Thursday, December 18, 2008
The Road Projects in India - Critical ??
The subject of this post can be captured using the word 'Critical'. Are the highways projects being undertaken by the National Highway Authority of India critical for the development of the country ? And does the current pace of development so bad that it can be termed critical. The answer is yes to both questions, and outlines the problems that this country faces in terms of infrastructure.
The development of good, fast highways is an extremely important part of the infrastructure of the country; it helps in keeping the movement of goods across large distances, enables greater mobility of people, reduces the dangers of perishable items expiring, reduces cost fluctuations caused by distance factors, improves the life of vehicles and tyres, reduces fuel consumption, and a few others. In India, one of the best things that the BJP Government is remembered is for the massive road projects that it launched, and with the Highways Minister Col. Khanduri running it, the projects were on track. Given the importance of this area, one would have thought that the Congress Government would ensure that the projects are on track. However, for some time now, it has been clear that these projects are not on track, and here is a severe admonishment of the Government from the Delhi High Court:
The Delhi High Court seems to have hit upon the root cause of why crucial highway projects across the country have been moving at a snail's pace in the past few years. And the discovery has left the court both shocked and angry. The HC found that the ministry of surface transport and highways was indulging in "day to day interference" into the affairs of the National Highways Authority of India (NHAI), a statutory body granted functional autonomy by Parliament.
"The actions of the Union of India...indicates that not only autonomy granted to NHAI by Parliament through a statute enacted in this regard has been curtailed and eroded, but NHAI is sought to be reduced to a mere department of the ministry of road transport and highways," an anguished HC noted. The court discovered through evidence tabled before it how the ministry kept forwarding bidders to NHAI, asking the latter to re-evaluate their applications even though NHAI had finalized its bidding process for the Hyderabad project.
Unfortunately, this is not the only case where the Congress Government interferes with institutions. The strictures on the Health Minister over its interference in AIIMS, the severe crippling of the autonomy of the CBI, and numerous other cases are already there; in many of these cases, there has been adverse opinions from various courts that the Government shrugs off.
Satyam and its aborted plan
If you have been reading the financial papers for the past 2 days, you would have realized that suddenly something seemed to be happening at Satyam, and if you were more interested, you would have read that suddenly Satyam seemed to be in the eye of a storm regarding issues of corporate governance. It all started when Satyam announced that it was planning on spending $ 1.3 billion on diversification, and that too, this amount would have been spent on buying Maytas, a company in which the promoters of Satyam hold a 35% stake. This was not a deal that was approved by shareholders, and apparently not even by the board.
The shareholding of the promoters in Satyam is only 8%, with institutions holding a majority, and this action by the promoters saw an incredible reaction on the stock exchange. Immediately after this move, there was a reaction from shareholders, with the ADR on the US market falling by 52%. The next day, financial newspapers unanimously denounced this move as a gross violation of all norms of corporate governance, and in moves that would have scared the promoters, institutions threatened to review whether there is a trust in the management of the company.
Now, this proposed move has been withdrawn, but has left a mark on the management of the company that is difficult to get away; it will take time before the trust quotient can be restored:
Even as Satyam's deal to buy Maytas had to be hastily annulled in the wee hours of Wednesday morning as the company lost 52% on its ADR listed on the New York Stock Exchange (NYSE), a credibility crisis has begun to grip India's fouth largest IT company. "How can we trust the management of this company and its board of directors after it tried to enter into a deal that prime facie would benefit only the promoters who just own 8% of Satyam ? We have to examine whether the management needs to be changed," cried analysts in a reflection of the deep anguish caused by the now stymied move.
"58% of Satyam is owned by FIIs and they had no inkling that such a deal was in the works. There were questions about the future of Satyam after acquiring these companies when it doesn't have any experience in these businesses. It makes more sense to deploy your funds in related businesses or pay your investors," said Sourav Mahajan, analyst with Karvy.
The company is doing fire-fighting, but this is not the US. In the US by now, with a company promoters holding 8% and with such a move, there would have a far more critical reaction. Here, institutions typically do not show much emotion even when they hold a majority of the stake in the company; in fact, the public and private displays of reaction is unprecedented. This reaction is obviously not what Satyam was expecting.
However, one expects that with the share buyback announced after this as an attempt to mollify shareholders, there may not be much beyond what has been stated; the management of Satyam (and other companies) would be a bit wiser about what they can do or cannot do. What remains true in this case is that the board of the company proved ineffectual, and needs to be looked afresh.
Tuesday, December 09, 2008
Pakistan attacks the terrorists ?
After the devastating attacks in Mumbai late November 2008, the pressure on Pakistan escalated tremendously. For the last 2 decades, Pakistan has been using the policy of sponsoring terrorists (not only Pakistan, since after the Russian invasion of Afghanistan in 1979, Pakistan along with the US and Saudi Arabia armed people to fight against the Russians, using religion as the driving force), and this is something that is confirmed by the intelligence agencies of many countries as well as by Pakistani politicians at different periods. As with many other Frankensteins that get created, this is one creation that is hurting people across the globe, including the state of Pakistan where the terrorists believe that the state is under the control of the infidel United States and that a pure religious state needs to come into existence.
All this was highlighted with dramatic effect on November 26th when a band of terrorists came to the Indian city of Mumbai, and with precision, caused major damage to the city and killed almost 200 people. Now, investigations that have been carried out (by Indian investigators and those of other countries (since nationals from other countries have also died)) have come to a conclusion that the attacks were planned by the Lashkar-e-Taiba and supported by many former intelligence officials and ex-army men. Inspite of Pakistani denials (maybe to provide the effect that the Pakistani nation does not buckle under pressure), the United States and other countries have applied a lot of pressure, and this pressure seems to be having effect:
After mounting pressure from the United States and India, Pakistani authorities raided a camp run by the militant group suspected of carrying out the Mumbai attacks, Pakistani and American officials said Monday. The operation on Sunday appeared to be Pakistan's first concrete response to the demands from India and the United States to take action against the militants suspected in the attacks, which have raised tensions between the nuclear-armed neighbors to their highest point in years.
A senior Pakistani security official, who spoke on the condition of anonymity, said about a dozen people had been arrested in the raid, which took place in Muzaffarabad, the capital of Pakistani-administered Kashmir. The raid on Sunday appeared to be the first step by the Pakistanis that at least tacitly recognized the American and Indian claims. Counterterrorism experts familiar with the behavior of the Pakistani security services said there was a need by Pakistan to be seen to be doing something to alleviate the American and Indian pressure, as well as to avert the possibility of an Indian military strike.
However, the reality is that Pakistan is facing tremendous pressure, which is limiting the ability to do much:
- For the first time, US and other western tourists were targeted, and given the soft nature of these targets, a successful attack such as this will make these tourists seem more susceptible to such dangers
- Pakistani politicians, because of their past projection of India as the enemy, cannot afford to be seen as acting against so-called Kashmiri freedom fighters under US pressure
- The Pakistani military as well as the Government are financially strapped and need desperate financial support (especially when China and Saudi Arabia have refused to provide support)
- The military has just shown how powerful it is in the running of the country, and it would seem that the civilian leadership is buckling under the pressure, especially with the ISI being seen as a rogue party
- These militants, at the same time attack many Pakistani interests (including a much higher rate of suicide and other bombings)
- The incoming US administration comes in with the understanding that Pakistani was deceiving them in terms of previous efforts against the militants, and a lot of the aid was not used as the way that the Americans intended
- The US remains dependent on the Pakistani authority for the war against the Taleban, given that the last few days have seen the support convoys for the Americans in Afghanistan getting attacked in Peshawar
With all these factors, many of them at cross-purposes, it is hard to really guess what the Pakistanis will do. For their own survival, and under tremendous US pressure, they need to show action, while carrying the military along, and yet the public projection should be as low key as possible to avoid being seen to be acting under foreign pressure.