Musings on Investing

India: Bureaucratic Incompetence

Golden Arrow, etc.

In the last budget, the Indian government increased import duty on gold from 10.5% to 12.5%. There was already an existing sales tax of 3%. Except for the naive, dreamy, totally-corrupt Indian bureaucrats, everyone knew that increase in duty would merely reduce imports (and hence gross tax collection), and be more than made up by smuggled gold.

According to the linked article (which is in Hindi, but google translates it well), you get a 5.5% discount if you buy gold without a receipt. By not asking for a receipt not only you save on sales tax, but you also buy smuggled gold, saving the trader in import duty, and of course income tax.

If you think through the above, you will realize that it is impossible to follow the rules and still be able to do business in India. Moreover, smuggling makes enormous profits for the mafia, which historically has been the fountainhead of terrorist activities in that area.

Here is an old speech in which I talked about why Indians buy gold:

On investments…

  • In response to my last musings on the egregious behavior of two companies, whose rights offering immediately wrote-off 33% value of their non-Australian shareholders and transferred that upside to the underwriters, and which are being done at a 50% discount to their share prices, forcing even Australian investors to either pay up or lose 33%, I have been asked how I deal with such situations. Would I want to give my money to such managements who I find undeserving of more? I did dump my shares of De Grey (DEG) and might bid for it at A$0.047, the effective price at which the underwriter would break-even. That said, I prefer not to risk more of my money in companies that fail to operate in the interests of shareholders. They always destroy value.
  • Golden Arrow (GRG; C$0.20) is selling its Puna operations for effectively $0.25 in shares and cash. My view is that there will likely be no tax consequences, as GRG has invested more in Puna than what they are getting back. The company hasn’t informed investors on what they intend to do with what will be a total of C$30 million. If they decide to return a major part of this cash to the shareholders, there could be a nice 25% upside in owning GRG. I am certainly accumulating, but those more careful might want to keep an eye on any GRG’s news release on what they intend to do with the cash.
  • Here is a talk I recently had with Maurice Jackson in which we talked about a few companies:

See you next week at Sprott Natural Resource Symposium and Capitalism & Morality.

Warm regards,

Jayant Bhandari

Associate: Rajni Bala

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