Union Budget - An Analysis of Pros and Cons

The highlight of the Budget 2015 is not the presentation itself by a Finance Minister who raised sky-high expectations. They may have been barely met as it always happens with most budgets - all stakeholders are seldom happy. The main thing that moved the needle in the budget has been that the NDA government tried to keep distractions to the minimum, kept the flames of hopes around big-bang reforms alive by building around the framework of fiscal policy while engaging on issues of unprecedented international interest - Agriculture, Subsidies and welfare for the poor, Income inequalities, Infrastructure development, and the Make-in-India theme. In that sense, the budget has certainly delivered - in setting the path of economic development in the direction of the right intent. But in dealing with the expectations from the market and the industry and the way it delivered in print, this year’s budget takes a leaf out of what the previous governments usually did over the last decade - keep it skinned to the bone, keep it light and keep minimum jazz in the budget - let the rest build outside the budget. That has been the credo of many Congress budgets and this year  is no exception. It is only the media, the journalists and the public at large who await the budget more than their own appraisal results and then, when the budget doesn’t deliver, raise holy hell on the outcome. 

The markets are the easiest ones to lick here. Thankfully, the bond markets and forex markets have taken their weekend break but the bazaar didn’t sleep and agonised over the outcome of the budget over the last few weeks - crept up within hours of the budget and then collapsed, then the shorts entered the market as the indices gyrated to the mezzanine interpretations of the semi-literate and the uneducated idiots on the Television who don’t understand the canons of taxation (which is why cigarettes, aereated drinks and drinking water got taxed more) from the canards of inflation and disinflation (Black money curbs are less inflationary than the creation of black money itself), or the contours of fiscal policy (did someone tell you that India has always been pro-cyclical in fiscal policy in the last ten yeas, so if you couldn’t raise excise duties last year it is because growth came to a grinding halt last year and if you had to raise excise duties this year, it is because indirect taxes have dwindled to single digits stupid, so if you don’t raise now, you will never be able to raise again from a lower base of Tax-to-GDP ratio and if you raised it now, you can bet on an economy to rebound which bolsters up taxes) or that fiscal responsibility can be a platitude  even if you adhere to fiscal deficit targets on paper so it is okay to have a lower target than a pious threshold of 3.6 per cent which is what the markets expected BJP government to accept but the MoF accepts 3.9 per cent of the GDP for the next year while keeping it at 4.1 per cent for the rest of this fiscal. In the end, however, Sensex finished higher and hopefully, more pundits will grasp the subtle nuances of the budget in the days to come and move on. Markets have seldom got it right on budget day - anyways, does it ever dawn to you that for the last several decades, ITC as a share is the best short on a budget day because tobacco bears the brunt of the indirect tax hikes and yet despite zombie adverts and gross warnings, smokers don’t give up. ITC after today’s carnage would have been the best buy of the season, but I am digressing here (and I don’t own ITC shares may I also disclaim but ITC after yesterday's fall would have been a perfect long to get back into).

The budget needs to be seen from the context of expectations and the efforts to move forward in many ways towards a better and resurgent India. Yes, it may have made TVs cheaper and non-economy fares costlier, it may have made cars and carbonated drinks costlier and the mobile phones and Yoga therapy sessions cheaper but understand the broad direction and the fact that fiscal policy framework is intact - the rest if it hasn’t come your way must be on its way.

1. Has it got any serious negatives? Not many, yes the taxes have to go up when India has a huge consumption base and Tax-to-GDP ratio is the best indicator of the same. Last year, they envisaged 10.8% Tax-To-GDP ratio which is hardly achieved because of tax buoyancy going down due to stalled growth and high inflation. So they raised indirect taxes, bulk of them on items which are bound to be price-inelastic (i.e., the buyer doesn’t stop buying at higher prices) like cinema, coke and cigarettes. Service tax has been raised from 12 per cent plus to 14 per cent but this subsumes the education cess earlier incurred with an irritation to use calculator. The logic is simple, India is 65 per cent Services economy in terms of contribution to GDP - so a higher service tax is a small price to get back tax buoyancy and in most cases, service tax is passed on to the consumer of service. If a service is competitive, the tax gets loaded to the consumer, if not, it gets bested - thats the difference between a service and a product. Similarly, increasing duties on cars etc. is good news because it will encourage foreign players to consider setting up ‘make in India’ plants to compete with domestic car players. Of course, the car prices have been depressed for a while and a surge in car sales will happen when the crude oil prices are plummeting. The good part of the budget, to summarise on this point, is that there are no serious negatives - General Tax Avoidance Rule  (GAAR) is deferred for another two years; exemptions on Long-Term Capital Gains in equity continue, disparity between tenure of bonds versus Debt Mutual Funds for the purpose of Long-Term Capital Gains remains giving incentives for investors to migrate to taxable and tax-free bonds in the secondary market and no further cesses except on diesel and petrol are considered. In many other areas, there is status quo - which is good news because it shows the commitment to business continuity and stability of policy framework.
2. Does it help the poor, promote growth, revive agriculture and infrastructure and help in generation of jobs? Yes, in many ways despite what the likes of Malayalam and Manish Tiwari talk about. The budget already made its intentions to build world-class low-cost homes in all slums in the urban regions which will involve corporates, now it plans to rationalise the benefits of contractual savings like pensions and insurance with linkages to more organised ways of defined contribution schemes with linkages to Health Insurance (Rs.12 premium per annum to get Rs.2 lacs Accidental Death Benefit Insurance) and National Pension Scheme. National Pension Scheme is counting upwards of Rs.73000 crores and getting low-income workers into the ambit of EPF and NPS is going to create efficiencies of scale and access to the best products in the long run. The tax offset upto Rs.4,44,520 of income is a booster to those who earn incomes of under Rs.40k per month. Yes, the middle-class hasn’t got a good deal in the incentives for savings but still access to higher medical insurance is a good initiative to fortify ourselves against unforeseen medical emergencies. Of course, we are disappointed that a fresh approach to looking at building nest eggs for the middle-classes could have been better. There are measures to ensure players to “make in India” with sops linked to investments and capex and there are measures that help set up start-ups, and encourage corporate investments etc. Of course, the corporate income tax reduction from the next financial year will also help in generating capex and employment opportunities for the poor. But there is a catch - the Bankruptcy laws are going to benefit entrepreneurs adopting an American model of capitalism - of hire and fire and re-surface after folding up. While we don’t know the progress of the various small corpus funds of Rs.50 crores set up in last year’s interim budget, this year the focus is better in infrastructure, disinvestment (which has never been part of the budget and anyways happening with a velocity of its own) and agriculture to foster growth and development. Subsidies are now going to be linked in the Aadhar, Jan Dhan and Mobile connection triangle created - which seeks to curb leakages. 17 crore number of such accounts gives a great base to start implementing cash-less direct transfers. The attempt to reinvigorate MNREGA, build a lakh of kilometres in roads etc. augur well for creation of jobs. Initiatives like Mudra Bank and the measures on Infra and agriculture might create positive impact. On the solar and renewables space, the government may do more outside the budget than just making a token mention - because there is focus on not only mega projects but also in encouraging foreign players like China and Japan and US. For example, when a leading company approached the Power Ministry to levy anti-dumping duty on the Chinese, it is reported that the concerned Minister remarked to the owner, “We want 100 times of your capacity, so we want the Chinese to dump their panels in Solar so that the prices will come down in the long run while building world-class capacities.” Thats the approach of BJP government in creating pro-business, pro-big-scale in projects. Hopefully, the budget will clear the decks for more installed power in all sources of energy. The recent tie-up between Dilip Shangvi and Suzlon Energy is another example how the BJP is collapsing friends to create giant scales to compete in the world and also to make India Infrastructure-heavy like China.
3. Does it curb inequality and Black Money? On intent, it does but a lot depends on how BJP will crater up the political establishment to move towards Black Money curbs. A new bill may buy more time before the obvious actions like incentivisation of cards for transactions. Both require political will which is not very evident of late in BJP. But on inequality, Chidambaram was wrong in his assessment of the budget. Jaitley fired a salvo which may be the first of sorts amongst G20 countries to impose surcharge for ultra-rich and the high-income earners. This is the Thomas Picketty style of copybook measure which won’t pinch the rich too much. One more complex Act  - Wealth Tax Act - goes, which reminds us of the fate of those in the past like the Estate Duty and so on. The fact that Wealth Tax Administration collected Rs.1080 crores last year vis-a-vis Rs.9000 crores expected to be netted from the surcharge shows why Wealth Tax failed.  Isn’t this a step in direction of removing inequalities? The BJP unlike the Congress never shies away from taking measures to simplify laws and junk vestiges of colonialism, inaction or canons of Adam Smith that the Western World is trying to shake off. Take the Fiscal Responsibility and Budget Memorandum Bill (FRBM). We heard the outcry for BJP’s minor slip in fiscal deficit to 3.9 per cent as against the 3.6 per cent of GDP.  How can you keep the fiscal deficit at constant levels when the business and economic cycles change and move away from growth to stagnation? One of the commonly pointed out lacunae in the FRBM, 2003,  amended in 2012 is that the deficit could not expand in bad times and the government did not have to generate a surplus in good times. If only the government can undertake fiscal expansion during bad times, NDA government will find it easier today to show higher growth measures and hence slip on the deficit higher, now the leeway as per the Act is just 0.3 per cent per year which is already frowned upon by the critics and the opposition. The government still has to borrow unto Rs.375000 crores in the market putting a slightly upward pressure on the interest rates. But the budget set the tone aggressively stating they will re-look at both the FRBM and the Monetary Policy framework of the RBI  - giving a tough message to  Raghuram Rajan to cut rates soon. 
4. Does it have big-bang reforms and attention to detail? To the cynic, they don’t seem evident. But look at examples in the budget which are hidden in clauses not so salient. Like the collapsing of the FDI and Foreign Portfolio Investments, creating an easy trajectory for capital flows to seek quality assets in India. Or, the Gold Monetisation Scheme with its four variants - it can be a game-changer in the long run with an estimated one trillion dollars of gold reserves unofficially held by Indians in their bank lockers and sofa foams. It is time to get the gold out of the closet and recycle it to generate employment and business opportunities. Last year, savings in physical assets like gold and silver were 11 per cent of GDP outweighed 7.3 per cent in financial assets by households. Gold and other valuables slipped from 17 per cent levels but the drift has always been to hoard gold. The scheme will “monetise” our gold for productive uses by giving an option to earn 2 per cent interest on gold deposited in a Metal Account. Suddenly, from TTD to Trivandrum, temples and hoarders of gold may put a beeline to deposit more gold lying under the custody of snakes and officers. Another measure, the move to merge FMC and SEBI as one regulator - giving a filip to the country’s fortunes in becoming a formidable player in capital markets and commodities markets since India produces and exports many of the leading commodities traded on exchanges from Chicago to London. It was on the cards but timing in the budget allows the regulator like SEBI to become stronger. Yet another measure is to deepen bond markets by amending the relevant sections of RBI Act, this year more money has been poured in by the FIIs into the Bond Markets than the stock markets -and the drift makes it clear for investors to move into Corporate Bond market. Another instance of attention to detail: arming the NBFCs (Non-banking finance companies) to seek the refuge of Sarfesi Act in recovering the loan defaulters. This will go a long way in strengthening the financial system because NBFCs comprise 9 per cent of bank deposits and have a sizeable loan book, this measure will bring further efficiency and accountability to the erring defaulters. Measures like these demonstrate the budget looked at issues of pending action. Another big-bang announcement is two-pronged: One, that the the much-awaited Goods Service Tax (GST) is going to be ushered in from 1st April, 2016. And two, as a precursor to that, the budget re-iteraed that the States will now get an unprecedented 42 per cent of the share of taxes - getting the states to the right side of the Central Government is a key to implementing GST. And the budget needs a high five on that.
5. Will FIIs like the Budget? Will they put more money in the market? Hard to say, but the FIIs want in summary, macroeconomic stability, fiscal discipline, growth in the economy (now projected at 8-8.5 per cent) and ease of doing business in India (things like relocation of fund management in India not inviting taxes will be liked by them). Both Debt and Equity and now, even Alternative Investments like private equity and real estate seem to be entering a zone of sweet spot in the months to come. Moody’s has already given us retained rating. If the oil prices firm up at these levels (the FM's calculations of the fiscal deficit peg the oil at $70 levels) and stay there for some time, the Budget and its initial fizz will soon be forgotten by the pundits and populace - and India will be back to business mode if BJP works at de-bottlenecking the rest. As long as the government works towards improving the life of the common man in providing better health care, education, and means of livelihood - it has many ways of doing this by enlisting the help of corporates, unleashing the supply-side economics that expands the size of the economy and in the process push the infrastructure in key focus, then growth will always happen. For that the Budget is but a small step - but not the only step. In that sense, this budget is one of the better budgets to come in recent years - it has a great alignment of intent, clarity and the blueprint to make India achieve its economic potential. There maybe misses here and there, but they are not rectifiable in the medium term. What I also appreciate is that for the first time, the FM has acted on many suggestions given in the Economic Survey a few days before the budget. This rarely happens and must be lauded thanks to Arvind Subramanian.

If all the stakeholders of the economy - households, industry and business, consumers, savers and investors understand the cross-implications of the actions proposed in a budget with a 360 degree view and an understanding of how economics work, the future will be better for all of us - and politicians won’t succeed in rabble-rousing us from seeing the reality and the work-at-hand.

Disclaimer: The views are personal and no way reflect the views of the organisation the author works for.

#UnionBudget #Budget2015 #FMJaitley #Budget #IndianBudget #ArvindSubramanian #Rajan #ArunJaitley 

Raghuram Rajan is Right in post-poning Rate Cuts

The markets can take a walk for today but they will come back to re-appreciating what RBI Governor Rajan did when they can. Even if Rajan hadn't made the signal announcement on rate cuts, we better listen to what he says. In the 15 months since he took over, currency has stabilised, stock markets have rebounded to lifetime highs, bond markets have seen bigger FII participation than stock markets, gold imports have fallen until recently, and bond yields have fallen over 150 per cent insinuating a big fall in sovereign borrowing rates which should augur well for the borrowers generally. Today, the INR Bond has become one of the best fixed-income investments in the world - giving positive dollarised returns - better than many G8 economies. Even if the Fed Taper is pre-dated in 2015, Rajan is leaving no stone unturned to ringfence the economy from shocks coming from hot money flows. Remember the last time he warned a few quarters back: "We must use this window of capital flows to strengthen our economy". The markets were not expecting a rate hike then. He hiked for a solitary reason to attract short-term inflows and prevent a run on Indian bonds. Again, two quarters ago, he warned the world is not yet out of the woods as if he got premonition about a second crisis coming. The last time around, he was the only one who saw it coming  - earning the wrath of Gods like Greenspan and Goldman CEO. This time not many paid heed to his warning again but we just saw the European unravelling and the rumblings in the US and Japan forcing most Central Banks in the world to think independent of each other, to fend off their wounds. 

I followed his press conference closely today and feel there is a lot he says that is still work-in-progress before India can expect a rate cut even if the path is now more or less visible. His concerns are valid: Core Inflation is still high, we got relief on Crude Oil prices yes, but we may again see a sharp shoot-up in gold prices putting pressure on the current account deficit, we have yet to see the clouds lifting on the road ahead for savers and producers, we have yet to see the big banks cut rates despite bank rate lowered some time back, we have to still clear the projects on Infrastructure and clear the cobwebs on coal and power issues,  the issues of reducing the fiscal deficit, we have to address the issues of accountability of big promoters running away with bad debts (a quick rate cut will once again make the banks run with the wolves again) and we have to address the whole issue of return of confidence on financial market investments. Anyone who read the book "Faultlines" by Rajan, especially the chapter on India will find all these concerns well-highlighted by him. I am sure he is not going to give away the concessional cuts Corporate India unless he addresses these bottlenecks or fixes themfor good. He has talked about why growth is crucial for India but he wants to see growth on a sustainable path - a path that will not just appear as a false-start but run course for several years taking the step-up approach from 5.5 to 6.5 per cent and beyond in GDP growth. 

Unlike the previous RBI Governors, Rajan has an immaculate gentlemanly nature to explain how his policy translates into action and what it means for all the stakeholders in the economy. He was not talking down to the audience today like Dr.YV Reddy,  he didn't make it sound like rocket science like Dr Rangarajan and he was not sounding amateurish and out-of-control like Mr Subba Rao - although all of them gave RBI its much-revered autonomy better than three-fourths of the world central banks. Indians in general and markets in particular should weigh his words more seriously because this is a home-grown talent that is being sought after by world leaders. When the BRICS Bank was set up early this year, the Chinese Premier sought our PM's green signal to make Dr Raghuram Rajan its first Chairman. Modi rightly said no because Rajan has been a lucky find for India. Let's not push our luck fast by pressurising Rajan to do tokenism. He is capable of more than that. Let him decide that. If he has his way, now that his batchmate has joined Ministry of Finance as Minister of State Jayant Sinha, then the duo will herald a golden era for Indian Banks and Financial Markets and also restore the confidence of the savers and investors in the Indian Rupee assets. Amen.

#RaghuramRajan #RBI #CreditPolicy #RBIMonetaryPolicy #RBIGovernor

Farewell Dr Manmohan Singh, history will be kinder to you tomorrow.

"Get me the number of Prof. Manmohan Singh", PV Narasimha Rao ordered his PA. His PA didn't know the number. Rao said,"I want him to be called in 10 minutes. Find out from wherever, he teaches at Delhi University." PA found his number by dialling some contacts and connected Dr Singh to Narasimha Rao.

It was 6 am. And Rao came on line to speak to Dr Singh. "Kya Professor Saheb. Bacchon ko Padhaare kyaa? Can you meet me at 9am today?" Dr Singh spoke in monosyllables of "yes" or "no" right from then. He said "yes" to Narasimha Rao's request. The meeting turned into one of India's most dramatic inflection points. For the first time, an RBI Governor whose signature appears on a one rupee note becomes India's new Finance Minister  - and the rest has earned both Narasimha Rao and Manmohan Singh a place in history books. The duo alongwith a few other hand-picked talents took decisions that transformed the economic landscape of India forever.

Dr Singh credited most of his success and boldness of decision-making to Rao's unflinching support. But when the time came for Rao to bid a goodbye to this world amidst unprecedented machiavellian drama and back-stabbing, Dr Singh, as per reliable sources did not even visit the hospital ward of Narasimha Rao before he passed out. For all the talk of "structural adjustments with a human face", Dr Singh didn't have the courage to bypass Sonia to even call on a person who he always called as his mentor.

Twenty years after Narasimha Rao cherry-picked Singh to India's most prestigious Ministerial portfolio, Dr Singh did a similar gesture in beckoning Dr.Raghuram Rajan to India, to test his erudition, prescience and academic brilliance in the laboratory of the Monetary Policy at RBI. History will judge Dr Singh in different light than the judgements passing on him now in the heat of the bittermost election just as history now sheds kinder light on Narasimha Rao's Prime Ministership long after the suitcase scams and JMIM bribery cases faded into oblivion.

While individual achievements in academics, intellectual prowess and the body of contribution to Economic thought-leadership besides the economic reforms unleashed as FM will take many more years to deep-mine, his ascent to Prime Ministership  has been his finest hour and most fallible moment. If you take the history of most Congress Prime Ministers outside of Gandhi dynasty annointed by a demagogic group of politicians, then Manmohan Singh has taken the brunt of brinksmanship and blindmanships all on himself unlike the rest. Guljarilal Nanda was always a standby PM. Whereas Lal Bahadur Shastri actually broke the back of Indira Ganshi to the point of almost driving her out of India to London because he took no nonsense from anyone, least of all encourage the nepotistic ways of Indira Gandhi.  That leaves Narasimha Rao alone who took on the most umbrageous steps of taming the Gandhi parivar, taking baby steps and later giant strides to thwart the dynastic rule in its shameless march. He was checkmated by a confederacy of dunces and a conspiracy of sycophants. That must have played out heavily in the mind of Dr Singh as he took on the role of 'The Accidental Prime Minister'. He became silent and abrogated the responsibility of the chair of Prime Ministership by being blind to all that is happening under his ecosystem.

He may have avoided the wrath of Sonia and the party colleagues but by becoming a Bakra for someone else's surreptious ways and ruthless pursuit of power without accountability, Dr Singh has earned only shame and sympathy in his last few years. It could be a "Saturn" dasa but his redemption in history can only come after time obliterates his scam-ridden second innings from public memory. If the price of silence to unbridled corruption and loot of national wealth is a tenure to India's third longest-serving Prime Ministership, Dr Singh has earned his place too in history books in more roles than what any son of a humble upbringing could have got. For that, Manmohan Singh gets my toast tonight. If only his personal integrity and scholarship and his crisis-management during the tumult of 1991 and again in 2008 had got a better say than his conscience which remained a mute spectator to the misdeeds of Congress, he would have slept better tonight.

Dr Singh's story reminds me of the quote which sums up what happens when you don't speak your mind:

First they came for the Socialists, and I did not speak out-- Because I was not a Socialist.
Then they came for the Trade Unionists, and I did not speak out-- Because I was not a Trade Unionist.
Then they came for the Jews, and I did not speak out-- Because I was not a Jew.
Then they came for me--and there was no one left to speak for me.

A sad story. But as I said, history will judge Dr Singh better than what clouds our recent memory of his achievements.

Duvvury Subbarao's farewell speech puts RBI on top.

RBI Governor Mr Subbarao may not have earned the popularity that other Governors have earned but that maybe more because of the misgovernance of the UPA Government. Subbarrao's biggest follly is that he tried to fight the wrong dragon (inflation) while killing growth. But the dilemmas of Modern Central Banking in Emerging markets is getting tougher by the day. I have interacted with atleast two deputy governors (S.Venkitaraman, S.S.Tarapore) and one RBI Governor Dr.YV Reddy (I was travelling first-class next to him in a flight from Mumbai to Hyderabad). The minds of these people are quite different from the minds of businessmen and professionals and housewives and students in our midst. They have to track so many variables and have to take decisions that may not be pleasant to most people and yet be guided by impact on the society as well. While I will share my experiences of my interviews with such top-brains later, this one is to put in right perspective the achievements of Subbarao after his farewell speech recently.

1. He has extended the streak of fearlessness and autonomy set forth by the preceding Governor Dr.YV Reddy. He was always clear that for every step the RBI takes, the Government has also to match it with fiscal initiatives. Too bad, the UPA Government slipped on many counts in this ground and wants to blame everything on RBI for the follies of the slippages on GDP growth, the exchange rate, etc.

2. Mr Rao, I believe, carried a resignation letter in his pocket everyday. So, nobody could have arm-twisted him to do anything that was not in principle appealing to his perception of Central Bank sensibilities. Neither the nincompoop Shankar Sharma with his unethical market behaviour or his un"bear"able fixations, nor opposition leaders like Yashwant Sinha and Arun Jaitley nor businessmen like Ambanis and Kris Gopalakrishnan nor PM or his FM could influence Mr Rao to curry favors on easing of monetary policy.

3. The incoming governor, Raghuram Rajan, will have a lower base of expectations and a weakened currency regime and an economy that will eventually climb the wall of worries. But the times that Subbarao managed are the most difficult and will help him earn more than a footnote in history even if he is thanked less now.

4. Inflation, is clearly, under control but beyond a point, if it refuses to die down, there are many factors at play - supply-side bottlenecks, reckless fiscal policy, exogenous forces at play, Fed's exorbitant privileges, etc.

5. Mr Rao is the first governor to open the doors of transparency and increase the frequency of interactions with public. He started the practice of monetary policy review eight times a year instead of four-six reviews a year in the previous stints.

6. Subbarao also participated in the most enlightened debates on central bank policies and its transmissions on the broad economy besides opening the Pandora's box on corporates getting new bank licenses, role of CRR etc. Of course, the debates that RBI had with the top guns at SBI are stuff of legend now - but that is only to be expected because SBI always felt it is more senior (and hence more ancient) than RBI in age.

7. Subbarao, like Dr.YV Reddy, opened the culture of TV debates and informal talks and continued the respect of peers across G-20 countries. He has also acknowledged the complexity of having multiple regulators and created the framework for right debates between the relevant regulators. If the US has today got six regulators, RBI also has created room for co-ordinated maneuvres. 

8. Willingness to act tough and learn from the history of banking crises has helped Subbarao to earn credibility. You should read his prescient essay on Basel-III norms to understand the mind of the man. Ministers like Chidamabaram who sit on intellectual tags and cannot steer clear of personal and career conflicts will never be able to hold a candle to men in public institutions like Subbarao who have nothing but unquestioned integrity, broad experience, nonconflicted judgment devoid of pollitical partisanship and the will to act. 

9. One fatal flaw that undermined Subbarao's endearing appeal is the rapidity with which he raised interest rates while cutting the interest rates in a lazy manner. He has realised the mistake but with grave consequences for the economy. He would have loved the unleashing of animal spirits had he taken more than baby steps in cutting interest rates for the little leg room that showed up somewhere in the period from September 2012-June 2013 but that proved to be a remiss too costly to miss.

10. Subbarao, despite that one fatal flaw, has kept the flag of autonomy in a developing country Central Bank unusually high. Let there be no doubt about his competence, his sense of humor, his resolve to tame inflation which was touching double-digits, his integrity and his independence. If RBI has earned its spurs today as one of the most respected central banks on the planet - whose working papers, whose policies and methods have become beacon lights of textbook economic responses, then let's credit Subbarao for joining the ranks of the great institution-builders.

 Subbarao is one of the commonest names in Telugu, it means the lucky one in Telugu. Even though Subbarao's stint in RBI has proved unlucky for India, it is not uneventful. In another country, another time, there would be a testimony of sorts. But this is India, we are like this only. Goodbye, Mr Subbarao. I will end with the words of Paul Volcker that clarify on how to size up crntral bankers: "The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned—managing the supply of money and liquidity. Asked to do too much—for example, to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth, and full employment—it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within its range of influence, then those other goals will be beyond reach."

Railway Budget 2013

Congress got to present its first Railway Budget in a while. It looks neat given the constraints. I am not too keyed up about the cosmetic announcements like new trains and wi-fi facilities in select trains (as long as I dont travel in them). But I notice a distinct change in reformist measures:


One, Operating Ratio is lowered from 96% to 88% which means this will ease off the fiscal deficit for FY 2014. Its a sign of increasing efficiency and rationalising unnecessary expenditure.

Two, for the first time, freight traffic is linked to fuel price hikes. This means you can't rule out future price hikes as and when fuel prices go up. Its a courageous decisionn that will again bear out favorably on deficit concerns.

Lastly, some steps are taken to increase financial management best practices in the 1.4 million odd workforce organisation, ensure those who retire midlife get recouped materially and improve the safety record of Railways overal. These are all welcome changes and must be appreciated despite our continuing cynicism aggainst a corrupt regime.

The British have laid 95 per cent of the Railway lines we use in the country - and for many years, Railway Budgets (including Congress) became titular exercises filling the pink paper stories. After a long time, I find some steam in the engines. Look beneath and there are strategic gems as well here and there: Arunachal Pradesh is being reined into Railroad network in order to thwart the ambitious Chinese staking claim on its sovereignity. Also, we should not infer too much from this thing called Railway Budget. The total expenditure is to the tune of Rs.140,000 crores, while our GDP is around Rs.80 lac crores - so Railway Budget is just 1.6/80 = 2 per cent or less than 10 per cent of our GDP.As I keep saying, the Congress may be a bunch of rogues but every tough economic decision are taken by them first before others can take credit. Over now to the Economic Survey 2013 - for the first time, penned by Raghuram Rajan, the masterly author of "Faultlines" arguably, the best book on the Crisis. See you tomorrow.

Panchatantra and Its Usage

If you read "Panchatantra" - the immortal collection of stories told by Pandit Vishnu Sharma to impart wisdom to the King's imbecile sons, there are countless gems of wisdom - which helps one to save stitches in time. One of the golden rules propounded in "Panchatantra": Never get closer to the Ruler (King or Prime Minister or Chief Minister or Ruling Government) within two degrees - or you will ...repent. Something to that effect. What it means is that even if you are doing business or in service, better stop at three degrees lest you be associated with all the highs and lows that come with the governmental connections. The rule will apply whether you are in telecom, mining, special-economic-zones or infrastructure development as in ports and airports.


In his book "Faultlines", prof.Raghuram Rajan elaborates in one of the chapters that most of the Indian Billionaires (exceptions abound) in the list of Forbes 400 have climbed the fortunes of business by being closer/almost in proximity to the political class. He could be averring to the follies that followed in 2011 of scams galore and the imprisonments that embraced those who loved the royal treatment or rather royal connections. Rajan, innocently reminds the subtext of breaking the King's rule of "Panchatantra". Forget that rule and you are inviting trouble and fall in fortunes. It doesn't require astrological knowledge to see why instances of being cosy with the kings have landed more businesspeople into problems whether in AP, Karnataka, Maharashtra or Orissa. Fortunes and reputations of businessmen and their hordes of advisors are in tatters because of a jingoistic and blind pursuit of projects sometimes in direct partnership with the powers that be. Panchatantra is timeless if only we follow. Pleasure to read it anytime - the one I recommend and have been re-reading is written by Arthur W Ryder. (Translation)