Beyond Boredom and Blasé Talk

The Union Budget is the biggest event in the capital market calendar. The Union Finance Minister who presents the budget every year is the market’s, Santa Claus. He is seen as the Oracle of our country’s economic agenda. Year after year, the budget was a celebrated event in the nineties; We worshipped reformers and dream budgets. And we also did dunk a few. Budgets always surprised and evoked strong reactions from the investor fraternity. Budgets rarely met expectations.

The recent budgets have become excruciating to watch. Santa Claus has a lighter bag to open out and seldom doles out reforms of substance. The Oracle usually pouts inane policy loaded with ample references to the `other’ India. No attempt is made to capture the imagination of the Nation and everything is centered around pleasing their political boss. Therefore budgets have become boring, drab, unimaginative, and stale. India’s leadership is stuck in a time warp where they believe that the voting citizen only wants doles and leaders to behave as if winning elections is their only goal. So they throw money on things that only produce political goodwill. If your budget makes a welfare policy that costs Rs.40000 cr which only spurs spending and does little to incentivize production, then you are obviously giving short shrift to the supply side.

So the price of everything goes up. Nobody knows his onions in the chaos of food inflation. The budget has over the years given short shrift to investment and focuses solely on spending. Only when investments happen, the economy can actually create room for future growth. With only spending happening, we are setting ourselves for a very difficult tomorrow. That a Government headed by an economist is practicing such poor economics has been quite hearting wrenching.

It was in this setting that Pronabda stood up to present his third budget in his current stint as FM. His approach was straight, honest, and underplayed. He said a few things and left many important things for us to read between the lines. This budget was more about what the FM did not say. So, let us look at this budget’s innate positivity and find the bright spots.

The best news is that the fiscal deficit is going down. If the fiscal deficit gradually reduces to more acceptable levels in the next two years, we would have decisively reversed direction on overspending. One can bet on that.

The other big idea is the makeover to a direct to the beneficiary approach to the subsidy. The targeted subsidy would mean fewer leaks and substantive savings. This bodes well for the future.

The applicability of MAT to everybody is another big move that deserves to be welcomed. The software industry may crib and cry. But, the time has come to treat them on par with the rest of corporate India.

Foreign investors who are KYC compliant can invest in mutual funds. This could help the domestic mutual fund industry widen its market presence and also give a much-needed fillip to the beleaguered industry. Finally, the Government is showing the industry where it can find its cheese. Definitely a game-changer.

Raising tax limits for Octogenarians to Rs.5 lakhs is another great idea. It gives our elders much-needed relief from inflation. This shows the UPA has a softer side towards our affluent elders too.

The real big bang event of next year will be the significant boost in FDI. BP, CAIRN & POSCO are likely to invest billions of dollars next year. This is something the budget did not talk too much about. But then, Mr.Mukherjee has left it to the numbers and events of 2011-12 to do the talking.

Let us quickly sum up what the FM did not say. FDI will show strong growth in 2011-12. The domestic direct taxes which he has assumed may not grow will actually grow. Foreign money will enter the domestic mutual fund industry and give strong capital flows to the capital markets. The subsidy will get targeted in the remaining years of UPA II. Oil prices will actually be market-driven. The subsidy on petrol and diesel will be brought down to zero. Service taxes will boost indirect taxes. Excise collections will also show robust growth. The government will bet on FDI inflows to offset FII outflows. And there are enough benign devils in the details that will make a positive change to our economy. Pranab da has quietly scored.

One only hopes that the star-struck, sensation hungry business media does not miss what the minister did not tell them. Reading between the lines and understanding the unsaid is what good journalism is about.
Today’s papers and TV shows gave us some glimpses of that. The coming months will see Mr.Mukherjee deliver more than he has promised us. And, that is what makes a good FM and a great budget.

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