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Modi’s Budget: More Tax & Spend

Was a lacklustre Union Budget designed to lower our expectations from the Modi sarkar?


A spectacular election campaign, the promise of dramatic change-growth-reform, a thumping victory with the biggest mandate for a single political party in three decades and then the diplomatic coup of his swearing in ceremony—all these had combined to raise expectations from the Modi sarkar to a frenzied high. You could even say that we had begun to expect that Narendra Modi as prime minister (PM) would be nothing short of Rajnikant on screen!
And then came a disappointing Budget—on taxes and spending. If the objective was to dampen expectations, then one must say that the Union Budget did a darned good job. But the collateral effect is the confusion it has created about whether the Bharatiya Janata Party (BJP), despite the brute majority in the Lok Sabha, has the gumption to break away from decades of socialist policies and the doles and subsidies that sustains India’s political parties and their leaders. 
It would be correctly argued, in favour of Modi sarkar, that it is unfair to judge a Budget that had to be cobbled together in 45 days. Especially when there was little room for manoeuvre due to the fiscal mess inherited from the United Progressive Alliance (UPA) and the looming problems of a scanty monsoon and soaring crude oil prices. But isn’t it all the more reason for the government to have kept the Budget short and crisp, even if there were no big ideas or momentous announcements? We are now left wondering—kya achche din ayenge? Kab ayenge?
Let’s take a look at the source of confusion. We know that Narendra Modi inherited a fiscal mess and years of scams and profligate government spending with no accountability. We also know that the government had to find new ways to raise funds, to cut the fiscal deficit as well as for the promised relief from tax torture. But one expected fresh thinking and innovative solutions. 
A big expectation from the Modi government is better days for entrepreneurs and an end to harassment and extortion by the multiplicity of local and state agencies and their taxes, levies and endless compliances. Prof R Vaidyanathan from IIM (Bengaluru) has long been considered an important advisor to senior BJP leaders. 
His two important areas of research and insight were: the black money menace and the problems of what he calls India Uninc, comprising innumerable tiny entrepreneurs who keep India’s economy chugging along, despite the government. None of Prof Vaidyanathan’s ideas in these two areas finds any reflection in the Budget; but, as he would say himself, let’s give the government at least six months before making up our minds. 
Second, one of the NDA (National Democratic Alliance) government’s first actions was to set up a special investigation team (SIT) to unearth black money. It appears that we should not expect anything concrete to happen in the next eight months. 
A third expectation was about curbing wasteful expenditure. There was talk that the government would shut down the Planning Commission, eliminating not only a big source of wasteful expenditure but also misallocation of resources that such ‘planning’ exercise leads to. That did not happen. Instead, all we got is an ‘Expenditure Commission’, which will deliberate on ways to cut expenditure! This, again, means that we should not expect anything in the period of this Union Budget. 
A fourth expectation was the promise of vikas (development), parivartan (change) and the slogan ‘minimum government, maximum governance’. All of this will happen, if the government can find the resources. 
The Budget talks of public-private partnerships (PPPs) to bring in much needed investment in railways, gas pipelines, airports and roads and foreign investment in some others. This is positive; but, remember, all this requires buoyant capital markets and interest among foreign and local investors. 
A slew of multinationals had also stayed back in the hope that Narendra Modi will work to improve our ranking from the bottom of the list of ‘worst countries to do business in’. Like the credit rating agencies, which have made their unhappiness with the Budget clear, international investors have also switched their stance from optimistic to watchful, while being gung-ho in public. 
On PPPs, we need the Modi government to ensure that it is vastly different from partnerships struck by the UPA regime. Under the UPA, private funding usually came from the public sector banks and ended up as bad loans that will be dumped on taxpayers. 

Right to Information (RTI) activists have discovered to their shock that even the concession agreements signed with private companies are missing. Former central information commissioner (CIC) Shailesh Gandhi also confirmed this. Modi sarkar has to demonstrate that it will make PPPs accountable and they will not be just a means of transferring public assets into private hands. Otherwise, a new set of scams and controversy can get created. 
Two other sources of funding identified by the government are: massively higher tax revenues (which does not signal achche din at all) and disinvestment of the shares of public sector undertakings (PSUs), ostensibly to enhance public participation in these national assets. 
When Mr Modi was sworn-in as prime minister, public sector shares shot up on the expectation that good companies would get more autonomy and be the big value-creators under this government. We hope the government will deliver on that expectation, especially if it wants retail investors to participate in the exercise. 

The only big phase of disinvesting PSUs happened during the Vajpayee government; it is expected that a five-year Modi government will go beyond the sale of PSU shares in the stock market mentioned in this Budget. Disinvestment too must be done differently under Modi sarkar. NDA-I had sold Modern Bread, Hotel Corporation of India (which owned Centaur Hotels) and a clutch of rundown, but extremely well located, hotels. 
These were sold as going-concerns (rather than break up value that would have taken into account valuable realty) to ensure continuity of employment and production. It was a jackpot for private bidders and the original premise for selling them cheap was quickly forgotten. Hopefully, Mr Modi will, at least, use his direct connect with ordinary people to explain the idea and purpose of disinvestment in the coming years. No government has dared to do this in 30 years with the result that disinvestment was always non-transparent and portrayed as a dirty, surreptitious sale of family silver. 
Transparency and accountability will be important even to fulfil the promises made by the Railway Budget. The railway minister admitted that most money earned by the railways goes towards salaries and maintenance (which is also crumbling), leaving little leeway for modernisation or growth. Although most people accept that a fare hike was long overdue, it is not enough. We need to see if the PPP route is used as effectively as promised to improve cleanliness, quality of food and public amenities. 
The task before the government is monumental. Fortunately, and what we have seen so far, all is not negative. The ministry of corporate affairs (MCA), at least, has made several announcements that signal an understanding of what really hurts those who want to operate transparently and within the law. Will this transmit to other ministries too? There is a lot that needs to be done in almost every area—power, aviation, defence, infrastructure, mining and environment—will be some keenly watched ministries. Meanwhile, we must admit that we have switched from achche din aagaye to acheche din kab ayenge? When will we see better days?




Yerram Raju Behara

2 years ago

Mountains can't be moved by a little finger. Six month old Government framed a budget for six months. It can be at best aspirational. Good governance cannot be delivered under the existing legal regime. There are a number of laws to be purged and a number of rules in existing laws made redundant. The sooner this happens, the larger would be the scope for good governance.
Most scams arose from the PPPs and therefore, there is imminent need for looking at the detail and give a framework for PPPs sector-wise and to this end an announcement did figure in the Budget. It is to be hoped that the GoI would quickly come out with the solution.
Planning Commission - the Yojana Bhavan, a euphemism for Bhojana Bhavan, meaning the eating house of resources of exchequer for decades- has to be wound up.
The other institutions that need purging are University Grants Commission, AICTE that have killed the higher education and technical education with their luxurious working.
More than the speed it is the actual action that would be watched by at least the informed electorate.

Satyadev Verma

2 years ago

It is too short a time to comment as NM does not have a magic wand !
I expected a comment from U on whether U find any positive shift in this budget wrt UPA regime.

Vinayak Bhimrao Mudholkar

2 years ago

Achche din ayenge....state elections ke bad !!!

Ethanol blending made mandatory - but needs enforcing!

The bench mark price of ethanol has been fixed at Rs44 per litre and the government had made it mandatory for OMCs to blend 5% ethanol with petrol, which has now been increased to 10% but actual lifting has been unsatisfactory


Oil Minister, Dharmendra Pradhan, admitted in the Lok Sabah recently, that the OMCs (Oil Marketing Companies) were able to "achieve" only a 1.37% blending of ethanol with petrol against the target of 5% which, had recently been increased to 10%.


The Indian Sugar Mills Association (ISMA) had assured the government of their willingness to reach 10% blend level across the country, but sought flexible ethanol blending with petrol, ranging from 5 to 25%, depending upon sugar cane availability.


The sugar mills are currently realising about Rs32 per kg for sugar.They can produce only 95kgs of sugar for every tonne of cane crushed and 45kgs of molasses yielding about 10.8 litres of ethanol. However, if the entire juice from cane is used for fermenting into alcohol, there would be

no production of sugar but 72 litres of ethanol could be obtained.


The bench mark price of ethanol has been fixed at Rs44 per litre and the government has made it mandatory for OMCs to blend 5% ethanol with petrol/diesel, which, as reported above, had now been increased to 10% but actual lifting has been unsatisfactory. Moneylife had reported earlier, that while the sugar mills had a stock of 65 crore litres of ethanol, only 35 crore litres had been lifted by OMCs, resulting in huge blocking of funds. If such a situation should continue, nothing prevents state governments from permitting sugar mills to convert sugar cane juice to alcohol.


It has been reported in the press that higher ethanol blending would hit the liquor industry, a fear that may have caused lower blending rate.OMCs must realize their responsibility and ensure that they lift ethanol from mills on a regular basis and also make available blended petrol/diesel at all

government transport depots besides all major bus terminals. In fact, every pumping stations must be asked to ensure availability blended petrol/diesel so that the consumption is increased.


The ISMA, in a press report, has stated that the estimate for the current season, 2014-15 is expected to be 25.3 million tonnes of sugar, a mere 4% increase over last year, with both UP and Tamil Nadu showing a shortfall but offset by increase in Maharashtra, Karnataka and Gujarat. The carryover sugar stock at 7.5 million tonnes is more than the required buffer and should take us through comfortably to the next season, even after providing for exports.


Luckily, the monsoon's progress, as advised by IMD (Indian Metrological Department) shows that they expect the rainfall to be well distributed and there will be adequate showers throughout the country, which will reduce the deficit predicted earlier due to an El Nino effect.


In the meantime, it is imperative for the government to take serious steps against the OMCs for not complying the required blending programme that have been made mandatory. One way of enforcing such a rule is to tell the OMCs that unless they lift and blend ethanol from mills, they won't be given the subsidies committed by the government.


Such a threat alone will work with OMCs, who must also be forced to focus on setting up ethanol blended petrol/diesel units in all the pumping stations throughout the country. As a start, this could be enforced in all the sugarcane producing states where the mills are established. If such actions are not taken, sugar mills may start looking for export market to sell their ethanol.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Madhusudan I. Mistry

2 years ago

A formula can be envisaged to link the payment of the subsidy amount to the OMC based on the certification of ethanol blending percentage. If Less ethanol is blended, proportionately less subsidy will be worked out. It should be ensured that no compensation can be available in the future for such less payment and for OMC it has to be construed as an opportunity lost for lifetime against lower blending for that particular period. Also such notification given to OMC should also provide sufficient time need to indicated for effective implementation, after which the clause for such lesser subsidy payment shall become applicable. Strict adherence through such clause can make the system effective.The onus should similarly be implemented with sugar producing companies as well. Export of ethanol should have a big NO-NO by the government. If Brazil can go upto 25% ethanol blending,we must be blamed for our poor mannagement for such implementation. Ultimately, we are losing expensive foreign exchange with such laxing attitude and action as well. Should it not help us to make CAD more favourable as the volume of blended ethanol is huge and it can help India in a very big way to reduce foreign exchange outgo.

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