Saturday, March 17, 2012

Fudget 2012-13

Maybe we have become used to budget watching. The budget did not create any of the usual excitement nor did it arouse any anger or passion whilst being presented. I guess all of us knew the backdrop in which the budget was being presented and also about the political environment in which it was being presented. This budget is a clear cut evidence of the helplessness and the lack of will on the part of this government to do anything that may jeopardise their staying in power for the full term. So, they have let the accountants do the budgeting rather than use the budget to propel growth rate or take corrective action in the realm of subsidies, inflation etc. The Ponzi accounting continues. No one knows once the year ends, numbers are revised. Live the moment. The brouhaha over the railway budget had left all of us expecting nothing from the budget. All of this worked to the advantage of the Finance Minister, who presented a budget that had almost an excel spread sheet like approach. A bit up there, a bit down here was all there was to it. The excise duties were jacked up given that they had been lowered in 2008 to combat a perceived threat of a slowdown (that never happened). Hopefully, this excise hike will lop off some of the heat on the demand side that has been the primary cause of an uncomfortable level of inflation. The widening of the service tax net is a welcome one, though the ‘negative’ list is something that is debatable. Now we just have to wait till the service tax is raised to the promised level of 16%. There has been the usual passing of favours to obscure sectors in the form of rebates and concessions. I recall something like ‘branded’ silver jewellery segment receiving some largesse. On the imposition of the Direct Taxes Code and the GST, there appears to be some delays (expected, given the political fractions). Strictly speaking, this is an event that will be triggered outside the budget. The talk of a “White Paper” on Black Money seems to be laying the grounds for a Voluntary Disclosure Scheme, which will enable laundering money for the politicians, traders and businessmen. There seems to be lesser number of new ‘welfare’ schemes this year bearing the Nehru family names, except for a modified ELSS scheme that has been given Rajiv Gandhi’s name. I do not know the details yet, but do not like the framework.. The fiscal deficit numbers have lost their meaning. The government now proposes to amend the Fiscal Responsibility legislation. Similarly, no one believes the promise to bring subsidies down to 1.7% in a span of three years. Cleverly, in the talk of this number, the subsidy on petro products has been left out. There is also some clever arithmetic. For instance, there is talk of capitalising banks through a holding company, which would raise money by itself. So, the government has washed its hands off the funding. This holding company can easily raise money from the PSU’s (including banks) and rescue the government. No complaints. Better than directly telling each PSU to buy in to another. Given the muted intents of this government, the targets look like a pie in the sky. A minor slippage in the fiscal deficit targets could happen if oil prices derail the arithmetic. And in any case, there is always a slowdown in the planned spending across various projects, which could help in the end. The markets can go on as usual. Let the foreigners digest the government announcement to change income tax laws retrospectively since 1962! Where else can the FII or FDI investor have so much excitement created by the regulator! It clearly demonstrates to the world that India is a different cup of tea. Now you like me, now you don’t. Who cares.. R. Balakrishnan

No comments: