| GETTING BOMBAY BACK |
17 July 2006
Sunil, a young man who worked for one of our group companies, died in the bomb blasts last week. It was horrendous - we were unable to trace him for two days and finally discovered that he had passed away in the ICU in one of the overstretched hospitals on Thursday morning. We also discovered that it took more than 5 hours to get him from the blast site (Mahim) to the hospital (Sion). It was such sadness for us all, and a truly traumatic tragedy for the family. May God give them strength to raise their heads soon.
But, as this tragedy consumed my mind, I realized that if all the money that had steadily been stolen from the railways by government officials, past and present, had been properly spent instead, perhaps there would have been better emergency services at the railway stations and perhaps Sunil (and many others) would be alive today. And if all the money that had been steadily stolen from the city of Mumbai by government officials, past and present, had been properly spent instead, perhaps there would have been better roads and hospital infrastructure and perhaps Sunil (and many others) would be alive today.
And I realized that the almost criminal apathy with which we allow our government officials to treat our country, our cities and ourselves is, in some measure, to blame for everything. While citizen action may not be directly able to influence the drivers of global terrorism, a zero corruption system would certainly have much stronger intelligence infrastructure, which may have been able to prevent the blasts from occurring. As Pritish Nandy wrote in the Times of India last week, "It's time we stopped allowing ourselves to be taken for granted….It's time we demanded more commitment from those we pay to kee in office….It's time they worked for their wages and ensure our welfare, our safety, our present and our future. If they can't do that, let's chuck them out." I say, let's put them in jail.
And the way to begin is with the Right to Information Act, which came into effect in October last year.
This is a hugely powerful tool provided to citizens to monitor the behavior and practices of our elected officials. There are several organizations that are working to activate the citizenry to use this vehicle, which provides a direct, quick way to check corruption. In simple terms, any government official is required to respond to a right to information request within 30 days (48 hours if the issue on which information requested concerns "the life and liberty" of a person); failure to do so will result in a fine of Rs. 250 per day (upto a maximum of Rs. 25,000) on the Public Information Officer designated at every government office). While Rs. 25,000 may not seem a huge amount in certain circumstances, the reality is that the RTI Act has already struck the fear of God into most public officials and RTI requests are acted up with remarkable alacrity.
I have heard several stories, my favorite of which is about a young man who came to Mumbai from Bihar about six months ago. He found a place to live (in a jhopadpatti) but before he could find some work, he needed that ticket of existence - a ration card. He went to the office and filled out a form, and when he submitted it, a peon took him outside and told him "chai pani jaroori hai". Our innocent thought, well, I don't mind buying him some tea, but was quickly disabused of this when the peon told him he'd have to pay 2,000 rupees. The young man was shocked and offended. Of course, he didn't have 2,000 rupees, but more importantly, he didn't see why he had to pay this.
He went back to his colony and his neighbours told him to be reasonable, go and kowtow a bit, negotiate, go to the local shakha, you'll be able to get it down to 1,000, maybe 800 rupees. But the young man (from Bihar, no less) said no, why should I pay a bribe.
Instead he bided his time and watched as several new entrants to the slum followed the "business as usual" procedure and got their ration cards in a month, a couple of weeks, whatever. Two months after making his application for a ration card, the young man made a RTI application, where he asked for two pieces of information:
1) the status of his application, which he attached; he wanted to know the name of the officer who it went to and when; who it went to after that and when; and so on; and
2) a list of all persons who had received ration cards (in his area) over the two month period since his application, the dates each of those persons made applications, the date they received the ration card, and the person who approved it
The day after he submitted the RTI application, the peon from the ration card office came to his home and told him his ration card was ready. He went in to pick it up and the officer invited him in, offered him some tea and water, and pleaded with him to remove his RTI application. I don't know whether he removed his application or not, but he did get his ration card.
A true story, I'm told, by a wonderful man who is trying to get 1 lakh RTI applications in Mumbai every month. The process is very simple - I've already filed a RTI to find out who the contractor was who did the road at Cuffe Parade (which is already messed up), how much he was paid and who approved it. Let's keep the heat on the sleazebags till they turn clean. Please contact shailesh2@vsnl.com
Currency Market View - Rupee and Majors
INR
Fortnightly movement: O-45.9900 H-46.5000 L - 45.9400
C-46.3725
Sentiment: Range bound yet volatile
Expected range for 1 Month: 45.50- 46.75
Expected range for 3 Months: 45.25- 46.75
A yet another volatile session for the domestic unit was
witnessed this fortnight as rupee touched a high of 46.50 and a low of 45.9400 a movement
of 56 paise. The rupee weakening was seen primarily due to demand from oil companies,
large corporate demand and fall in Asian stock indices. The retreat of the euro from a
one-month peak of $1.2860 hit on Friday, as well as sterling losses against the dollar,
also pressured the rupee down.
On the bulls side came the across-the-board weakness of the dollar, following a soft U.S.
jobs report, which tempered expectations for higher U.S. interest rates in August and some
exporter selling who took advantage of a cheaper rupee.
However bears soon overtook bulls as rupee witnessed depreciation during end of the fortnight as Crude oil, which is India's largest import, surged above $78 a barrel. Dollar strength against major currencies, including the Japanese yen, also weighed on the rupee. The yen weakened after the Bank of Japan (BOJ) raised rates for the first time in six years but said interest rates could be kept low for sometime.
Fund flows into shares have largely shaped the rupee's fortunes this year. On the data front, India's trade deficit stood at $12.61 billion in the first quarter of the fiscal year that began April 1, up from $10.54 billion in the same period a year ago. The forex reserve position stood lower at $163.26mn as against $161.96mn previous fortnight. The 6-month benchmark forward premium, which stood around 1.09% last fortnight, closed at 0.97% this weekend.
Markets likely to be witnessing a volatile session coming fortnight as uncertainty over dollar outlook. The rupee is likely to be weighed down by a steadily deteriorating current account deficit, uncertain capital flows and the central bank's penchant for accumulating reserves. Markets have witnessed RBI intervention close to 46.50 levels and this may not allow rupee to break this psychological level with ease. Overall markets to witness range bound activity amid volatile sessions.
EUR
Fortnightly movement: O-1.2790 H- 1.2857 L-1.2625 C-1.2647
Sentiment - slightly negative
Expected range for 1 Month: 1.2300 - 1.2850
Expected range for 3 Months: 1.2000 - 1.2850
Disappointing US data viz. US ISM manufacturing and service
sector indices as also non-farm payrolls on the one hand and upbeat Eurozone data on the
other boosted the Euro as high as 1.2857 before a slump to as low as 1.2625 on safe haven
buying of dollars in response to geopolitical tensions i.e. the Middle East crisis and the
North Korean standoff.
Last fortnight, growth-related US data have been mostly disappointing but the sharp jump
in average earnings growth, the low unemployment rate and the renewed surge in oil prices
seem to point to a possible rise in US inflation. Markets await Fed Chairman Bernanke's
semi-annual Congressional testimony and US CPI data later this week.
During the last fortnight, market expectations of a Fed rate
hike on August 8 have dropped further from about 65% to about 50%. Needless to add that if
the dollar is to hold its ground and strengthen even after an easing of geopolitical
tensions, Bernanke's testimony as also US inflation and other data will have to reinforce
expectations of a Fed rate hike next month.
Any uptick in the Euro is likely to be capped under 1.2775 before a resumption of the
decline to 1.23 and lower.
GBP
Fortnightly movement: O-1.8470 H- 1.8538 L-1.8310 C-1.8380
Sentiment: neutral
Expected range for 1 Month: 1.8000 -1.8650
Expected range for 3 Months: 1.7650 -1.8650
Sterling finished the week ended July 7 marginally firmer against the dollar and almost unchanged against the Euro. However, Sterling slipped against the dollar last week due to geopolitical tensions but firmed against the Euro benefiting probably from the surge in oil prices.
Bank of England kept its benchmark rate unchanged at 4.5% as
widely expected. BoE's MPC has now only 7 members after the death of David Walton who was
the only member voting for a rate hike at the previous 2 meetings. The minutes of this
month's meeting to be released later this month will show whether there are any new hawks.
However, 2 of the 9 experts on the Times Shadow MPC reportedly supported an immediate rate
hike and, if this is any indication of market views, there could be growing expectations
of a rate hike.
Sterling will likely be capped under 1.8550 before fresh declines towards 1.80 and lower.
JPY
Fortnightly movement: O-114.12 H- 116.38 L-113.42 C-116.13
Sentiment: negative (for yen)
Expected range for 1 Month: 113.00 - 117.50
Expected range for 3 Months: 113.00 - 119.50
Despite an improvement in Japanese business confidence as shown by the BoJ tankan survey and an unexpected decline in the US manufacturing ISM index, the yen slipped to 115.75 on geopolitical tensions after the testing of long-range missiles by North Korea. Thereafter, the yen strengthened smartly to about 113.40 largely in anticipation of BoJ rate hike as also disappointing US data before beginning to lose ground once again due to the Middle East tensions and the surge in oil prices.
The BoJ did hike its overnight call rate target to 0.25% as widely expected but the yen declined further since the BoJ said that it would keep interest rates "very low" following its first hike in 6 years.
Any dollar downticks are now likely to be limited to about 114.50 yen before the dollar rallies past 117.50 towards 119.50.
Dr Risk's prescription
Keep your fingers crossed till Wednesday
Last fortnight, US economic data was mostly weaker than
expected. The only exceptions were the larger than expected rise in US factory orders and
average wage growth and a much smaller than expected rise in the US trade deficit. Market
expectations of a Fed rate hike on August 8 have already come down to about 50% from about
65% at the end of the fortnight ended June 30. Still, the dollar finished 1.8% higher
against the Japanese yen and 0.8% higher against the Swiss franc. Similarly, the Euro
ended lower by 1.1% while Sterling edged down by just 0.5%. The dollar's performance,
however, pales in comparison to that of gold which soared in the same period by 8.6% to
finish last Friday around $666 per troy ounce. It is anybody's guess how the dollar would
have fared but for geopolitical tensions viz. North Korea's testing of long-range missiles
and the outbreak of the Israel-Lebanon conflict.
It has been observed that a deepening inversion of the US treasury yield curve reflects
increasing probability of Fed rate hike/s and, therefore, bodes well for the US dollar.
The margin by which 2-year yield exceeded the 10-year yield had risen to 7 basis points on
July 12, the most since March. This differential has since dropped to just 3 basis points
thanks to declines in US retail sales as well as consumer confidence. Markets now await US
June CPI numbers and Fed Chairman Bernanke's Congressional testimony on July 19 and the
release of the June FOMC minutes on July 20.
The markets are already expecting an ECB rate hike next month especially after ECB President Trichet's hawkish comments at the press conference on July 6 following the monetary policy meeting. So the key for the Euro is likely to be the US core CPI data with benign numbers most probably leading to renewed dollar weakness. The Euro may then have little difficulty in challenging 1.2850 once more or even rising higher depending on other factors.
Before the August 8 FOMC, both the Fed and the markets will get a lot of further US data to digest viz. durable goods orders, first estimate of Q2 GDP growth, ISM manufacturing and service sector indices and non-farm payrolls. We expect that starting this week market expectations of a Fed rate hike next month will again begin to rise and lead to dollar strength. However, there appears to be no harm in keeping your fingers crossed at least till the release of US CPI data on July 19. The first signal of the Euro's medium term fortunes may come from the Euro breaking decisively over 1.2775 or below 1.2575.
As far as the Japanese yen is concerned, the dollar could find resistance in the 117.00-117.50 for a probable dip to 114.50, and in any case not likely below 113 yen, on a combination of various factors such as easing of geopolitical tensions and oil prices, continued disappointment from US data, etc. The dollar could, thereafter, rally again towards 120 yen.
So long then till July 30 by which time we will at least know how bad or good Q2 has been for the US economy apart from the inflation picture.
