Finance

Budget 2014 – The way forward

Vel Anru Venri Tharuvathu Mannavan

Kol Athuvoom Kodaathu Enin.”

(Not the spear but sceptre swayed with equity

Alone gives the ruler victory.)

The Finance Minister namely; Mr. P. Chidambaram presented the last budget for the current UPA tenure two days back. The last budget of any outgoing government is an interim budget, which is in effect for merely till the time the incumbent government leaves the office, due to which not many significant changes were expected. However, the Finance minister tried his level best to grab the attention of as many voters as possible for the upcoming elections with as few populist measures as possible such as one rank one pension for military personnel and the education loan subsidy to clean up the bank loan. What was noteworthy was the bold move undertaken by the FM by decreasing the excise duty of all segments across the automobile industry by 4-6% in an attempt to revive the automobile industry. Although the news was hailed by auto industry and investors alike, skeptic critics termed it as an end result of ubiquitous lobbying.

As Indian budgets tend to be, this too was packed with dramatic hyperbole statements, with the most apt example being the aforementioned couplet by Sage Thiruvalluvar. In all probability the words were a potshot at his fellow competitors, while pointing out not-so-subtly, UPA’s achievement over the years. The FM in order to back his point, narrated the attainments of UPA over the last 10 years.

The most important of all points in the speech, which the FM was exceptionally proud was the Fiscal deficit and the CAD figures. The FM proudly pointed out that he had contained Fiscal deficit at 4.6% of the GDP and the current account deficit stood at $45 billion. However, the ends doesn’t justify the means. The ways used by the FM to achieve those figures were criticized by experts, who pointed out that the FM had merely rolled over some expenses and slashed planned expenditure.

Merely altering rates of taxes, clearing projects and reducing expenditure cannot get out the economy from the dump. Fundamental changes such as introducing GST, DTC and IFRS along with privatization is the key to fiscal consolidation. The FM has quite clearly failed to address these issues. However whether or not he has managed to convince the people of India to stick to his party remains to be seen.

The Power Mafia

In a year that has been marred by scams and crises, there have been many of those which have not been come out in light. Several of these scams have been up and running since many years and yet have remained uncovered. Maybe due to political pressure, or due to lack of interest such scams have not appeared in the spotlight and hence haven’t garnered enough interest in the public to create any type of furore.

An year and a half after the death of Suresh Singh aka ‘Coal King’ , Reuters has published a special report highlighting the role of ‘Coal Mafia’ in the $35.7 billion Coal mining industry. The Coal Mafia has infiltrated almost every company’s union and controls them. The mafia is responsible for stealing coal and selling it in black market, scaring away investors at the auctions and keeping the base price low and many wrongdoings. The financial impact of all such activities are unknown and clearly nobody is even willing to find out.

It is not as if any of the above information is exclusive. Every bit of it (and most probably much more) is known to Police and Politicians alike. CEO’s of several leading companies such as Coal India have accepted that Coal Mafia does exist and that if they are removed out of the equation India’s coal output can rise as much as 15%. Yet the Coal mafia roams around at large without the police as much as trying to catch them. Hope lies with the media and the public that if the matter comes to light and enough pressure is put on the government maybe such illegal activities can be terminated.

 

29th May 2013

 

coal mine

 

 

Budget 2013 – hits and misses

“Kalangathu Kanda Vinaikkan ThulangkathuThookkang Kadinthu Seyal”

(What clearly eye discerns as right, with steadfast will

And mind unslumbering, that should man fulfill)

– P. Chidambaram

As it often does, the budget has garnered its share of limelight. It has left in its aftermath, admirers and haters. Of course there have been a slew of comments from the opposition party, but then that’s considered usual. What was unusual or rather peculiar about this budget was the hope Mr. P Chidambaram had generated in his recent months as the FM. He has, in his defense, tried his best to meet those expectations. It was a rather bold step to ignore populism and go in for stability and fiscal consolidation considering the upcoming elections. However, on second thoughts the decision was probably his only way out of the current crisis. Had he not focused on raising revenues and fiscal deficit, the rating agencies would probably downgrade India in a jiffy. Would the consequences of the downgrades not be much worse?
Without going much into the details of the budget let me point out a few hits and misses.

The Hits :

1. Lowering STT and introducing CTT : The securities transaction tax was reduced from 0.018 to 0.010 whereas transaction in  commodities ( excluding agricultural goods) will be taxed at 0.01 percent. This shall garner collections for the government and infuse confidence in the equity market.

2. Targeting the rich : Following America, the FM has imposed a 10 percent surcharge on people earning 1 crore or above.  Limiting the above surcharge to only 1 year, he has cleverly avoided the wrath of the riches while ensuring that he gets the funds which he needs. Also he has made the high-end cars dearer by increasing the basic customs duty from 75 percent to 100 percent.

3. Women-oriented banks :  Such banks would be run mostly by women and would be catering to clients who are mostly women. The FM has tried to address gender disparity by bringing in such reforms while trying to promote the role of women in the business sector.

The Misses :

1. The Calculations : As the name suggests, it’s a budget. The budgeted figures and the actual figures can most certainly differ as it does most of the times. The math can go wrong since there are since a lot many assumptions are taken while preparing the budget. Although assumptions cannot be avoided, it should be ensured that the figured are adopted on prudence basis. In this case, the divestment target is certainly optimistic. Also Crude considered at 110$ per barrel while calculating fuel subsidy is a bit irrational.

2. Upcoming changes : The FM states that work on the Direct Tax code and the Goods and Service tax is in progress. The IFRS was conveniently ignored during the speech. All three are much-needed reforms the country needs in order to progress and the FM doesn’t provide anything in the speech to clear out the obscure future.

3. Taxing FII’s : The FM’s comments over taxing FII’s were not taken kindly by the capital markets. The Sensex and Nifty fell over 1.5 percent on the very same day. The FM and other officials clarified that tax residency certificates would serve the purpose and FII”s wont be taxed until GAAR but the damage had been done.

2nd March 2013