This budget cannot propel India to the next level of growth. So, if the budget is veneered with bold statements of apparent intent, ignore them. Political compulsions will prevent any major changes
The budget is the last hope for the market run up to continue in 2012. Almost all of a year’s gains seem to have materialised in the first two months of the calendar. And being the fools that we are, we think the budget is the sole instrument of change.
Personally, I do not see anything material in this forthcoming budget. Numbers, in terms of fiscal deficit being here or there, are good for debates on television. The unchangeable truth is that India will continue to run trade deficits for the foreseeable future. A consumption led demand push has kept growth buoyant as aspirations of the burgeoning upper middle class take wings. Liberal lending by banks and non-banking finance companies (NBFCs) have helped create this demand pull that has resulted in the domestic economy being on a high. Even with a slowdown, we are still talking about growth upwards of 6% to 7%. This growth is there, in spite of our politicians and the central bank. Neither have the ability to take it to the next higher platform (like China, which has pursued growth with single minded focus).
Barring some irrational hold on sectors like oil & gas, banking, telecom, etc, the government has kept its nose out of industry and commerce. Minor irritants in the form of tariff adjustments should not make a material dent to industry at large. Also, the government has displayed a singular lack of will in pushing through creation of infrastructure, which in turn is the single biggest hurdle for accelerated growth. So, irrespective of the government’s worst efforts, it is reasonable to assume that growth will not slip below 6% or so. As a rule, it pays to keep out of stocks that are vulnerable to governmental action/interference. What keeps these shares in demand is the HOPE that government will let go. Good luck to those who have this hope. The government will not let go of what is not yet freed because it is their last few tickets to stealing fortunes.
The ugly combination of inflation and continuing trade deficits will ensure that India always has this issue of piling debt and continuing erosion in the value of the home currency. It keeps getting propped up by a combination of remittances by overseas Indians (which also includes some money laundering), loans from foreigners, FDI (foreign direct investment) and portfolio flows into debt and equity. Our growth rate ensures that we are like the one-eyed amongst the blind and the foreigners’ compulsion to invest (as they need to find new places to grow the markets) will keep FDI and portfolio flows happening.
We can also expect Indian government succumbing to foreign pressure and open up whatever sector is still closed to them. Only those sectors where the politician is directly impacted (real estate and agriculture) at personal levels, FDI or portfolio flows may not be allowed. Allowing FDI/FII into any sector means increased demand for transparency and that is not welcome.
So, in the budget, I do not look for anything. Fiscal deficit (any new definitions like “primary deficit” by the clever people at North Block notwithstanding) will be closer to double digits if we take in to account the state governments’ shortages. Socialist policies introduced by the Nehru family will ensure that money is wasted on schemes that permit leakages to the politicians. Do not look for reason or rationale in their benevolence to some obscure tinkering which favours some relative of some politician.
This budget CANNOT propel India to the next level of growth. So, if the budget is veneered with bold statements of apparent intent, ignore them. The political cauldron will NOT let change for good happen. It is certainly a matter of belief rather than of logic as far as I am concerned. If there is a big rally and talk of a dream budget, exit if the rally takes the market beyond 6,300 on the NSE or above 20,000 on the BSE.
I also hope that the budget stops the practice of favouring some industry or section of society with sops that come at the expense of revenue collection and being impartial to others. For instance, it would be great if the IT exemptions to SEZ/ IT are totally withdrawn. One has been abused by the realtor gang and the other has gone to fatten companies like Infosys, Wipro and TCS. In this world, businessmen will invest so long as there is an opportunity and profit. A few thousand crores of tax concessions to a handful of companies means that the gains go to line the pockets of these company promoters alone. Instead, however much we may argue against, it is better to spread it amongst a larger group of people by reducing the tax rate. Any support that is given financially to any section of society is never constructive. For instance, it is my personal experience that something like NREGA has actually destroyed the will/need to work in some pockets that I have been exposed to. Instead, if the government had used the subsidy money to set up a power plant, however small, it would have been of greater benefit.
However, in reality, I expect many more schemes of populist nature to dot the budget. Tightening the belt is unknown to our politicians who use the budget as a tool to supposedly win votes. Of course, the result of the UP elections would mean that the government has prepared two sets of budgets and may choose an option that seems politically expedient post the result.
Do not get swayed by a hike in some income tax exemption limits, unless it is significantly large enough to boost consumption. If so, be prepared for higher inflation also.
Even if the government wakes up and pushes some supply boosting measures, it would be two to three years before the supply actually increases.
I am afraid that the UPA government will become more left than the leftist and lead us on the path to a lower growth trajectory.
I hope my pessimism is misplaced and that the finance minister will present a budget that does not favour some particular business alone. I hope that he reduces the subsidies on fertilisers, diesel and power.
(The author can be reached at [email protected])
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Rather than reduce migrants to a factor of production, an effective migration policy must acknowledge migrants as human beings and address their dignity and human rights. The policy should be based on protection of their rights, rather than regulating their movement in the interest of employers
The debate over migrant workforce has become global. All over the world industrial economies have become dependent on the work of Indian migrants, who form a sub-class of people working in jobs with the lowest wages, least security and often in dangerous conditions.
While on one hand, nations seek to end the spontaneous movement of less skilled Indian workers, on the other, they seek to channel migration into programmes that would deliver Indian migrants to corporate as a contracted workforce. This duality is not unique. The ideas and practice of social inequality, of inclusion and exclusion are very old and take centre stage in today’s debate. These ideas became codified in the ‘legal’ justification for these injustices. Today inequality is being re-created and reproduced by a global economic system. Many countries today experience the growth of political movements of the right, campaigning to end migration, often attacking migrants themselves.
While privatization and end of subsidies are an essential part of economic reforms, the labour displacement thus caused produces migrant labour on a huge scale giving corporations and compliant governments the freedom to exploit workers without regulation or limits. In retrospect, corporations using this displaced labour have a growing interest with those governments in regulating the system that supplies it.
Consider temporary staffing as an arrangement that adds to the labour flexibility, a critical need for employers to expand their employment opportunities and bring the essential attribute of competitiveness.
As job attrition increases the displaced labour pool further, the beneficiaries are the corporations that rotate workers, resulting in a forced migration, where workers are often pushed across borders rather than being sought by employers’ world over.
However, even though the migratory flow caused by displacement is generally self-initiated and majorly a choice made by the skilled workers themselves, the employees thus commoditized often serve an involuntary servitude and are beholden to their employers.
Today, employee poaching and contractual bonds by employers, as a means to prevent competition are at an alarmingly high. All just to retain the best talent available!
In hindsight it seems obvious that the emerging Indian market trends circa 2000, shows a steady rise. But how long could India boast of the demand on its service industry and foster the continued growth.
As we continue to be at loggerheads with nations on issues preventing this free flow of knowledge, there has been some rapid technological and Internet-powered innovations underway that even the knowledgeable contemporary observers have failed to grasp their transformation power. These technological innovations will change the very nature of how knowledge capital will be viewed and used.
March 2012, we sit again on the cusp of major technological transformations with the potential to rival any innovations in the past century. All find their epicentres in technological innovations: big data, smart manufacturing and wireless technologies.
Information technology has entered the big data era. Processing of power and mass data storage is virtually free. Internet is now evolving into a ‘cloud’ of data centres networked together. The hand held device such as an iPhone has computing power that surpasses what an IBM mainframe could do just less than two decades ago. Social applications helped connect anyone, anywhere across borders reducing the great digital divide. With huge user information available, metadata analysis and the astronomical feats of data crunching, data mapping and data mining, enables unimaginable services and businesses, we are therefore on the cusp of limitless new markets.
Smart manufacturing using nanotechnology—a structural shift since the economic power of “mass production”— we are just entering an era where the very fabrication of physical things is revolutionized by emerging materials science. Engineers will soon design and build from the molecular level, optimizing features and even creating new materials. Devices and products are already appearing based on computationally engineered materials that literally did not exist a few years ago. Novel metal alloys and meta-materials that possess properties not possible in nature will revolutionize the science of materials itself. E.g. rendering an object invisible. This era of new materials and of near perfect computational design and production will be explosive and unleash a big change in how we make things. And this will be defined by high talent and not cheap labour.
Finally, there is the communications revolution where soon most humans on the planet will be connected wirelessly. More than a billion people will be able to communicate, socialize, and even trade with each other in real time. Breaking old barriers of cultural, religious differences, displacing and shifting world economics evenly Networked mass data storage via cloud computing and the collapse in the cost of wireless connectivity will provide cheap connectivity, information and processing power to every one… everywhere.
As technology will fuel economic growth as well as social and lifestyle progress, what would be the focus areas essential for unleashing the promises of technological change?
Demographics—All major cities in the world have cosmopolitan demographics and are therefore the melting pot of diverse cultures. Youth bring more than workers and the taxpayers; they bring abundant energy much needed to foster entrepreneurial innovative growth. Enhanced and mentored by its elders and the entrepreneurial eco system.
Dynamic Culture—Often suited to challenge, the youthful demographics helps adapt to the cultural shift. Culture cannot be changed or copied overnight. Cultural shift is a feature of its people, the younger the population, higher the inertia. A vibrant culture is distinguished by the remarkable abilities of its people possessing powerful features such as open mindedness, risk-taking, hard work, playfulness and open to new ideas, critical for entrepreneurial innovation. Culture therefore inadvertently defines the learning processes, converging into a diverse education system.
India produces a lot of innovative solutions in wireless and mobile technology; however, the mindset of a knowledge worker still sits on the services mindset rather than have the risk taking mindset to create an Intellectual Property (IP). The ability to take risks to become an entrepreneur and create an IP outweighs the cushioned option of being a salaried IT worker writing code. The differentiator is in the mindset.
With the promise of ‘Akash’, the cheapest tablet, mobiles and tablets will see a lot of innovation. Making bandwidth a fundamental right, free innovation will thrive. Metros with a succulent entrepreneurial eco system will thrive, as is already evident by start-ups that are highly innovative.
Diverse Education system—An education system is characterized by its flexibility and diversity of educational philosophies and course curricula. There is a dizzying range of approaches available to an individual seeking to learn. As newer technological innovations prompt learning, a diverse educational system will continue to bridge the industry-academia mismatch.
So what should we do to align ourselves to help user this new era of entrepreneurial growth? How should our policies reflect our preparedness to the forthcoming wave of global competition?
While inward migration is a convenient arrangement for wealthy nations, it has severe disadvantages for India. The remittances of migrant workers become the main source of income for the communities from which they come. Large corporations and industries of wealthy nations get the benefit of this labour force, while the workers themselves pay the cost of maintaining it. Rather than reduce migrants to a factor of production, or a commodity to be exported and imported, migration policy must acknowledge migrants as human beings and address their dignity and human rights. The policy therefore should be based on protection of the rights of migrants, rather than regulating their movement in the interest of employers.
In the migrant worker debate, proponents of restricting the migrant people movement usually argue that they are only directed at illegal and undocumented workers or to those who displace employment domestically. But maintaining this distinction between those with legal and illegal status or of causing job displacement has become a code for preserving inequality, a tiered system that divides people into those with rights and those without. The guest worker schemes of nations, for example, thus set up similar tiers—in effect, another form of inequality and social exclusion creating a greater digital divide. Once established, this growing inequality eventually affects all classes of workers, including the residents. In an economy in which migrant labour plays an important part, the price of stopping migration would be economic crisis.
For India, the effects of inequality are not unknown, especially in a society which has historically accepted the unequal status offered by virtue of their skin colour and sex. Take for instance, the temporary worker programmes of wealthy nations. With or without the temporary worker programmes, migration to these wealthy nations will continue as a means to escape.
So, should the migration approach be used to increasing corporate profits by supplying labour to industry at a price it wants to pay?
Migrants are human beings first, and their desire for community is as strong as the need to labour. Indigenous migrants to the state are increasingly recognized to be a state of migrants, and of a society whose fate is intimately linked with the economy and culture of the country as a whole. This description emphasizes the movement of people in the relationship between one state and the other.
An increasing percentage of migration in the city of Mumbai, for instance, is now made up of indigenous migrants, who share culture and languages spoken long before their culture and people arrived into the city. They overwhelmingly belong to transnational communities, retaining ties to their communities of origin and establishing new communities as they migrate in search of work. They move back and forth through these networks, to the extent the difficult passage across border allows. This is a global phenomenon and not only restricted to any particular geography. The creation of transnational communities exists at different stages of development in the flow of migrants. Migrants in all these places find people who speak the same language, eat the same food, and dance the same dances.
Indigenous migrants have created communities all along—in reality, a single expanding community, composed of many different settlements. Their traditions become a rich source of experience migrants draw on as they seek work, social justice, and to preserve their culture. But for indigenous communities, migration has complicated social costs and benefits. It threatens cultural practices and indigenous languages, which become harder to preserve hundreds of miles from their towns of origin. Migration often seems, especially to the young, a more profitable alternative to education. It exacerbates social and economic divisions, as some families have access to remittances and others don’t. But it has also become an economic necessity, and the families of those who take the migration road often do benefit, although they risk danger and debt to receive its rewards.