN that "Even if the government amends the US tax policy on companies doing work offshore, the changes wouldn't be large enough to compete with the 20-30 % benefit companies get in lower labor costs. With the world economy like an inter-connected web and inter-dependent, the obvious question that comes to mind is - Is this tax proposal anywhere close to becoming a reality or is it just a mere post-election rhetoric ?


First of all there is no such thing as tax breaks awarded to US companies creating job overseas. What the US tax law has is a provision or 'loop-hole' that allows American companies to defer income tax payments on offshore profits until they are repatriated back home in the form of investments & dividends, and this is what Mr. Obama wants to eliminate (probably). Moreover, this move towards protectionism to create jobs at home lacks credibility, because US started loosing jobs long before the economic crisis to countries like Japan & China in automobile and manufacturing sectors respectively, pertaining to their lack of competitiveness and efficiency. Obama & Co. will also be answerable to the multinational companies and the hopefuls who plan to become MNCs? Why would the companies invest overseas if they don't get any incentives to do so? Protectionist measures such as these will not only dent the competitiveness and quality but also aggravate the economic crisis due to the increased costs and hinder the revival of world economy.


There's still a lot of smoke around that if implemented, which companies will be at the receiving end of this tax code change. Will it be the companies such as Wipro, Infosys who provide IT services to American companies ---- probably No, because most of these companies are working in India through a third party. So, who will be affected? As far as my understanding goes, multinationals like IBM, HP, P&G, GM, Accenture with their own offshore centres & operations will be hurt most by the proposed tax code change. So, the next question which comes up is --- Can Barack Obama get the Congress backing to pass this bill ? With the American populace favouring him and wanting to keep the jobs at home, may be he can. But history has proven how much clout does the US multinationals and lobbyists have on the Capitol Hill and with all these grumbling MNCs leaving no stone unturned to make sure that this proposal die a premature death, it won't be a cakewalk for the Obama administration to implement the tax code. Secondly, it is highly unlikely that rest of the world will be indifferent towards this protectionist tax policy.


To summarize, Obama's stringent tax and immigrant laws may turn good for the US in short term, but in long term once the economy is back on the path of recovery, US will certainly need the services of immigrants & foreigners. After all nearly half of start-ups in Silicon Valley were started by immigrants and a quarter of US global patent applications are from foreigners (according to an independent study conducted by Harvard Law School). Importantly, even the implementation of tax code doesn't guarnatee that jobs will stay in US, because it will be in the hands of the businesses to decide what is best for their survival & growth.


-Kartavya Jain

General Elections 2009: A Win Win Situation

Saturday's results as I would put it is a WIN-WIN situation for Indian democracy. The so-called 'weak' PM of India Manmohan Singh, was smiling and greeting people at 7, Race Course Road, while the self acclaimed strong PM candidate L.K. Advani was hiding and considering retirement. Indian voters displayed remarkable maturity and smartness in keeping both the Left and Right at bay and handing UPA (Congress) a resounding electoral win. As expected, all the election pundits and psephologists failed to read and understand the mind of voters and were way off the mark. Shobha De rightly states in her column -- "Gyaan givers should now go into hiding and hang up their brains."

The resurgence of UPA/Congress back into the power without the support of the left will expedite various economic reforms & policies such as opening up insurance sector for foreign investment and establishing Pension Regulatory and Development Authority to name a few. Authority. The importance and euphoria of having a stable UPA government w/o the support of opportunists Left can be fathomed from the fact that the stock trading was halted at upper circuit one minute after it began on Monday (a first timer in the history of Indian stock markets). Congress's victory proved that their two-pronged strategy of bringing in modern economic reforms and programmes such as nuclear deal, National Rural Employment Act worked well in their favor with both the urbal and rural class voting for them.

Congress turned to be the biggest winner, while BJP the biggest loser in these elections. BJP needs to understand that the pragmatic Indian Junta can't be won anymore by making hate speeches and hollow hindutva ideology. I can't agree more with MJ Akbar that "India is not a secular country just because Indian Muslims want it be secular, but because Indian Hindus want it to be secular." India needs leaders who can prevent Talibanisation of our culture and not create a Taliban.

Kudos to Indian voters for clipping the wings of leaders like Karat, Laloo, Mayawati, Mulayam, Jayalalitha, and Advani and showing that they care for good governance and not religion and caste based politics. By backing the good governance in states of Bihar, Orissa, and Tamil Nadu, Indian voters have shown that they have a come a long way and will only vote for people/party committed to India's development.

India has reinstated its faith in Manmohan Singh and with a few opportunist coalition partners around, economic reforms agenda should be pushed with a big thrust and India should be firmly placed on the path of economic prosperity and growth in the years to come. That said, it's now in the hands of the government to consolidate voter's faith that a stable government (with few partners) is indeed a strong government.

-Kartavya Jain

15th Lok Sabha Elections : Final Countdown Begins

With the month-long Indian General Elections ending on Wednesday and the results of the 543 seats anticipated to be declared on16th May, every Indian is talking and curious about who (and with whom) will form the government. Indian newschannels as usual in order to cash-on this opportunity have come up with the exit-polls. Here's a breif analysis of which party stands where based on these exit polls --

Almost every news channel has predicted the formation of coaltion government at the centre with the Congress led UPA having a slender lead over the BJP led NDA. UPA is speculated to bag 190-200 seats, while NDA will have 180-185 seats in its kitty. The most important point to note is that the projections of fourth front (SP, RJD and LJP) are not included in the total tally of the UPA seats, which upon inclusion can reach upto 225-230 mark. The exit polls in India, however, have a mixed history. The exit polls in 2004 elections predicted a comprehensive NDA victory over Congress, but they were far from being accurate. Infact, I don't even remember when was the last time when the exit polls came close to the actual results and with 714 million registered voters, its logistically impossible for anyone. It feels as if exit polls are one of the many frivolous tamashas, which all these 24x7 news channels do in order to entice the Indian public towards their TV sets.

As per my perception, the key deciders in these elections are going to be Tamil Nadu, Uttar Pradesh, Bihar, and Andhra Pradesh and the party or alliance garnering most number of seats in these states will have a major role to play in the government formation. Watch out for the big honchos of Congress & BJP trying to woo Madam Jayalalitha, Mayawati, and Nitish Kumar. Mamta Banerjee of TMC a.k.a Singur spearhead, is predicted to gravely dent the red bastion in West Bengal, leaving Karat & Co. to either sit in opposition or join hands with Congress reluctantly. Putting all the numbers in place, the formation of yet another hung parliament seems imminent and what is depressing is that the government will not be decided by elections but by back room deals & lucrative ministerial post offers. Given the nature of the nationalistic but regional parties, India may have another short-lived and unstable government and we can see another round of elections within a year or so.

Let's keep our fingers crossed and hope that exit polls (as always) turn wrong and we can have a single party with a minimum outside support, in power. A government formed without any horse trading will be a win of the Indian voters in true sense.

-Kartavya Jain

Should India Make Voting Compulsory ?

At the end of the III phase of 2009 Lok Sabha elections, India stands with a 60% voter turnout. Sounds satisfactory if not overwhelming, but what worries me the most is that our polling percentage has just increased by a lowly 3.3% (the total polling percentage in 1999 and 2004 Lok Sabha elections was 59.99 percent and 58.07 percent respectively) as compared to what it was in the 2004 elections. The picture becomes even gloomier when we break the numbers and figure out that it's mostly the urban and educated mass who don't excerise their right to franchise.

Several pleas have been made and lawsuits filed to make voting compulsory in India, however to no avail. Recently, L.K. Advani and Narendra Modi sparked off the debate by asking EC to make voting mandatory for every Indian. Advani et al. pointed that the reason for low voter turnout in 2009, is partly due to the 2009 elections being held in the summer (when most of the India is sweltering from scorching heat wave) and because voters are fed up of seeing one or other election every second year. He went on suggest that inorder to increase the voter participation, the Indian constitution should be amended to fix the terms of Lok Sabha and assembly elections so that even if a government loses majority, it is allowed to complete its term. Why Mr. Advani pointed it out after the III phase of elections is another very interesting topic of discussion (BJP depends a lot on voting by the urban middle class population to come back in power) ?

Focusing back on the main topic - While I am inclined to agree with L.K. Advani that the elections should be held in the month of February. But, his second idea to increase the voter participation is erroneous and unthoughtful, because having a fixed term means 'zero accountability.' Stability is important, but not at the cost of accountability, and the latter is of supreme importance to the well-functioning of this country. Rather, one obvious reason for lack of voter enthusiasm or interest, which all the political advocates of compulsory voting fail to mention is, the absence of taintless and trustworthy candidates. Majority of the candidates contesting the elections are involved or convicted in some sort of crimes or scandals. More than 200 candidates who ran for the parliament in the 1st phase of 2009 elections have a criminal record. How do we expect the voters to vote for the candidates who they know are not going to work for their welfare and development? How does political parties expect us to vote for goons, criminals, and fanatics?

On the other hand, since India is a democracy it is the duty of Indians to participate in the elections and elect our government. May be most of the candidates are corrupt, but there are honest, progressive, and truly secular candidates like Meera Sanyal and Captain Gopinath, who have the will and determination to take India on the path of development and eradicate corruption & inequities. Presence of such candidates will not only result in good governance, but will also drive other young & talented Indians to enter our political system. India must stand UNITED and vote for the candidates who have the drive to bring the CHANGE we are looking for.

Yes, voting should be made compulsory, but before that Election Commission must make it compulsory that all the contesting candidates have a clean image, no criminal record, and certain educational qualifications. The political parties should justify that their candidates truly deserve the VOTE of Indian Junta.

-Kartavya Jain