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A purely analytical perception...

This is the result of analysis that we did for a large corporation that was trying to determine whether to do business in India. The following was our superficial analysis of the country's history. Read it and see if you can determine what we told them.

The answer is at the end of the article and no peeking. :-)




Updated 5-30-01



India has made it clear that they are open for business and are no longer going to pursue the peculiar economic policies that created so many problems for them over the last 20 years.  The government’s statement that it now realizes that something must be done to raise the standard of living for its people, while providing them with competitive opportunities, seems to deal with current global realities.  But wait, lets us read further before jumping to conclusions.  The fact is the government accepts the premise that it is critical to bring in outside expertise, financing and industry in order to accomplish the barest minimum of their objectives before the end of the 21st century.  A closer look at what the country has accomplished may reveal more than appears at first glance but first we are going to see who these people were and where they came from. 

India proper was actually a combination of what are now the countries of India, Bangladesh and Pakistan. This area, in reality was composed of numerous separate states ruled by petty local princes who always seemingly were vying for a slice of what his neighbors had. In spite of local rivalries, the entity seemed to flourish under British rule. Britain came onto the Indian scene in the early 17th century when their far flung, British East India Company (Company) began operations in this area. The Company was more like a country in itself in the respect that it proceeded to establish trading zones within India and supplied both military and political resources to these districts.  

Business was extremely good in India. Those on the continent that were doing business there seemed to prosper greatly and England, whose empire stretched the furthest determined to increase their piece of the Indian action. Fearing competition in their largest and paramount market, the English Government replaced its trading company’s private army with seasoned British regulars and began a campaign of subjugating the country, its people and its resources. This was accomplished in short order as the people of India were well aware that the British knew how to run a country without one of India’s historic problems, corruption which has remained invasive to this day. Furthermore, the British were able to eliminate the constant bickering that had been going on between rival states.  

Additionally, the Indian people for the first time were allowed to become part of the English bureaucracy, however at a very low level. As the people gradually developed the basic tools of government a desire for more say in their affairs was heard by the British rulers. In 1919, the colonialists transferred authority in limited doses to the locals. When World War II broke out, the British desperately needed India’s help in their war effort, and entered into an agreement to give that country  independence when the war ended was painfully extracted by Indian leadership. However, the British had their fingers crossed when they gave their word and as usual their negotiators didn’t really mean a word of what they had promised. No sooner than when Germany capitulated, the British reneged on their deal with India. However, the Indians were not surprised as they were well aware that the  British had probably reneged on every deal that they had ever made on an international basis since the beginnings of time. .  

Strong political parties began to emerge within India such as the National Indian Conference and Muslim League, as did leaders such as Mohandas Karamchand Gandhi, or Mahatma ([1]) Gandhi and Muhammad Ali Jinnah. Gandhi was totally committed to independence for India and went about it in a very unique manner. “Gandhi emerged in 1920 as the main exponent of a nationalism that sought to achieve its aims through nonviolent means, such as the nonpayment of taxes or the symbolic defiance of government authority through strikes or peaceful demonstrations. Gandhi’s aim was an India that would not simply gain political freedom but would use its freedom as a means to find its own path of development…Gandhi’s vision was rejected by the Muslim League, headed from the mid-1930’s by Muhammad Ali Jinnah. 

Before 1947, Muslims formed about a quarter of India’s population. Jinnah argued that Gandhi’s vision of unity would only ensure the dominance of the Hindu majority over the Muslim minority. The league, therefore, demanded the division of India into Hindu and Muslim states. ” ([2]) The British, totally sapped both physically and mentally by World War II, no longer had the resources to hold their empire together and bravely capitulated to great international fanfare. Independence and partition agreements were signed and everyone got their wish on August 15, 1947. Sadly, almost pathetically, the British began their lengthy pullout from India on that day.  

However, nobody was aware of what the combination of partition and independence meant at that time. The Muslims weren’t excited about life with the Hindu’s and vice versa. An enormous migration began along religious lines with streams of refugees headed in both directions waving a final farewell to the British who tried to keep their heads up under the worst of circumstances. While it was not readily apparent on the surface, it was not only the fact that these two religions couldn’t find an accommodation with each other, but it was also the fact that there was a built up hatred between these groups. The mass migration was joined by massive violence in which at least one million people were killed and 14 million became refugees. Gandhi himself was assassinated on January 30, 1948 by a Hindu who held Gandhi personally responsible for the partition that he had agreed to.  

This was a tremendous blow to the emerging country, but luckily, Jawaharlal Nehru was ready to step into Gandhi’s shoes and did it in style. While he shared many of Gandhi’s views, he was his own man and the country soon became better for it.  Nehru borrowed from all economic models while quickly learning how to play the major powers off against each other for India’s benefit. But in an ominous move that signaled stagnation, he protected a substantial number of industries against foreign influence. 

This ultimately set the stage for a national lack of incentive and competitiveness. It created the environment for shoddy products and political corruption. In trying to do his best to make the new country work, Nehru had set the stage for India’s stagnation. India’s downhill slide can be best exemplified by the fact that fresh water is less available now than it was when the British ruled the country. In addition, what little of it there is has become highly polluted by a lack of industrial controls and air pollution is considered a disaster with the World Bank estimating that 40,000 Indians die prematurely each year due to this problem. The country has about the same abominable literacy rate today than it had fifty years ago. 

India has had an uphill battle since its creation 50 years ago when it housed a mere 370 million people as opposed to today’s 970 million.  At the time that India received their independence from Great Britain, it was considered to by the “jewel in the crown” of the British Empire. It dramatically marked the demise of that country as a world power and by giving India its independence, it created the largest democracy on earth. India, while occupying only 2.4% of the world’s landmass, it is supporting 15% of the global population, of which a startling, 40% are under 15 years of age.  This is caused by an uncontrolled birthrate that will make India more populous than China in the early part of the 21st century.  While thirty percent of the population exists under the poverty line, India maintains the third largest army in the world.  India brought to the world when it became a country, the largest number of people living in dire poverty on earth.   

It is a country which contains countless political parties and seldom is there ever a national majority vote on any subject because of the diversity of interest and social customs,  Countries in the Pacific Rim that had started far behind India a half century ago, now have per capita incomes more than 25 times that of Indians. The only comparison that makes India look good is when you look at the two other countries they were separated at birth by the British. Bangladesh and  Pakistan. From an economic and political perspective, India has outperformed both in outstanding fashion, however that says very little.   

The government has no financing incentive programs, and Indian Bankers look upon making loans to farmers in much the same manner their brethren in the Western part of the United States viewed the Dalton Gang.  This left the farmers at the mercy of loan sharks that charge interest rates that would frighten Shylock.  Obviously, those that worked the land for a living regularly lost their farms, their possessions and their lives.  Not being able to face the realities of what had occurred, suicide became fashionable to such a degree that the Indian Government even began talking about providing crop insurance, something that has been available in most of the world for the last century.  “The state government is approaching the Indian government with a request to extend the crop insurance scheme to commercial crops like cotton,” said Chandrababu Naidu, Andhra Pradesh’s chief minister.  One of the residents who did not want to be identified, indicated that the chances of the government stepping in before everyone lost their land to well manicured moneylenders was minimal.  These lenders would then be forced to plant their inherited crops, to which he commented, “Let’s see how much production the government can get out of a bunch of money lenders.”  

In the two months from mid-December to the middle of February 1998, the Wall Street Journal reported that over 100 Indian farmers had committed suicide because of crop failure.  The method of choice was drinking the pesticide that was incapable of keeping the crops from being devoured by parasites, the primary villain being known as the “tobacco caterpillar.”  Many farmers who tried to do away with themselves by drinking the poisoned cocktails were unwittingly saved by the fact that supplier charlatans had watered the solutions so dramatically that the products’ potency had been completely drained.  

Farming in India at best is a push. The land is bad, fertilizer is unavailable and the government sets the price that agricultural products sell for and making a reasonable living on an Indian farm is an illusion. Even if farm prices were higher, transportation in the country is next to non-existent and it would be impossible to get most crops to market before they perished. Energy is lacking and air conditioning is a pipedream. But of all of the local and regional problems, nothing is worse that what mother nature regularly does to India's crops. Tornados, monsoons, hurricanes and drought are omnipresent and life on an India farm is literally hell on earth. The only thing worse is life in an India City. Reuters did a story on a recent problem brought on by the worst flooding in 60 years and it was written by Sharat Pradhan and we will paraphrase a big of it.

"A vast area of northern India, equivalent to the size of Switzerland, has disappeared under water in the region's worst flooding in 60 years. "It's like a sea out there," said Geoffrey Dennis, head of the South Asia delegation of the International Federation of Red Cross and Red Crescent Societies. "I have seen a lot of floods and flooded areas, but the enormity of the calamity in this region is mind boggling," he told Reuters on his return from one of the worst-hit areas in the state of Uttar Pradesh, Gorakhpur. "As our helicopter flew out of Lucknow, we could see a vast expanse of water all over and as we hit Gorakhpur, the vast expanse of water looked more like a swamp." Dennis said the state's monsoon-swollen rivers had risen to their highest levels since 1938. More than 900 people had died and more than half a million had been washed out of their homes. Of the homeless, about one-fifth will never see their houses when the waters eventually recede. Officials say the death toll from both landslides in the Himalayan north of the state and floods in the past two weeks stands at more than 1040 and 50 million people  -- more than 40 percent of the state's population -- have been affected." 

The story goes on to talk about the fact that there is little or no drinking water mostly because the regions wells have been flooded, The are major concerns that a cholera epidemic could break out at any time and because of the fact that the same problem exists in both Bangladesh and China so that the world's relief agencies are spread disastrously thin. This is an area in the world where over one-half of the annual global flood damage affects this region. Not a great place to put up stakes. 

Whenever disaster strikes in India, currency becomes next  worthless and the only thing that can be used to buy products is barter or gold. For many years, because of the fact that exports from India to the rest of the world are almost non-existent  because of their poor quality, the importation of gold was literally banned. This only made the people more desirous of having the shinny gold metal. Eventually, when the government finally felt that the demand had subsided they permitted its import and no sooner had the law been passed that India in a short period of time had become the world's largest gold consumer, even beating out the United States by a substantial margin. By the time government bureaucrats had turned around, India's hoard stood at 11,000 metric ton or 24 million pounds or 388 million ounces and when you multiply that by, lets say $275 an ounce, you get the staggering figure of $100 billion. 

This is a staggering figure for a country that can't even collect  legitimate taxes, pay their bureaucrats or feed their people. Beyond that, the enormous Indian importation of gold has thrown the nation's import/export ratio totally out of balance. Even worse, the prestigious Geneva-based World Gold Council has indicated that India's gold importation is growing at a rate that is alarmingly exceeding 11 percent a year while total world demand is shrinking by a similar amount. This luxury is a major problem for a country that is in critical monetary shape and yet government officials haven't a clue about what to do about it. 

Should India increase taxes on gold's importation purchasers will only go underground and the government will receive nothing. If they back their currency with gold, their remaining currency will become worthless and the amount backed with gold will be horded and taken out of circulation leaving no media of exchange causing panic. The Indian Government is at their wits end about what to do about the situation and have failed to realize that the secret is running a tight ship and getting the citizenry to accept that India is going to be fiscally responsible. This however, is not in the cards.

However, the Indian Government is always at its wit's end relative about what to do about literally everything and anything. India as a nation is one of the biggest dam builders in the world and officials take great pride in their size. Obviously, there is a great case that can be made that dams create energy and that they control flooding and for those reasons are good.

 For many years, it was this view that was pre-eminent. In recent years however, the people have been more carefully weighing the presumed benefits and they have not been satisfied with what they are seeing. Moreover, statistics show that in spite of the fact that dams are most usually constructed in rural areas, 80 percent of those households in India go without electricity, while the cities, countless miles away from the construction are fully wired. (That is, they are about as fully wired as anything in India can get) In addition, the building of numerous these monoliths has not provided safe drinking water for the rural communities either.

Many in India have started to wonder exactly what they are getting for their precious money. People are dislocated, the area available for cultivation is diminished, the dams do not supply the locals with either energy or drinking water and those that are forced to move are not adequately compensated for their dislocation. As a mater of fact, it has been recently reported by the World Commission on Dams, a World Bank affiliate that big dams have been responsible to the extinction of certain freshwater fish, damage for farmland and increased flooding. 

Thus, activists in India have taken up the cudgel and have started a crusade against the building of dams for the sole purpose of building dams. Somehow, this seems to make sense but this has caused a massive mobilization of the Indian bureaucrats who consider that this activism represents not only a threat to their old boy network, but it could severely cramp the style of those in government that have been receiving substantial kickbacks from contractors. The lines had been drawn and the battle began in earnest. 

The opening shot was fired when a number of lawyers representing the government claimed that they had been physically  attacked by three of the leading activists when they appeared in Delhi at the Supreme Court hearings on one of the dam's fate. Moreover, the lawyers charged that not only were they attacked but in addition, the activists told the enormous crowd that had gathered to protest the construction that the lawyers should be physically torn apart and killed. These were indeed serious charges and were levied in an attempt to derail this type of activism. 

However, this was done in spite of the fact that none of this had ever happened, the Indian Supreme Court sided with the attorneys and charged the activists with contempt. This action was particularly hard to believe when you realize that the purported incident occurred under the very noses of a substantial number of policemen and paramilitary forces. While the fact that none of this armed cadre ever noticed the threats should have been enough to convince the Court that the activists were innocent, it turns out that the entire incident was being filmed and certain of the people charged were not even seen to be present on film which covered the entire scene. In addition, just to make the cheese a little more binding, scores of people were to testify that one of those charged was at a meeting some miles away when the imaginary incident happened.  

The Indian Supreme Court, now deeply embarrassed at having their hands caught in the cookie jar have attempted to make the best of a bad situation by trying to shut up the activists once and for all. In an effort to shut them up, they have indicated that unless they withdraw their charges, they will be sentenced to very serious jail time. However, the activists have thumbed their noses at the Supreme Court and openly challenged them. The other shoe is about to drop and the world is about to see what each side is made of. 

We have heard much about India being the largest democracy in the world. However, as best we can see, it is only a democracy for the chosen few. The rest, are relegated to being pawns in the hands of the bureaucrats that totally control the length and breath of the society. Rest assured that what you see is not what you get in this very strange country. 

Although India is serious about attracting global economic players, they have really not figured out how to do it.  In Madhya Pradesh there was an astounding discovery of diamonds, and the State believed that the world would soon be beating a path to its door.  Indeed, they all came to call, De Beers, Rio Tinto, CRA and Ashton Mining.  The Madhya Pradesh Government didn’t ask for much, just a 10% royalty on all diamonds sold and an 11% equity interest in the winning mining company along with taxes and infrastructure development projects.  

Not only was this request a deal breaker, but in the fine print, state bureaucrats added that the diamonds would have to be sold to the highest bidder, rather than through the existing diamond cartels.  In reality, this deal along with many other could never have become a fact because locals think of the diamonds as India’s national treasure, which should not be dug up by foreigners.  Unhappily for India, there is no local company that has anywhere near the expertise to operate the sophisticated mining operation that is required under the circumstances.  Thus, the diamonds will go unclaimed and for the near future will remain India’s prized underground possession.   

Setting up for business in India is not a “walk in the park” under even the best of conditions, as energy is iffy even in modern buildings unless back-up generators are procured prior to moving in.  Data along with just about everything else can be lost when the daily power outage occurs.  Water cannot be counted on either unless the enterprising company places its own water tank on top of its facility, thus anticipating the regular intervals when the water supply becomes contaminated or ceases to function altogether.  It may take years before telephone lines can be installed, and air conditioning, even if is available, will usually blow out the overloaded power lines.  Even if you have your own generator, that is only the beginning, because as a rule, building facilities don’t come with light fixtures.  When you rent space in India, you get one thing:  space, hopefully with four walls, but believe it or not, something often much less.  

Real Estate projects are hard to get off the ground for other reasons as well, bureaucrats represent a nightmare when permits are needed, utility employees usually need to be bribed in order to get services installed and labor regulations regarding hiring and firing represent a nightmare. If the materials for construction and operation are not available locally, import duties are frightful and getting products from the dock to the site is a full time job and extremely expensive. An example of how bad things are is the fact that India, with the second largest population on earth, has no shopping centers. Small mom and pop businesses represent the bulk of the retail economy in this country. 

There are two principal reasons for this, the first and most critical is the fact that small businesses have their rents subsidized by the government; this not only ferments unfair competition but encourages incompetence. The second reason is a combination of the bureaucratic nightmare discussed above and the fact that all land in India is divided into extremely small parcels ([3]) thus requiring enormous perseverance and substantial money to accumulate a parcel big enough to accommodate a large structure. Real Estate people all of the world are drooling over the opportunities this anomaly presents but at the moment, there is little that can be done.   

India has stayed with a complex caste system within which there are thousands of sub castes, thus making for an extremely complex arrangement where you almost can’t tell who is doing what to whom without a scorecard.  An interesting insight into India’s caste system is provided by Mr. Gurcharan Das, chairman of Citibank India’s Advisory Board and formerly CEO of Procter and Gamble, India.  He indicates, in part, that rural India’s entire social culture is organized around caste, even when adding the educated middle and upper-middle classes to the mix.  Das states that, “Caste divides Indian society into groups whose members never intermarry and usually will not eat with each other; their status is decided by who will and will not take water from each other’s hands.  

Everyone within a caste is a brother and without is a stranger.  Caste varies by region, and the relative positions of castes can differ from village to village.  But everywhere caste rules are rigid, and those who deviate from them are shunned.  There is little room for individuality when the group – defined by family, ancestry, kinship, village, class and caste – is supreme.”   

No matter what caste you happen to belong to, when you become mentally ill in India it no longer matters; you have just sunk below the lowest untouchable. We should say, it no longer matters unless you have a wad of money. Those that don't are sent to a privately owned state funded mental institution where they are fed slop, clothed in dirty rags and housed in a style that a would embarrass a farm animal.  Because of the fact that treating the mentally ill is considered to be almost an impossibility in this country, the states allocate almost no money whatsoever for mental care., 

It may be for this reason that the cure for mental illness generally practiced in this country is rather archaic but pretty much accepted by the population. Their belief is that there is very little chance for a mentally deranged person to be cured unless they are brought to a place where there is a grave of a saint. It is generally believe that the nearer to the saint that these pathetic creatures can be housed, the greater the chance is that they will be cured. Mental illness is believed to be something that can not be solved by doctors and is therefore left to saints that died centuries ago to handle. However, this does not seem like very good odds for the deranged. 

In order to improve the chances for these people to regain their senses, the mentally ill are for the most part chained as close to a saint's grave is practicable. Moreover, they are often chained to that site both day and night. However, if one of these people regained his sanity, probably no one would even find out about it for a substantial period of time, as their are no qualified people available to take care of that minor issue. 

Such a place was the city of Erwadi where there was literally an outgrowth of mental facilities because of the hierarchy of long deceased the saints that called this, their final resting place. Each of the many mental facilities in this town vied for space closest to the highest ranking saint's resting place.  Shacks were constructed made of nothing more than palm fronds in order to facilitate the magical transference of sanity from the grave to the imprisoned mental patients. Over the years, the system had not produced many cures. 

They were  imprisoned because there was no one available to watch these folks and the townspeople didn't want the crazies leaving their facilities and marching up and down the main street. It was known that the deranged of  Erwadi had no one to complain to and therefore they were shackled to their residence when a fire suddenly broke out. Since no one was watching the store, most of these people perished horribly in the flames in spite of their anguished cries for help. 

The South Asia Human Rights Documentation Center was up in arms as they had been complaining about the horrendous treatment that the mentally ill Indians had been forced to accept for eons. The fact that the Indian mentally ill had been horribly mistreated did not cut the mustard with  Indian bureaucrats. who when addressing the catastrophe stated that "It was just God's will". This is certainly not a country in which you want to lose your marbles and a government investigation was soon put to rest with blame laid primarily on the long dead saint's inability to cure those fried in the fire. A rather sorry state of affairs.

India has never been too concerned about the rights of others when it came to intellectual property.  The pervasive feeling within the country is that India is playing catch up and it is easier to “catch up” when you make your own rules.  High-tech companies have been slow to bring their trade secrets into a country that in the past has considered reverse engineering the only game in town.  Indian intellectual property laws lack cohesiveness and enforcement is literally non-existent.  

Additionally, what little protection that can be found within the court system is archaic, slow moving and biased toward indigenous companies that more often than not were trying to simulate products, names and contents of others.  An example of the depth of the problem, Tata Timken estimates that in the field of automobile spare parts (a critical industry because of import regulations and tariffs), some 40 to 50 percent of all products are bogus.  Although legitimate products may be available, poor distribution throughout the country hampers delivery. 

It is in the area of pharmaceuticals where Indian piracy takes a back seat to no other country.  Their chemists can reverse engineer the most complex of medicines in almost no time at all.  Many pharmaceutical companies such as Pfizer will not sell to India at all because of the country’s attitude in not respecting intellectual property.  The Indian theory is that copying is alright, at least in the field pharmaceuticals, because monopolies tend to keep prices up and a patent creates a monopoly;  and India has too many sick and poor people to have to worry about the niceties of playing by the rules.  In addition, the government has come up with some new rules of their own which through convoluted logic seem to convince them that they are doing the right thing.  India’s intellectual property laws have evolved to where they will recognize the methodology of the manufacture but not the end product. Thus, indigenous companies by using a different method of getting to same conclusion are free to create whatever they want at will.  

Corruption in India is a pervasive and catastrophic problem. Nowhere is the predicament more of a problem that in India’s military. Moreover, one of the most astounding charges of corruption that we have ever witnessed concerns India’s loss of military planes.  Indian newspapers have reported that as many as 82 planes have been lost during a recent 42 week period from non-combat crashes.  The cost of this to the Indian Government, just for replacement of these losses, is estimated in the billions of dollars.  But why do they crash?  

There are three schools of thought on the subject.  The first holds that the training of Indian pilots is deficient by any standards and when their pilots graduate from flight school, they are just not equipped to operate a glider nonetheless a sophisticated jet plane. While this is more likely than not, it certainly does not bode well for India in any battle with neighbors, or anyone else for that matter.   The second often argued possibility is that the planes are poorly made. However, this argument does not seem to hold water because India purchases all of their military aircraft from other nations, which have not reported these kinds of problems. 

Lastly, and more typical of the average Indian’s approach to anything that goes wrong in India is corruption.  One of the major Indian papers ran a story last year about how people were cleaning up in “bogus aircraft parts.”  Unbelievably, the outcry has been raised by the populace that the Indian Air Force was purchasing second-hand or homemade parts for their fighters.  Some wags, apparently, not understanding the rigid system have already started making demands for an investigation.  In the meantime though, in a land where people can’t find work, it is certainly unusual that the Indian Air Force cannot seem to be able to recruit pilots, even at high pay and large bonuses.  It is not a stretch to believe that the pilots know that something is very wrong. 

However, there is a new movement afoot in India, it is called Internet Justice and it was started by a website called  Tehelka means "sensational"  in Hindi and it turned out that the web site was as good as its name. The people from tehelka opened up a phony corporation and started to go about town (New Delhi) offering various politicians bribes in exchange for doing favors for their company. However, they always were accompanied by a hidden camera and microphones that faithfully recorded the happenings. Before they were done, they had accumulated over 100 hours of videotape, which was eventually cut down to a 4½-hour documentary.  

The cover story they used was made patently ridiculous just to see how far the greedy politicos would go and they even invented a non-existent product that they needed help on called thermal imaging binoculars.  Ultimately caught in this web of payoffs were, Bangaru Laxman, president of that party that leads India who resigned, Jaya Jaitley leader of Samta Party, also a member of the government coalition directed the binocular manufactures to pay the bribe money to a particular party official who must have been the bag man. Another victim of the videotape was George Fernandes, India’s Defense Minister who was implicated in the military procurement side of the scheme. Railways Minister, Mamata Banerjee also said she would quit in disgust over the scandal; however, Mamata often resigns and then changes her mind.  

“As we look at the footage of the sting,” Mr. Tejpal wrote on the Web site, we are still astonished at how blinding the greed was that two rank amateurs with close to no knowledge of defense hardware, hawking patently absurd product, could go so far as to slice open an entire industry of high corruption.” ([4]) 

The minority Congress Party had a lot of fun with the announcement and Kapil Sibal a legislator was able to get in a few licks: “This has been like a godsend, this government came to power as the only party that believed in morality. The morality plank is over. The sheen is lost. And people now say these guys are worse than any before.” However, graft and corruption in India are only in these eyes of the beholder, as for the public, this kind of stuff is just plain old news. They seem resigned to the fact that no matter which party comes to office, there will be a certain amount of graft and that is not going to stop. In spite of their sanguine attitude toward corruption, most admit that lately it has become totally out of control. 

For out-of-power politicians, corruption may be good news, but for most Indians it is the bane of public life. It can be hard to keep track of them all. They have ranged across the film lots of Bollywood, the pitches of fixed cricket matches and the backrooms of the Bombay Stock Exchange. They brought tragedy in Gujarat, where high-rises shoddily built with the connivance of corrupt politicians and bureaucrats collapsed in Ahmedabad, killing hundreds.” ([5])  

However, a while back, global investors took a cursory look at India and liked what they saw.  A country rededicated to modern economic theory and committed to make capitalism work.  Stocks in India were selling at invitingly low price/earnings ratios, and amazingly there were over 7,000 listed public companies to chose from.  The markets had become mature because they had been in existence for decades, and most importantly, the second most populated nation on earth just could not be ignored when setting up a truly global portfolio.  

Nevertheless, the global community was really not aware of how things work in India.  All security trades are manually executed, and ownership is transferred by hand in a cumbersome process harking back to the Indian system that was in existence hundreds of years ago.  The individual corporations, for a large part, control the transfer of their own shares, and depending upon their own bias, at any given time you may or may not receive what you purchased.  If, for example, the powers that be, wish their stock to go higher, they endlessly delay transferring their shares, thus creating a market in which if an investor wants to make a purchase, he will have to pay dearly.  On the other hand, suppose that the directors of a company want to declare themselves options and therefore want shares prices lower.  They simply supply all of the stock that has been backed up at the transfer agent and let gravity run its course.  

Ketan Parekh, an Indian broker was arrested recently by the Central Bureau of Investigation for his recent default on millions of dollars of pay orders to the Bank of India. This indictment follows on the heels of a raid by officials several days before by the Income Tax Department, the Enforcement Directorate and the Directorate of Revenue Intelligence on Ketan and a number of his associates. He is being charged with insider trading and theft. Recently, insider trading charges also led to the resignation of the president of India’s largest exchange, on March 30, 2001, all of the nine elected members of Calcutta Stock Exchange resigned because of irregularities, but the Parekh affair has caused a stock market disaster. An interesting chronology of events was prepared by the NDTV.Com in India.

            The sequence of events in the recent operations were:

                        1.      Ketan Parekh arranged pay orders from bank

                         2.      A pay order is issued against cash and safe

3.      Ketan Parekh is said to have gone to Bank of India, Mumbai and taken money against the pay orders

4.      Bank of India was under the impression that Mr. Parekh would have paid Madhavpura and it never anticipated any payment problems.

5.      As the stock markets fell, Bank of India presented the pay orders to Madhavpura Bank, which refused to meet the demands, as it did not have the funds to meet them. Later Bank of India is said to have discovered Madhavpura had never received the money from Mr. Parekh.

6.      This is when Bank of India asked Mr. Parekh to pay up. But since his assets were seized during the income tax raids, he has no money or collateral to give the Bank of India.

India has suffered severely as one scandal after another has erupted within their capital markets. Everyone that is anyone in Indian financial circles seems to have been tarnished by greed and most seem to have gotten caught in the act. However, not only are the locals trying  to cut a larger than life piece of the pie but so are some of the foreigners. Credit Suisse First Boston recently was banned from participating in India's securities business when a board of inquiry determined that they had been manipulating India's markets. There are many additional investigations being carried out simultaneously and in particular, the Indian Securities and Exchange Commission is investigating an instrument known as a "participatory note" (PNote). In a highly complex investigation, India authorities are trying to prove that the PNotes which are only available for use by foreigners were used by locals to rig Indian stock markets. Whatever minimal degree of confidence that anyone had in the fairness of India markets has become a thing of the past.

[1]  Great Soul.

[2] India: 50 Years Of Independence, India has made dramatic progress during 50 years of independent rule and democracy – but great problems remain, David Taylor. World Book.

[3] Historically due to the fact that land is at such a premium in India, sites are subdivided into much smaller parcels than probably anywhere else in the world, leading to small businesses usually run by sole proprietors.

[4] India’s Top Party Chief Resigns After Tape Hints He Took Bribe, Celia W. Dugger, The New York Times International, Wednesday, March 14, 2001

[5] The Sting That Has India Writhing: The Great Graft Expose’, Celia W. Dugger, The New York Times International, March 16, 2001.





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