Monday, February 17, 2014

If wishes were horses voters would be riders.

The Budget is neither Vote Catching nor Vote on Account

Vote on Account Budget 14-15 presented today is more an accounting than budget as all the income and expenditure for the next six months has to be spent on account. What the Union Finance Minister has done is gimmicks or jugglery of figures when it came to Fiscal Deficit. He postponed payments due during the last three months and demanded advance payments of dividend from all the banks and the PSUs and even asked the RBI to transfer its surplus to contain the deficit. In the process what would happen is that the government that comes to power has a responsibility to pay up all the pent-up dues and forego all the receipts for the six months April –October 2014 if they are at the expected level because they were all on the basis of some assumptions of revenues and expenses projected for the next financial year. He is for sure going to handover empty treasury to his unknown successor.
Nobody knows how the domestic and global environment would turn out. But the hope is that it would be better if we are to go by some global trends.

As for the country, Agriculture growth has reached the benchmark of 4%. But manufacture growth is a matter of serious concern at a negative 0.6%. Services sector growth is way behind a double digit figure and hence the expectation of 4.9% growth this fiscal behind last year. When the real growth rates unfold, as we saw the revisions of the previous years going southwards, the future may prove less than the 4.9%.

Inflation, this period around every year the prices will be a few notches down. The food inflation is shown as 6.6% the lowest during the last 24months. WPI is shown at 3-4%. Official Inflation accounting and the actual price rise affecting the common man are at wide variance. Therefore, the sustainability of these figures viewed in the context of rise in fuel prices and gas prices is totally suspect, with formidable deficits ahead as indicated in VOA budget: Food security subsidy: Rs.1.15lakh crores; Fertiliser Subsidy; Rs.76000cr; Fuel Subsidy, Rs.65000cr. Plan Expenditure is Rs.5.52Lakh crores and the subsidy total just in those three heads is Rs.2.56lakh crores. There are direct tax dues of over Rs.4lakh crores and these are unlikely to be coming forth in the next six months. In a slow moving economy with depressing manufacturing sector and services sector, the revenues of the government are bound to take a hit.

Chidambaram has a knack of playing with banks and credit. He announced agriculture credit increase in the budget from Rs.7lakh crores to Rs.8lakh crores. The outflow is totally unrelated to budget. What one needs to look at is whether the interest subsidy and prompt payment incentive has been budgeted consistent with the outflow of Rs.8lakh crores budgeted. Here the figures indicate the net agricultural working capital credit flow would not cross Rs.3-4lakh crores. Education loan moratorium would hit the banks and not the government and therefore he could safely announce this. There is no budget flow to compensate the banks. In the context of Basel III where the capital shortfall is already staring at the banks, and with a huge Rs.4lakh and odd crores of NPAs and consequent provisioning on reclassification of assets, banks need heavy recapitalization in the next six months and the VOA budget conveniently ignores this aspect because the FM just does not have the needed money in any corner.

When do the sops reach the market? A minimum gap of three months: the elections would by then have been over. The new government would come to power. The Congress by public guess and the events unfolding now in Parliament, for sure should be aware that it will have to confine to the opposition benches. It is a fortuitous presumption if they access power at least in three or four more States with full majority.

The tax concessions announced may lead to some relief in capital goods sector. Is this enough to pep up the economy? The policy front is very sluggish. The deliverance is totally poor. Corruption has been endemic. The economic scenario is more depressing than in the 1990s in real terms. On the monetary policy front the improvements programmed would turn deliverables after a lag but only with due fiscal support. Neither the ambitious allocations nor expectations reveal the rational expectations of a VOA Budget.

If wishes were horses voters would be riders. The voter of today is more informed than today and he can’t be bullied by the poetic justice of the Finance Minister.