Citizens' Issues
Budget: Modi govt likely to stick to fiscal discipline

According to Nomura, the union budget is unlikely to be affected by the outcome of the Delhi elections and the BJP government is likely to stick to fiscal discipline

 

Finance Minister Arun Jaitley would present the Narendra Modi government's second Budget on 28th February. Nomura said it expect the Budget to kick start public investment in infrastructure and incentives for Prime Minister Modi’s medium-term initiatives such as Make in India and Digital India are likely to be the highlights. Increased public spending on infrastructure and lower subsidies will likely be seen (by markets) as a better quality of fiscal consolidation, it said.
 
"In our view," Nomura said, "the union budget is unlikely to be affected by the outcome of the Delhi elections and the Bharatiya Janata Party (BJP) government is likely to stick to fiscal discipline.”
 
 
 
Here are key expectations of Nomura from the Union Budget...
 
The government to stick to fiscal discipline: to meet fiscal deficit target of 4.1% of GDP in FY15 and target 3.6% in FY16. Accordingly, we expect net market borrowings to rise slightly to Rs4.8 lakh crore in FY16 from Rs4.5 lakh crore in FY15, and gross borrowing to rise to Rs6.5 lakh crore from Rs6 lakh crore (due to higher redemptions).
 
Public investment in infrastructure to be the key focus with capital expenditure to rise from 1.8% of GDP to 2.5% of GDP. The financing of higher public investment may be done by pruning subsidies, increased asset sales and through other off-balance sheet channels.
 
Quality of fiscal consolidation should be better as subsidies fall due to lower oil prices (from 2% to 1.4% of GDP) and capital outlay on infrastructure increases.
 
The budget is expected to provide an incentive for Prime Minister Modi’s flagship programs such as renewable energy, clean India mission, make in India, digital India and the smart city initiative.
 
To boost fiscal federalism, expect an increase in the centre’s transfer to states (in line with 14th finance commission recommendations), greater flexibility for states in spending money transferred under the centrally sponsored schemes and compensation to states for GST implementation.
 
For capital markets, expect the government to formally mandate the Reserve Bank of India (RBI) to target CPI inflation within a band of 4% +/-2% over the medium term, announce the setting up of a bank holding company, postpone GAAR and extend the withholding tax of 5% on interest paid on rupee securities.
 
Other than the Budget, the focus is also on the railway budget (26th February), Economic Survey (27 February) and the progress made on legislative reforms during the Budget session (23rd February to 8th May) with pending approval of various ordinances on land acquisition, coal mining, non-coal mining, insurance FDI and the GST constitutional amendment bill.
 
Rates strategy: 
Nomura says it remain constructive on India bonds. "Given the higher gross supply for FY16, we expect bonds to develop some supply concession in March ahead of the beginning of bond supply in April. However, we believe supply considerations have no more than a tactical relevance at this stage. We suggest investors stick with a bullish bias in bonds, heading into the budget and beyond," it added.
 
FX strategy: Nomura says it remain short US dollar/Rupee given positive expectations on the budget, the strengthening economic cycle, progress in government asset sales, terms-of-trade benefits from low commodity prices, gradual rate cuts, less vulnerability of India to the global backdrop of US Fed policy normalisation, and our view of a step back in the RBI’s aggressive FX intervention.
 

 

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COMMENTS

MG Warrier

2 years ago

Let us rely on the technical competence of Namura and believe that its expectations are based on serious analysis. Common man’s expectation is that this budget (2015-16) will, in addition to addressing concerns of business houses, entrepreneurs, investors and beneficiaries of various government schemes, go a step further and express the new government’s vision as to how it will be moving forward in regard to (a) speeding up poverty elimination (b) management of public resources (c) handling issues relating to corruption and black money and (d) improving the morale of the workforce in both public and private sectors.
There are encouraging signals to indicate that this budget will be different from the earlier ones.

vishal

2 years ago

Winning or losing a election should not divert the BJPs motive to keep the country fiscal deficit in control and pave the way for economic growth. The die hard social crusaders championing the cause of poor are trying to save their political survival as we are seeing in Bihar. These vested interest will survive and always try to take the country's economy on retrograde path. A bold approach is very much necessary.

SuchindranathAiyerS

2 years ago

Nomura's forecast is encouraging that the Modi Government will stick to fiscal discipline. Let us hope that the budget is equally conservative:

Mumbai Metro, ‘substantially’ funded, controlled by govt, does not come under RTI?

Despite investing Rs133 crore and providing viability funding gap of Rs500 crore, the Maharashtra government owns just 26% stake in Mumbai Metro. Yet the company refuses to answer queries under the RTI Act

 

Mumbai Metro One Pvt Ltd (MMOPL), jointly funded by the Maharashtra government, Reliance Infrastructure Ltd and Veolia, refused to comply with the Right to Information (RTI) Act. According to Shailesh Gandhi, former Central Information Commissioner, who had filed a complaint before the State Information Commission, against the company, since the government has substantially funded the Mumbai Metro project, the company should answer queries asked under the RTI Act.
 
Mr Gandhi's complaint, which was heard on Monday before the SIC is now adjourned to 4th March because the lawyers for MMOPL claimed that they were not prepared (for the hearing).
 
Here is what Mr Gandhi says about the case and its hearings...
 
Despite spending over a decade in RTI including four years as a Commissioner, I must admit the hearing before the State Information Commission on Monday took me by surprise! 
 
I had filed a RTI application with the Public Information Officer (PIO) of MMOPL asking for some simple information. I received a reply by an authorised signatory suggesting that I should ask Mumbai Metropolitan Region Development Authority (MMRDA) for information. 
 
I realised that MMOPL refused to accept its obligations as a public authority and was thus disregarding RTI. Out of eight directors (on MMOPL) three are MMRDA employees and MMRDA has a veto right in certain matters, hence it certainly has control over MMOPL. 
 
Besides over Rs500 crore has been provided in the garb of 'viability gap funding' and Rs133 crores (by the state government) to get an equity of 26% in MMOPL. Against this, Reliance Infrastructure has invested Rs353 crores for 69% stake and Veolia has put in Rs26 crore for a 5% stake. 
 
The Government's funding of over Rs633 crore is not considered substantial funding! I therefore filed a complaint with the State Commission, which first fixed a hearing on 27th January and subsequently shifted it to 23rd February.
 
During the hearing on Monday, the lawyer for MMOPL started by saying he wanted an adjournment since they were not prepared! 
 
I protested strongly that enough time had been given and there was no reason for an adjournment. The MMOPL lawyer was mentioning no ground for seeking an adjournment. 
 
When the Commission asked MMOPL why they had not been prepared, they said they are able to get an adjournment in court very easily and could not understand my protest. One of them also said that they were prepared for the hearing on 27th January! 
 
I then urged the two-member bench of the commission (Mr Ratnakar Gaikwad and Mr Ajit Kumar Jain) to note that this was wasting public money and resource. I suggested that if the adjournment was given a cost of Rs5,000 should be imposed on them since the poorest man pays for the cost of the Commission.  The Commission has fixed the next date of hearing on 4 March at 11am.
 
According to Section 2 (h) of RTI Act, a public authority is defined as...
 
"public authority" means any authority or body or institution of self-government established or constituted,-
(a) by or under the Constitution ;
(b) by any other law made by Parliament;
(c) by any other law made by State Legislature;
(d) by notification issued or order made by the appropriate Government, and includes any--
i. body owned, controlled or substantially financed;
ii. non-Government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government;
 
Section 2 (h) (i) also mentions three independent criteria for being a public authority: It may be either owned by the appropriate government, or controlled by it, or substantially financed by it.
 
1) A body is generally considered to be 'owned' by any entity when it has over 50% stake in its equity. In the instant case, it is known that the government does not have over 50% equity in MMOPL.
2) A body is controlled by government. Whereas regulatory control may not be considered as 'control', I would like to point out the two ways in which government is exercising control.
3) A body is substantially financed directly or indirectly by funds provided by the appropriate government.  
 
Mr Gandhi said, "Out of eight directors in MMOPL, three are public servants who are expected to control the working on behalf of the government. They hold their positions by virtue of their being public servants, and represent the government."
 
MMRDA directors have a veto right in 'Specified Matters' as mentioned at para 7.3.5.2 in the shareholders agreement. It appears that the presence of senior Government Servants on the board may check or ensure that decisions taken in MMOPL are in consonance with the Government's avowed objectives. Therefore, the presence of a fair degree of Government control on the decisions of MMOPL cannot be ruled out. A right to veto is certainly a power to restrain.  Parliament did not use the adjective 'complete' before the word control. Hence it is sufficient if it can be shown that the body is 'controlled', Mr Gandhi added.
 
Mr Gandhi, the former Central Information Commissioner, said, "I would also submit that the government has provided land and a monopoly to MMOPL whose monetary value has not been accounted. If this were to be represented in monetary terms, it would be clear that further financial advantage has been provided to MMOPL. If after such conclusive evidence it is allowed to escape accountability to the citizens, this would result in Indian citizens giving away money and resources to private gain, without even being allowed to exercise their fundamental Right to Information." 
 
Earlier in February 2012, Mr Gandhi, the then then Central Information Commissioner, had ruled that Public Health Foundation of India (PHFI), a public-private partnership (PPP) was a public authority. While giving the judgement the then Central Information Commissioner had said, "By their very nature, public-private partnerships (PPPs) stipulate certain contributions from the government, which may be monetary as well as non-monetary—to which values can be attributed. Moreover, PPPs envisage a certain degree of government control in their functioning so that the decisions taken are in accordance with the objectives for which the partnership was set up. Given the above, PPPs would come within the ambit of 'public authorities' as defined in the RTI Act thereby enabling citizens to know or obtain information about them." (Read: RTI Judgement Series: A body substantially funded, controlled by govt is a public authority)
 
 

 

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Smartphone market in India declines for first time in December quarter
According to IDC, during October-December 2014 quarter, Samsung maintained its leadership in India in smartphone and feature phone category 
 
For the first time, India's smartphone market fell by 4% during the October-December period compared with the previous quarter, research firm IDC said in a report.
 
Overall, IDC said, mobile phone shipments in one of the world's fastest growing handset markets stood at 64.3 million units during Q4 2014, reflecting a quarter-on-quarter drop of 11% over Q3 2014 and an annual drop of 5%.
 
"India's smartphone market observed shipment contraction in Q4 for the first time ever (q-o-q basis). This was largely owing to a high channel inventory at the beginning of the quarter amongst general trade which in turn was caused by the surge witnessed in online sales during festive season," IDC said in a statement.
 
The fourth quarter in 2014 was seen as a "correction phase" wherein the smartphone market declined by 4%, while the feature phone market tanked by around 14% over July-September 2014, it added.
 
Going ahead, IDC projects a sluggish January-March 2015.
 
However, few global vendors who were in the inventory correction phase until now are likely to exhibit big shipment numbers starting Q1.
 
"Operators are gearing up for 4G network rollout. For vendors and ecosystem partners, greater emphasis on 4G-enabled handsets at competitive price points will be the order of the day. End-users' desire to upgrade and keeping abreast with the latest technology will continue to drive a strong growth for the smartphone market in 2015," IDC Research Manager (Client Devices) Kiran Kumar said.
 
In the smartphone category in October-December 2014, Korean electronics giant Samsung maintained its leadership in India with 22% market share, followed by home grown vendors Micromax (18%), Intex (8%) and Lava (7%) and Chinese smartphone maker Xiaomi with 4% share, IDC said.
 
In the mobile phone segment (smartphones and feature phones), Samsung again led the market with 17% share followed by Micromax (15%), Nokia (10%) and Intex and Lava at 8%, each, it added.
 

 

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