Interim Budget 2024: On expected lines, and it bodes well for markets: Indian Express 1st feb 2024

 The Budget presented was an interim one, yet various segments, ranging from individuals to corporates, had myriad expectations of it. It can be said with some degree of confidence that the core content of the budget as well as the numbers in the broader sense would largely be unchanged when the final budget is presented. So, how does the budget look?

First, the speech gave an exhaustive summary of all the schemes that the government has run, partly through the budget over the last 10 years. It indicates that the basic thrust of the budget would continue to be on alleviating the standard of living of the people at the lower income level. Therefore, there is no compromise on any of these objectives, though the rather good economic environment does provide enough room for funding the same. The strategy going forward is to bring about growth through two engines, with one of them being from below, where development through incentives and cash handouts would be pursued.

Second, the private sector was looking at the capex plans of the government. This time, there has been a more modest increase of 11.1 per cent, which brings it to Rs 11.1 lakh crore. Hence, the momentum has been maintained while working within the confines of the fiscal constraints under which the budget was formulated. The ratio of capex to GDP is virtually unchanged at 3.4 per cent. There is, therefore, continuity in the areas of roads, railways, defence and urban development, and so, the backward linkages to industries like steel, cement, machinery, chemicals should be forged. Hopefully, the states will also follow suit and increase and implement their capital plans in FY25 to create a sharper impact. To get a sense of focus, out of the increase of Rs 2.76 lakh crore in size of the budget, 40 per cent has been allocated for capex, which is high.

Third, the budget has been aggressive in lowering the fiscal deficit ratio by 0.7 per cent of GDP to 5.1 per cent for the coming year, thus moving closer to the target of 4.5 per cent of FY26. This shows determination to move to the target laid down by the Fiscal Responsibility and Budget Management Act (FRBM). In fact, it can be expected that going ahead, the government would also be targeting the ultimate goal of 3 per cent of GDP. This is good for the markets as the gross borrowing programme of the government would be lower at Rs 14.13 lakh crore, which will put less pressure on banks. Given that there would be more FPI coming in due to the inclusion of Indian bonds in global bond indices like the one of JP Morgan, there will be more funds left with banks for financing credit demand from the private sector.

Fourth, prudence has also been shown by not giving away anything on the tax front. It was stated upfront by the FM that the structure remains unchanged given the fact that the nature of the budget was different. In this sense, there is no relief for the middle class.

Fifth, the disinvestment target has been kept at Rs 50,000 which is a bit ambitious considering that it would be Rs 30,000 crore for FY24. Given that there would practically be nine months at most for driving the programme next year, there could be more asset monetisation rather than disinvestment for the target to be met. This is more or less neutral for markets.

Last, the twin subsidies have been reduced from Rs 4 lakh crore to Rs 3.7 lakh crore. Food subsidy, too, is to be lowered by around Rs 10,000 crore. This is interesting given that the MSP is increased every year by 5-8 per cent across the spectrum of crops. This number can slip in case of any disturbances like crude oil prices.

How can one look at this statement then? It is definitely a balance sheet of all the achievements of the government in the past and the aspirations for the future. The focus is on women, youth, poor and farmers and the schemes made for these segments would be given a further push. There is nothing overt for the individuals or even the MSMEs though it can be expected that there could be some incentives provided in the final budget.

 The immediate reaction of the market is interesting. The Sensex and Nifty were down between the start and end of the speech though they could have been impacted by other factors that transpired on January 31. The 10-year bond, however, moderated as the borrowing programme of the government appears to be more modest. One cannot rule out the effect of the Fed meeting yesterday, too, where rate cuts were indicated. This can, however, be an immediate reaction and there could be corrections once other fundamentals that drive bond yields kick in.

Hence, the budget should be interpreted more as a statement that lays down the roadmap for the future while reiterating a commitment to the FRBM path. The numbers are mere extensions of those of FY24 in general. This has been done with a reasonable GDP growth estimate of 10.5 per cent and hence does not overstate revenue projections.

Is WEF a waste of time? Business Line, 24th January 2024

 

New rules of trade game: Can free trade and globalisation flourish in a polarised world? Financial Express 21st January 2024

 

The book begins from the time various countries got together to foster free trade with liberalism at its core. This helped to bring about economic recovery in the countries affected most by the wars.

Book: The Global Trade Paradigm: Rethinking International Business in the Post-Pandemic World

Author: Arun Kumar

Publication: HarperCollins

Pp 352, Rs 699

Arun Kumar has written an insightful book about the changing dynamics of global power over time. A global executive with multifaceted experiences, including working with the US government, the author has dwelled upon the changes in dynamics starting from the Bretton Woods agreements.

The book begins from the time various countries got together to foster free trade with liberalism at its core. This helped to bring about economic recovery in the countries affected most by the wars. But things have changed in the past decade and half, driven by various factors, including politics as well as Covid, where the world has gotten more polarised. The dogma is now turning inwards and working more for individual fulfillment, which in a way has made globalisation secondary to the growth doctrine adopted by various countries.

America was the dominant force post the World War and has driven the global agenda and brought about multifold growth not just in global trade but also GDP of participating countries. Kumar uses the concept of total trade to GDP as a measure of openness of any country. This can be measured on a relative scale, not just with other countries but also over time. Hence benchmarking can be done both ways. These ratios tended to increase until 2008 or so when the Lehman crisis struck followed by the Euro crisis, which in turn caused countries to go several steps back.

The major challenge for the West has come from China, which has both the technological and financial clout to drive not just global trade but also alliances with various countries driven partly or largely by political aspirations. There is an overt sense of conscious expansion in this area as it seeks to gain ascendancy as a global power. Here it is pointed out that in the course of these couple of decades, the West has also increased its dependence on China with high levels of investment in the country. The open policy and quest for faster growth in China had made it a favourable destination.

The author provides the historical context of each of the major countries or blocks that he sees as driving this agenda. In this journey he takes us through the British Empire which dominated the world prior to the world wars right from the time of the East India Company. But subsequently it lost its power and USA, Germany, Japan and Germany became major economic powers. Britain, in fact, is turning inwards with Brexit which means that they are out of the EU. This kind of non-alignment is gaining pace across the world, with the USA when it was under Donald Trump also talking a lot of USA for Americans.

Europe has been different and worked hard for the integration of the region and creation of the EU. The concept of euro is the final frontier crossed where several nations have a single currency which helps them take advantage of each other’s strengths to grow faster. In this context the author points to the initiative taken by China to establish the Belt and Road Initiative (BRI), which, while sounds good from the point of view of global integration, can be interpreted as another attempt made by China to establish its hegemony in this region. The present Ukraine-Russia war with China giving support to the latter will dampen and probably erode this initiative in the next couple of years.

The author sees a lot of potential in India playing a major role in driving the world economic agenda. Here he brings in political strategy shown by the country, where India is now seen as a friend-shoring location, with the advantages of a democracy and free economy, which is seen as a valuable ally by all nations. This is where political diplomacy has played a role in strengthening this view. India, he believes, can be an integral part of the global supply chains for an environment that has been crafted where corporations all over seek to create sources of supply. The author is impressed by the initiative taken by the government to give a big thrust to manufacturing, saying this is the sector that can provide a delta to the rest of the world in terms of integration of supply chains and growth. The PLI scheme is hence a very good example of what is being done to further this cause.

The surprise package will be Africa, which is referred to as a sleeping giant. A continent that is as large as USA, China and India with a population close to that of India has argumentatively been on the table for a long time. Unfortunately, the continent is a union of several countries that have low levels of governance and are stuck in the quicksand of unstable dictatorial governments that are self-serving. Hence a resource-rich set of nations remains the poorest by any standard. He points to improvement of logistics trade boundaries, but this may be inadequate in the absence of governance.

Arun Kumar’s belief in free trade and globalisation as a vehicle to faster growth cannot be contested. This has been proved in the past. But the changing face of politics in all nations has changed, which is making them all look inwards. Here the reader can differ with the utopian picture painted by the author. Coming from an expert practitioner, there is a lot of wisdom in the book, but political ideology needs to go back to the pre-2008 days for this plan to replay.

Watch the numbers: The gross borrowing amount will be a market mover Financial express 20th January 2024

 An interim budget, by its very nature, is not supposed to evoke much excitement as prudence dictates that there should be nothing different under normal circumstances. This is a view which has also been endorsed by the finance minister. What then, can the areas of interest be?

The most useful part of any budget is the revised estimates of the projections made in the previous year, which would be FY24. Hence the size of the budget, expenditure outlays, as well as revenue from various sources would be reported. Based on past experiences, these revised numbers normally do not change much when the final accounts are presented later during the year. This is because all expenditures tend to get adjusted to the revised budgetary numbers in the next two months. And more importantly, the revised fiscal deficit ratio would be the key to all projections made for FY25 as it becomes the starting point of moving back along the path of fiscal prudence.

There is reason to be sanguine on the revenue side. There has been some very good news on both direct and indirect tax collections. The government has also received a higher-than-expected surplus from the RBI and the PSUs are to contribute substantially to the kitty. However, disinvestment has been tardy and it does look like that there would be considerable slippage here. But this may not matter if all gains and losses on the revenue side are netted. 

On the expenditure side, there have been announcements made on higher allocations, especially on the subsidy front, with the free food scheme being extended for another five years. But on the positive side, the overall spending has been reined in ostensibly on the premise that the government would like to wait and watch how these number play out before letting various ministries spend their resources. Presently, the accounts do indicate that expenditures on social schemes like MGNREGA, subsidy, housing etc. are going according to plan. All this means that the fiscal numbers should be achieved and even though the denominator of the ratio, nominal GDP, will be lower than was projected, it may not really matter.

The other area of interest will be the capex plans. While arguably there can be no significant new programme introduced, the overall budget size would probably be 10-12% higher than last year, which was around `45 trillion. The Interim Budget does not stop the government from allocating the available resources on ongoing schemes and plans. Last year, capex was 22% of the total budget, and if the same remains, there can be around a `1-1.5 trillion increase from the `10 trillion budgeted amount for FY24. It does appear that the government would persevere with the capex thrust and go beyond the 22% ratio of last year. But it has to also keep in mind the allocations for social welfare, which is important especially in an election year. There are several schemes including subsidies, insurance, employment, housing, water, education etc. which will have to be persevered with, and hence the overall allocation would be monitored.

On the revenue side, the take on disinvestment will be interesting. This is so because FY24 has not been a very good year for these programmes, even though the timing was good in the sense that the market conditions were favourable, with the Sensex scaling new heights. It is more likely that the tilt will be more for asset monetisation, which can be completed based on the available calendar rather than selling stake in PSUs. This is so because practically speaking, the government would have nine months to complete the process, which may not be adequate. Also, the market conditions cannot be conjectured at this point of time.

Last would be the fiscal deficit. While the ultimate short-term target is 4.5% for the fiscal deficit, a vital call has to be taken on lowering the same from the present level of 5.9%. Last year, the pitch was for a reduction of 50 bps. But this may be on the lower side as the onus would then be on FY26 to be more aggressive. Therefore, the toss would be between 50 and 75 bps. Anything more may be difficult given that spending commitments are still high, with the Centre doing the heavy lifting on capex. 

The fiscal deficit number matters for the market as it would determine the ultimate borrowing programme of the government. In the last couple of years, the government has spread this out across market borrowings (which is the main source) and small savings, drawing down of cash balances, and short-term borrowings. There would be substantial redemptions this year—at around `4 trillion—which will increase the gross borrowing by this amount. Hence, the gross borrowing amount will be a market mover, even though this is an Interim Budget. It can also be assumed that this number is unlikely to change even in the final budget later this year.

Hence, the budget will have a lot for the analyst from the point of view of numbers. The allocations across various heads may not be significantly different from the past and would be scaled up depending on the size of the budget that is pitched for. There could be some reallocations across these headings. But it can be taken for granted that primacy will be given to fiscal prudence, as the overall economic environment is good and this is the right time to expedite the process. While 4.5% is the short-term goal, we need to move to 3% with more urgency, as that has been the ultimate goal. This budget can be a useful starting point.

Analysis: Why is the citizen always taken for granted? January 20, 2024 Free Press Journal

 

The major takeaway is that citizens as customers are always put to a lot of inconvenience by some authority or the other. There is always a justification for the rule, but somewhere along the way the implementation is tardy and lacks empathy

The recent airline fracas reflects one thing for sure, which is that customers do not really matter. While there are explanations as to why the airlines are as helpless as the passengers, it is unfortunate that it had to take the unpardonable behaviour of one passenger to actually get the ministry to address an issue that should have already had a standard operating process (SOP) in place for a seasonal contingency.

If one looks at the travails of customers in almost all segments, one can sense this feeling of apathy. Let us look at banking. There is a regulation that asks banks to do a periodic KYC of all deposit-holders. There is evidently a rationale for the same — to ensure that the customers are still banking with the bank as there has been a piling up of unclaimed deposits. But banks insist that customers should fill in forms with photos attached and submit self-attested Aadhar and PAN cards. Now this is odd since these two documents never change unless one has consciously changed the address. This involves customers going to the branches to do the KYC which is inconvenient especially when nothing has changed. In fact, when the address changes, it pays the customer to notify the same to the bank as it is in her interest. A simpler way would be to take a default no-change in KYC as being given with customers being told to provide documents in case things have changed. For online customers, there can be a clear marking once one enters the site to confirm the address.

The same holds for the stock market regulator asking for a mandatory nominee to be named or opting out. Here too mutual fund holders had a harrowing time figuring out their status with the threat of not being allowed to deal with the folio lingering. One ended up filling forms as online compliance had other conditions when the account was a joint one. A simpler thing would have been to take the customers’ details from the mutual fund and treat that as a default nomination (or no nomination) and then let the customer ask for a change. It is interesting that customers could also opt out of nomination, in which case insisting on everyone saying a yes or no looked out of place. Given that mutual funds holders have several portfolios linking the details of the nomination to broker or trading or demat account would have been simpler.

The agony for citizens does not end here. The recent decision of the government to make a KYC for Fastag borders on the ridiculous. Using cash was time consuming and replaced by the Fastag. The identity of the person was irrelevant as there are no financial implications in terms of black money or audit trail as the amount involved is insignificant. The objective of the government is to earn a revenue which happened irrespective of how many Fastags were linked to a vehicle. Now, the onus is on citizens to comply with the KYC with the threat of being blocked hanging. Clearly there should have been serious thinking of this measure. In fact, with the government already working on abolishing the Fastag with vehicles being charged for the distance travelled and the number plates being gradually changed to chip-based ones, this KYC step smells of irrationality. It is as ridiculous as saying that anyone booking an entertainment ticket should have a KYC in place!

One can recollect the order being passed almost two decades ago that all vehicles had to change the number plates of their vehicles to white with the number written in black. The threat was again there that non-compliance would mean being fined by the police authority. More recently the rear seat belt was made mandatory after the accident of high profile persons on the road. The absurdity here is that public taxis and autos are exempt when they are the ones ferrying the public and run often decrepit vehicles that are unstable. In all cases citizens are made to go through harrowing times with the threat of penalty always accompanying them.

The system of getting a passport renewal borders on the hilarious. The passport is used to get an Aadhar card. Once procured, the Aadhar card has to be shown for a passport renewal. The police verification, which is an avenue for the cops to take money from the customer at home, again asks for the Aadhar before signing off. Can this not be an automatic process?

These are the travails of citizens when dealing with rudimentary services. Hence when there is a lot of noise on the new airport in Navi Mumbai, it can lead to trepidation for air passengers. In most countries where airports are located 50 km or more from the city, there is a rapid transit metro/rail system to move people in less than 30 minutes. But in India little consideration is paid to connectivity. Hence the metro system in Mumbai faces challenges of how passengers move to their destination once out of the station. This will be ominous for the new airport which has absolutely no metro connectivity to the rest of the city. This will make it cumbersome for passengers to travel to and from the airport which will involve a lot of time and money.

The major takeaway is that citizens as customers are always put to a lot of inconvenience by some authority or the other. There is always a justification for the rule, but somewhere along the way the implementation is tardy and lacks empathy. The assumption is that the customer or citizen has to comply or face the consequences. This form of governance needs to change and policies thought through more carefully.

The line between finfluencing and free speech is blurry: Mint 18th January 2024

 

India's debt pie needs watching: 17th January 2024 Business Line