UNION BUDGET 2015-16 My Take

Hi,

Its been a long time that i have actually visited my own blog and tried to type.

on 28th February we had an amazing session at our college. We had organized a budget viewing session on the large screen at our college auditorium, this was followed by a few remarks by experts on finance, economy, agri-horticulture and taxation.

The highlight of the programme was the presence of Shri. Athani Veeranna, the Chairman of our Institute, who is a leading chartered accountant and an acknowledged expert in taxation matters. He was his usual self in being highly meticulous in pointing out the pertinent facts in the budget and then giving his views on the budget proposals.

Prof B Veerbhadrappa, an economist, Economics Professor and the finance officer of Davangere University who sat through the entire proceedings. He gave a fabulous overview on management of the economy and spoke about the balancing act of the finance minister.

Mr. Basavanagouda, the coordinator of the Tarala Balu Krishi Kendra also did a great job of providing insights into the budget proposals for the agriculture sector. He analysed the proposals with respect to the wish list of the progressive agriculturists.

Then it was my turn to voice my opinion on the budget proposals. A lot has been said about the budget in the last three days but my opinion is my opinion and as always i beg to differ a little from the tread path. So here it goes....

JAM- the Jan Dhan - Aadhar - Mobile troika will necessarily plug the leakages in the subsidy system (a glimpse of the fallout of the troika was evident when the brother of the PM participated in demonstrations)

62% of the tax collections are to be devolved to the states and this is being projected as the spirit of true federalism. I see it in a different light. The center wants to put the onus of providing subsidies on the states so that there can be separate policies for separate states.

one of the visions of the government enunciated was of providing 100% housing by 2022. This is a laudable decision. Industries in cement, steel, housing finance, power and infrastructure can look forward to large opportunities. In fact, the next two decades will belong to the infrastructure industry.

An announcement of setting up an unified Agricultural market has been made, if this becomes a reality, then commission agents in APMCs will have to look for better business opportunities or remodel themselves to be a part of this new arrangement. Anyhow this will change the game for ever in the Agricultural produce markets.

MUDRA (Micro Units Development Refinance Agency) is being setup with a Rs 3000 cr. initial investment, this should pave way for credit availability to small, tiny and micro industries and free them from the clutches of private money lenders. The unorganised market of money lenders charges usurious interest rates and it has become the bane of the businesses at the proverbial bottom of the pyramid.

A bankruptcy code is envisaged to help faster start-ups and faster winding-up of companies. Along with ease of doing business, ease of closing business is also of vital importance so that resources are not wasted on trying to make unprofitable business to survive. This is a welcome move.

A vital point is that NBFC with more than 500cr capital will be treated as financial institutions under the SARFAESI Act. this would prevent the goonda raj prevailing in the private financing of commercial vehicles and tractors.

The Finance minister has promised a universal social security system, I am now feeling that we are truly moving forward to become a developed country. The Atal pension scheme is the right step in this direction.

"Sabka Saath and Sabka Vikas" has also brought in "Nayee Manzil" to appease the minorities with less formal education to start micro enterprises. (if the same was done for all communities then it would have been real sabka saath and sabka vikas). Here the government seems to be wooing the minority just the same way as the earlier governments.

A Rs. 25000 cr Rural infrastructure Development Fund has been announced, good days are here for gram panchayats and taluk panchayats. Hope the money finds its way to real infrastructure.

Apart from the RIDF another Rs. 70000 cr has been announced as investment in infrastructure, supporting my take that this is going to be a decade of infrastructure.

Much needed boost has been provided to the power sector by announcing a policy of plug and play power projects, Ports to be converted to companies (did somebody say Adani?) a start-up fund of Rs. 1000 cr for IT start-ups.

Financial Markets have found a new measures by the merger of SEBI and FMC. A welcome move, for that matter too many regulators spoil the broth, so minimum government is essential for maximum governance. Measures to develop and deepen the bond markets, introduction of Indian Gold coins and authority to FEMA to control equity investments will pave way for better administration, development of markets, freedom from gold imports and a sovereign gold bond to take care of the craze for gold investments.

The central theme of the budgetary proposals seems to be a road map for establishing a cashless society. Ease of doing business has been addressed again in bringing about a public contracts resolution bill ans a regulatory law for infrastructure.

Education seems to be loaded with skill development and not with mind development. A Student Financial Aid Authority to take care of financing the students of higher education is a welcome move but what is needed is "NATIONALIZATION OF EDUCATION" if Modi is being hailed as a Thatcher of India then it is imperative that the BJP with its majority pushes for Nationalization of education. only such a move will be able to provide education to all the classes of people. Germany is a very good example of what nationalized education can do to the country.

A Bank board to be setup and then this is expected to grow in to a bank holdings company. A Sovereign holding company to hold all governments investments, to be managed professionally is the right direction to take. Hope this too happens in the near future.

Finally a commercial division in the courts has been announced, this will pave way faster resolution of business conflicts and lead to better environment for conducting ones business.

I would not like to dwell on the tax proposals, As it is said that Taxes and Death are a certainty and they are not avoidable. Both cannot be moderate, thus less spoken of them the better.

All in all a budget that creates hopes, promises more than it delivers and seeks to flush out black money by making life difficult for offenders. this budget can be called high on hopes and low on real, ground level issues. let's hope that whatever is promised is delivered, as that is all that we can do for the next four years.

How to support the fight against Corruption

Let us all pledge to do our bit to free India from the clutches of Corruption and Black Money by taking these simple but very DIFFICULT STEPS

1. Ask for a bill on every purchase and pay the Sales Tax.
2. Give Receipts on every sale and pay the VAT/Sales Tax
3. Declare the correct amount on every sale or purchase of Land and Flat and Pay the registration tax that is applicable.
4. Never demand or pay a cash amount while buying or selling property.
5. Stop bribing the traffic police for traffic violations and pay up the legitimate fines.
6. Register for only one ration card, gas connection and electrical connection.
7. Pay electrical bills on time even for connections of farms.
8. Declare genuine farm income only and not club other incomes as Agricultural income to avoid taxation.
9. Do not pay or receive donations without receipts.
10. Stop acting as though the law is meant for the minions and not for us.
11. Stop running households on expense accounts of businesses. Declare real income from businesses.
12. Stop Bribing people asking for enhanced credit limits/ Loans etc in Banks and financial Institutions
13. Stop asking for kickbacks on commissions on LIC policies, General Insurance Policies, etc.
14. Stop buying Degrees and Diplomas online and apply for jobs with them.
15. Stop asking teachers to give more marks by bribing and coercing them.
16. Start giving receipts for services (especially Doctors): Consultation, Operations, procedures, etc. Other Consultants like Accountants, Tax Consultants, etc.

All these and much more....

Only if we start cleaning up our house and souls then we will be able to clean up the country. Our country is seeped in corruption not because of the politicians and bureaucrats but because, we tolerate corruption, we always believe the laws are for others and not for us. we always want to wipe out corruption but want to get farther by bribing somebody on the way.

THINK ABOUT IT!! IS IT POSSIBLE TO SACRIFICE ALL THIS!!

Hoping for a corruption free India!

INTERIM... INDIA

We are living history. This must be the only time in the history of India when we have a minister who is PM, FM and External Affairs Minister-all-rolled-into-one. Of course there is supervision by an extra constitutional authority against whom no one in India has the guts to talk. Are we a democracy? are we not a banana republic? are we not a dictatorship? we need to answer these questions as fast as possible if we have to find some semblance of sanity in our country.

Look at the irony of the country, we have a home minister who gives a statement on finance everyday. We have a part time finance minister presenting an interim budget. It cant get any more interim here!

The icing on the cake is the hopes built up by our gullible investors that an part-time finance minister with a mandate to present the interim budget will declare a stimulus package. How can you expect this to happen? The part time finance minister has his hands full in the external affairs ministry as he has to deal with the unprecedented diplomatic offensives from our neighbouring countries.

The election commission was expected to save face by showing readiness to conduct polls as and when the parliament is dissolved or at the end of the term. But internecine rivalry and party politics has also crept into the only non-partisan institution in the country.

The interim budget was, as expected a vote on account to help the government to spend money in the next four months from April 2009 to July 2009 so that the affairs of the state can be carried out smoothly. Expecting too much from this exercise was a wrong thing. As I had written earlier the stock markets would be meandering for a while until the elections. This is the time when the markets will probably bottom out. We can expect the indices to test the October 2008 lows in the meanwhile. The fourth quarter results, annual results and the results of the general elections will help the pessimistic sentiment further.

As far as the expectations of the results of the general elections go, I believe that we will see a completely fractured mandate and we would have a government which would bring in strange partners together and a coalition of opposite ideologies would be in power in for the next eighteen months at least. This period of "interim government" is going to continue for another 18 months now. Unless growth slows down to the "Hindu growth rate" or India heads towards a recession don't expect fireworks in the political arena nor the economic arena. Babus will continue to run the show and ensure that we slip into inactive mode.

DOLE Time in US and VOTE Time in India

Stimulus packages of the recent times have started to have the "Look and Feel" of socialism. unemployment compensation, food stamps and Subsidized Medical Insurance seem to be from the era of socialistic societies. This further proves the economic management cycle professed earlier. This cycle, as written earlier consists of of "Liberalization, Privatization, Globalization, Nationalization".

The debate of whether to bail out individuals or institutions is another matter which needs attention. Do individuals who speculated in the real estate market on account of greed need a bail out or Institution who nourished this greed and found themselves holding "toxic assets" need a bail out?

Lets once again examine the root of all these problems. Lets start with the housing statistics of USA, for a population of 305 million the country has 130 million houses which makes it, one house for every three people in the country. Its a nobrainer that housing supply is more than demand in this country and people have started buying and selling houses for speculative purposes than for dwelling purposes. When real estate is used for speculation then the "reality" of the investment gets lost and becomes a virtual asset. Now tell me if there is any point is letting banks lend to people who want to speculate in the housing trade? isn't it same as lending money to trade in the stock markets? In stock markets when money is lent, the stocks are subjected to a haircut and the haircut is as big as 50% in India, whereas the haircut here was 5% owing to the fact that this was "Real" asset and not a stock! But it turned out to be an "Unreal" one.

Another side of the problem is the propensity of American consumers to consume. Consumption in itself is no taboo but consumption by discounting your future income is a problem. That too using up your future income projections to pay for speculative buying of real estate is a disaster.

If this is the root of the problem, then should the new administration stop housing construction activity and? Should old houses be demolished and new ones built so that a renewal of assets happens and housing supply remains constant? these are the question that need to be answered by the new administration. I, for one would always suggest asset renewal over new asset augmentation that would generate employment and renew the infrastructure. It would also be wise to start a massive Infrastructure renewal plan to kick start the economy. that would surely percolate to other countries and would be an answer to the bulging cash stashed in the banks due to liquidity infusion and hoarding of Cash that has been witnessed in the country.

Lets get back to India, what ails us here? We are witnessing a slowing growth rate. Our policy makers are trying to bring down inflation by reducing fuel prices. I think we are barking at the wrong tree! India is bound to have inflation around 5-6% and it cannot be stopped because of the substantial portion of the economy is unaccounted for. That's what is called the black economy. Controlling liquidity at the wrong time suffocated the demand and drove interest rates higher in the last six months. With inflation higher than the repo rate we still have a negative real interest rate. With negative interest rate there is no hope for foreign portfolio investment and therefore no hope for the stock markets because the strong hands of FIIs will not buy India!

No amount of bullied interest rate reduction will work as the banks have become risk averse and are taking their own time to sanction loans. Housing and real estate prices are set to spiral downwards as the stratospheric levels of real estate prices are not sustainable in India too, even if the country is deficient of housing that's because of the affordability issues.

Stock Markets in India will witness laid back meandering business for sometime now as the country is gearing up for elections. Now non-issues will take centre stage.

Elections in India will be highly entertaining and will have very high educational value.

State of the Economy and State of the State

Inflation inched up to 5.6% in the last week, it was attributed to the truckers strike during the period of study and all the big names in the financial industry are talking about inflation easing to 2-3% in the next three months. On top of this, these big names are calling for further rate cuts and reduction in statutory ratios for banks. India does not have a Glass Steagall Act, but it is common knowledge that investment banking and commercial banking are kept at arms length in the Indian banking industry. This arms length has significantly shortened in the last five years. In the banking parlance we have a new way of talking about this. Instead of calling these activities investment banking and commercial banking activities we call them by the kind of income they generate and name them as "fee based Income" and "Fund Based Income". Of course some investment banking activities would be fund based activities and therefore they form a grey area.

Now, if the rates are lowered and, what would happen? I happen to run a small "fee based business" and I am drawing this from my own experience. Banks have a PLR range of 12.75% to 13.25% (official RBI figures) and deposit rates of 7.5% to 9.6%, this leads to a margin range of 3.15% to 5.75% on the higher and the lower side. Risk aversion is the rule of the day fr banks these days, bankers these days are wary of giving loans. They prefer to have treasury income rather than interest income. meaning there is a positive bias towards the investment banking conundrum rather than the rig morale of commercial banking. because of the risk aversion I do not expect bankers to lower their PLRs, even if they lower their PLRs they will charge a premium on the PLR for all kinds of customers other than prime customers. Coming to think of it, if we go by the usual definition of the prime customer: steady cash flows, consistent declaration of profits, consistent IT returns, consistent IT payments, etc. i would say majority of Indian customers, individual as well as corporate fall under the sub-prime category. Then what do we do with the lowered PLR? Do we need this PLR only for declaration purpose on the RBI web site? Banks will still have a bad choice of borrowers and therefore will always be risk averse. Therefore expect banks to make more profits but at the cost of taking higher risks. (That's really a nobrainer as more risk only means more profit and there's no such thing as reckless profit)

Now the STATE of the STATE. All these days we had a government which was running on the steam and momentum provided by the Keynesian pump priming done by the earlier NDA government. The present regime was always waxing eloquent about growth rates and was complacent with doling away the tidings brought about by the higher growth rate. Economies grow or de-grow after a lag of two to three years of taking action on the economic system. now that this government is completing its term of inaction, complacence and profligacy, we have the PMs panel re rating the growth to 7% from the earlier projection of 9%+ growth. Has this been due to the global financial crisis? notwithstanding the global financial crisis the momentum of growth could have been kept up by committing public funds to developing infrastructure, housing, water supply, power generation, electricity supply, primary education, secondary education and other such worthy causes. But all these were given a go-by and the government resorted to the age-old "congress" method of appeasement and cheap populism of subsidising the rich farmer.

After this disaster, now we will be a country with an actually inactive Prime Minister for the next four months. doesn't congress have one able man / woman to entrust the top job? If the PM undergoes a cardiac surgery and has to convalesce for three months, can't this country find a replacement for this honourable man? Do we have no choice left at all? Why should Pranab Mukherjee chair cabinet meeting as the stand-in PM? What happens if we have a 26/11 type of a situation again or if we are forced to go to war with our ever friendly neighbours? Why can't the stand-in PM become the real PM? Where are all the so called strongmen from Bihar, Maharashtra? Why don't they claim a stake for the PM's gaddi now? Why should we rely on a Prime Minister (I have high regards for his stature and ability when he is physically fit) who is undergoing a bypass surgery for the second time and is required to take rest for three months? Can we afford to give a three month medical leave to our Prime Minister during this hour of crisis?

Welcome OBAMA

Today we brace ourselves to welcome the greatest event in the history of Mankind. A human being of a different colour is being sworn in as the President of a Country ravaged by discrimination on the grounds of colour. This is an unique even for one more reason, the Man who is being anointed as the President of United Sates of America also reflects true internationalism. He is born of an American woman and an African man, not only diverse in colour but also diverse in citizenship. Apropos! to the citizens of USA for electing the true American Spirit as their flag bearer for the next four years. Another unique thing is happening in these times, All this while a drastic change in the leadership would happen after a large crisis / catastrophe or a revolution. But here we see a slow churning and a slow revolution happening, a drastic change in leadership has come about after a smooth sailing for the last sixteen years for the economy. When Obama was declared elected, the economic fallout of the financial crisis was not yet fathomable.
Now, lets get back to business. Obama has his task cut out for the next two years at least. He has to grapple with failing corporations, there will be a strong appeal for reinstating the Glass Steagall Act, which separated the Investment Banks from the commercial banks. Isn't it curious that after the great depression the Glass Steagall Act effected a separation of commercial banking and investment banking. This act was repealed in 1999 and after the sub-prime crisis the same thing is being undone by allowing investment banks to be treated as commercial banks by giving them access to federal reserves funds and the discount window of the fed.
Next on the agenda will be the choice to bail out corporation or individuals. If the corporations are bailed out will the effect trickle down to individuals? Wouldn't it be practical and better to bail out those in individual debt traps and not bother about the corporations? if corporations are bailed out then it will be assumed that you need to become BIG and make BIGGER mistakes to be bailed out. small (individuals and companies) and smaller mistakes (which actually wipe out the individuals and the small companies) will be left to fend for themselves.
Obama regime will also have to think again about the uni polarity of the world. Due to which a great responsibility has been thrust upon the white house. Since there is no visible counterweight to the power of America, a hegemonisitc attitude will jeopardise the delicate balance and may result in America against the world. To take a leaf out of Obama's professed idol and quote "power corrupts and absolute power corrupts absolutely" will not only hold good for individuals but for countries too. So this appeal to Mr. Obama and his regime to understand the the will of a majority of people of the world and also understand that their mandate now is to provide leadership not only to their country but to the world as a whole.
Welcome Mr. Obama, may your tenure be remembered as a path breaking tenure, which would need to "sarve jana sukhino bhuvantu" meaning let all be free and therefore happy.