The Union Budget 2015-Come Fly With Me

 

 The Union Budget 2015- Come Fly With Me

 The budget is not just a collection of numbers, but an expression of our values and aspirations-Jacob Lew

The Finance Minister said, after setting the context for this budget, that it was ‘India’s chance to fly’. Long in the anticipation, this first full budget of the Modi Government has brought together many of the promises of the electoral campaign with the traction of delivery.

There is growth with jobs, combined with infrastructure projects expected to boost the GDP by at least 3%.  In fact, the GDP is expected to be at 7.5% in 2015, going up to 8.5% in 2016, and on to double- digits, thereafter.

Similarly, the fiscal deficit, maintained at 4.1% this year, is projected to reduce to 3% over the next three years. The Current Account deficit, presently at 1.3% , is likely to go into a surplus soon.

The Consumer Price Index (CPI) will be contained within 5%. The RBI, may start cutting interest rates afresh. Industry would like to see it reduce by at least 4%, with the first 1% in 2015.

The economy, as Arvind Subramanian put it, is in a ‘sweet spot’, caused in some measure because of soft petroleum prices and global deflation.

Nevertheless, the Centre now only keeps 38% of Government revenues, while the States, in line with Modi’s emphasis on greater autonomy and federalism, get 62%.

There is a crack-down on black money, with jail terms of up to 10 years, and punitive 300% penalties. The parallel economy may now think it wise to start merging with the official one. Benami property buying too will be fraught with danger because the Government intends taking a very dim view of it.

Incentives have also been announced to monetize an estimated 20,000 plus tonnes of gold held in private hands, via Gold Bonds, India’s own gold coins etc.

Individual PAN will now be recorded for transactions above Rs. 1 lakh. This flavour of accountability is continued with the corporatization of ports with their substantial land banks, and disinvestment, including loss-making PSUs, to the tune of $6.7 billion.

There is a push to deepen the debt market to boost the foreign investment under all heads from its present $ 55 billion. There is a bankruptcy law coming up and A Debt Market Board with greater integration with SEBI.

The Government will invest an additional Rs. 70,000 crores into infrastructure and raise far more via a slew of newly announced tax free bonds. There is also a $ 40 billion ambition for Defence, but this will have to be enhanced, in both money and technology terms, by foreign collaborators.

For the first time ever, there is a real effort to establish a universal social security foundation for the poor, inclusive of health insurance, life insurance and a pension.

Foreigners are delighted. This thrust is coming from the one ‘bright spot’ in the global economy as international rating agency S&P put it.

A prospective GAAR has been kicked down the pike by 2 years.  GST, the indirect tax structure that will both raise the revenue intake and reduce corruption and evasion, will be implemented by April 1, 2016.

Wealth Tax stands abolished. Corporate taxes will be reduced from 30% to 25% over the next four years. Income tax exemptions have been raised to add up to Rs. 4.42 lakhs if availed in full. This, after the tax slabs themselves were raised in the ‘half-budget’ of June 2014.

In welfare schemes, the  approach is to cut leakage and not the subsidy itself via massive direct transfers and digitization. Old UPA schemes like MNREGA  have not only been continued but funded generously.

Rural credit has been enhanced right down to the micro level and the vast post-office network will be organized into ‘payment banks’. The mission to provide housing for all has been given definition. There will be 2 lakh urban homes and 4 lakh rural homes of about 800 sq.ft size that will be built by 2022. All will have round-the-clock water, electricity, and access to a road.

Mostly stable indirect taxes, have been augmented with a consolidated Service tax at 14%, up from the earlier 12.36%.

Tourism, long on its indifferent growth path, was vastly boosted in 2014 with Modi’s initiative to allow 43 countries to avail of a visa on arrival. This is now going to be enhanced to 150 countries.

Ease of doing business is demonstrated by consolidating 14 different clearances required at one window.

 Higher educational institutions and health facilities have been announced, with special care to target those states where the BJP expects to  make  new inroads, such as Assam, West Bengal, Orissa, Bihar, as well as those where a thank-you is in order, such as Arunachal Pradesh and J&K.

Youth loans, R&D, clean energy, incentives for the local electronics industry, the laundry list is long and deep, but it has to said: This is a comprehensive Growth Budget.

For: NitiCentral

 (818 words)
February 28^th, 2015
Gautam Mukherjee

 

The Union Budget 2015- Your Lust As Her Will

 

The Union Budget 2015- Your Lust As Her Will

Your Lust As Her Will- Gaius Valerius Catullus

 For lovers, a tight confluence of mutual Lust and Will makes for powerful frisson. Long in the anticipation, this first full budget of the Modi Government has brought together many of the promises of the electoral campaign with the traction of delivery. The Indian media did not take too long before dubbing it a Super Budget.

The key take-aways are in terms of growth with jobs, both rural and urban, combined with development of infrastructure that should boost the GDP by at least 3%.  In fact, the GDP is expected to be at 7.5% in 2015, going up to 8.5% in 2016, and on to double- digits on a sustainable basis, thereafter. And even at the projected 7.5%, India becomes the fastest growing economy in the world, albeit on one-fifth the base of China.

Similarly the fiscal deficit, maintained at 4.1% this year, is projected to reduce to 3% over the next three years. The Current Account deficit, presently at 1.3% , is likely to go into a surplus perhaps in the course of the latter quarters of 2015 itself.

The Consumer Price Index (CPI) is expected to be contained within 5%, and inflation being a major obsession with the RBI, may prompt it to start cutting interest rates afresh very soon   now. Industry would like to see it reduce by at least 400 basis points, or 4%, in the course of this administration, with the first 1% in 2015. Let us see if these wishes do become horses to do their bit for the revival of the investment cycle.

The economy may not be roaring like a ‘tiger’, as yet, as Arvind Subramanian put it yesterday while presenting the annual Economic Survey, but it is headed that way. Subramanian too spoke of double-digit growth, and being in a ‘sweet spot’, caused in some measure because of soft petroleum prices and global deflation.

In the Budget, a crack-down on black money, held domestically and abroad, with jail terms of up to 10 years, and punitive 300% penalties, was announced. The parallel economy may now think it wise to start merging with the official one. Benami property buying too will be fraught with danger because the Government intends taking a very dim view of it.

There is also some talk of a voluntary disclosure scheme coming up before the necessary laws are enacted, and this may provide a new revenue stream to the cash-strapped Government. The Centre now only keeps 38% of Government revenues, while the States, in line with Modi’s emphasis on greater autonomy and federalism, get 62%.

Incentives have also been announced to monetize an estimated 20,000 plus tonnes of gold held in private hands, via Gold Bonds, India’s own gold coins with the Ashok Chakra motif, Government administered loans against physical gold etc., all designed to tap into this massive resource for the benefit of the economy.

Individual PAN will now be recorded for transactions above Rs. 1 lakh. This flavour of accountability is continued with the corporatization of ports with their substantial land banks, and disinvestment, including loss-making PSUs, to the tune of $6.7 billion.

There is a push to deepen the debt market to boost the foreign investment under all heads from its present $ 55 billion, and grow it manifold. There is a bankruptcy law coming up and A Debt Market Board with greater integration with SEBI.

The Government itself will be investing an additional Rs. 70,000 crores into infrastructure and raising far more via a slew of newly announced tax free bonds. There is also a $ 40 billion ambition for Defence, including ‘Make in India’ for the sector, but this will have to be enhanced considerably, in both money and technology terms, by foreign collaborators.

There is also the long and somewhat detailed emphasis on integrating the facilities for Bharat with those offered to India. For the first time ever, there is a real effort to establish a universal social security foundation for the poor, inclusive of health insurance, life insurance and a pension.

Foreigners, who are expected to put in the big money much beyond what this budget can afford, are delighted. This is nearly comprehensive and forward looking, a growth budget coming from the one ‘bright spot’ in the global economy as international rating agency S&P put it.

A prospective, as opposed to retrospective, GAAR has been kicked down the pike by 2 years at least. The UPA’s Direct Tax Code has been mined for its gems and given a quiet burial. GST, the indirect tax structure that will both raise the revenue intake and reduce corruption and evasion, will be implemented by April 1, 2016.

Wealth Tax stands abolished. Corporate taxes will be reduced from 30% to 25% over the next four years. Income tax exemptions have been raised to add up to Rs. 4.42 lakhs if availed in full. This, after the tax slabs themselves were raised in the ‘half-budget’ of June 2014.

Almost every section of the Indian public has been addressed including the disabled. The emphasis on pensions for the poor is part of what Finance Minister Arun Jaitley called ‘Banking the unbanked, funding the unfunded’. The abolition of the essentially vindictive Wealth Tax, a dinosaur from classic socialist theory, in favour of a modest surcharge of 2% for taxable income above Rs 1 crore per annum is a sagacious move.

A greater emphasis on health care for the middle class with an exemption of premium of Rs.25,000/- up from Rs. 15,000/-  recognises the increasing cost of private healthcare run for profit.

In welfare schemes, the laudable approach is to cut leakage and not the subsidy itself via massive direct transfers and digitization. Old UPA flagship schemes like MNREGA to provide minimum employment for the rural poor, have not only been continued but funded generously.

Rural credit has been enhanced right down to the micro level and the vast post-office network across the country has been pressed into service  as a ‘payment bank’. The mission to provide housing for all has been given definition by specifying 2 lakh urban homes and 4 lakh rural homes of about 800 sq.ft size that will be built by 2022, all with round-the-clock water and electricity, and access to a road.

Mostly stable indirect taxes, have however been augmented with a consolidated Service tax at 14% up from the earlier 12.36%.

Tourism, long on its indifferent growth path, was vastly boosted in 2014 with Modi’s initiative to allow 43 countries to avail of a visa on arrival. This is now going to be enhanced to 150 countries.

Ease of doing business is demonstrated by consolidating 14 different clearances required at one window.

Higher educational institutions and health facilities have been announced, with special care to target those states where the BJP expects to  make  new inroads, such as Assam, West Bengal, Orissa, Bihar, as well as those where a thank-you is in order, such as Arunachal Pradesh and J&K.

Youth loans, R&D, clean energy, incentives for the local electronics industry, the laundry list is long and deep, but it has to said: This is a good budget.

For: Swarajyamag.com
 (1,187 words)
February 28^th, 2015
Gautam Mukherjee

The Union Budget 2015-Let's Invite Something New

The Union Budget 2015- Let’s Invite Something New

 

Let’s invite something new/by unifying our silences- Rainer Maria Rilke

The key problem with this Government’s soaring ambition is a lack of resources. Not only did it inherit a scorched earth economy, but it had made a bushel full of promises. Over the last nine months, it’s been probing the possibility of raising finances from friendly foreign countries. There are billions in pledges. But nobody feels comfortable if you won’t put in quite a bit of your own lolly. It makes one feel touched and insecure. But the money required is vast. And letting the fiscal deficit run away with you doesn’t work for anyone except  America.

But the health report is suddenly good. Growth; deficits under control, inflation contained, interest rate cuts in prospect.

One of the hidden messages of this Union Budget 2015, hiding in plain sight, is also an ambition. But it is to merge the black economy with the white one, and unlock the value of the Indian obsession with gold. If this happens, you’ve got a force multiplier that could put triple the resources, free and clear, on the table. This is a rich country disguised as a poor country after all.

Can it happen? A proportion of ambition is always realisable. How much, is, of course, the difference between destiny and fate. Economist Omkar Goswami, on the other Goswami’s show, kept hollering that 7 % of GDP , allocated to this and that, was lying unutilized in Government coffers. This needs to be put to work, he said. I thought the Government knows all about this, and uses this money tucked away in its biscuit tins on the upper shelf, to take care of its shortfalls and miscalculations. It is kept unutilized for a purpose. If Goswami knows about it, so does the Sarkar. Everyone needs discretionary money.

Having said all this, Modi and Jaitley did a humdinger of a job with what they apparently had. They boosted infrastructure, laid out a road map to enhance the dignity of the poor, spread the money around over all their concerns and hobby horses, cut taxes, boosted defence, health, education, clean energy, and encouraged India Inc. too.

Thoughtful people who don’t want to praise this Government, ended up calling it a good budget, even a first class one. Nobody called it big bang. Maybe Hawking has stolen that particular metaphor. But there is a great hope in the air again. Talk of double-digit growth, low deficits, poverty elimination. No luddite inheritance tax, no wealth tax. Cut in corporate tax.

Sunday, the J&K Government is being sworn in. The budget has promised it manna. A week from now, will the union budget still contribute towards Modi’s aura dented by Kejriwal?

Nobody is accusing this budget of hot air. Strange, considering some persist in calling it anti-poor, but not with too much confidence. Between Prabhu’s spirited performance two days ago, Subramanian’s nerdy assertions yesterday, and Jaitley’s hard working evidence today, the Modi train is firmly back on track.

 For: The Quint

(500 words)
February 28^th, 2015
Gautam Mukherjee

 

 

Demystifying The Land Aquisition Ordinance: RELIEF & REHABILITATION

 

 Demystifying The Land Acquisition Ordinance

 Part Three:  Relief and Rehabilitation

Indians and MNCs operating in India (remember Union Carbide in Bhopal), are notoriously slack when it comes to liability, after-sales service, warranty, guarantees, and other such sticky nicety, once the goods are sold.

Organisations, institutions, the Government, tacitly rely on our slow legal system. So sue and be damned is in the small-print slyness. Besides, life is cheap in India and the poor are routinely shafted.

So, in reaction, the UPA Government made a land acquisition law in 2013 so tight that it is impossible to live up to.  

On paper the Relief and Rehabilitation Clauses (R&R) are very good. Subsistence allowance, a job or money in lieu, transportation allowance, resettlement allowance, a new home to replace one lost, developed plots in newly urbanised areas, profit sharing on land sales of acquired land, additional benefits for scheduled castes, community infrastructure etc. But, the Indian track record on R&R is not good. Babus tend to be corrupt and interpret all provisions meanly.

Watching foreigners learn from our home-grown callousness. NGOs do make a fuss, but the media soon gets bored. Governments, convinced the pragati is worth the pain, don’t budge. That is why you had Medha Patkar of Narmada Dam fame sitting in with angry Anna at Jantar Mantar. Modi will have to walk the talk well beyond just passing the ordinance into law.

The hysterical sticking point today: infrastructure/industry projects worth Rs. 20 lakh crore are stuck. The ordinance has effectively got rid of the consent and social impact road blocks. The compensation and elaborate relief and rehabilitation clauses are solid. But these will vastly inflate the cost of acquisition. Will the Government be able to afford it down the road, let alone the privates?

The touchy-feely Land Law to replace its imperial 1894 predecessor was clearly passed in haste. There was silly-season bipartisan support for it, everyone outdoing the other to demonstrate how much they loved the farmer.

What our MPs forgot in their opportunism then, is that farming earns 15% of GDP and houses 60% of the 1.3 billion population. It is now unviable for so many people to be involved with it. They need to migrate to other jobs. These have to be created. That’s what the Modi Government is trying to do. A course correction on the land law was inevitable. And it has come, despite all the out-of-date jai kisan noise.

In the abstract, this R&R plus the compensation is more than fair. It is miles better than what went before. Everything depends on the implementation though. But it covers only land owners, when most rural people are actually landless, labourers, or working in the unorganised sector.  They will get nothing by right.

If only this R&R was all fun and games. That Rest and Recreation ((R&R), was the US Armed Forces/leisure industry euphemism for GI Joes doing some very innovative partying. Sunny Saigon or safe Pattaya put on a lot of neon and lipstick during the Vietnam War fifty years ago.

 (497 words)

For: The Quint
February 27^th, 2015
Gautam Mukherjee

Gautam Mukherjee is a plugged-in commentator and instant analyser.

 

Prabhu Presents A Reformist Rail Budget 2015

Prabhu Presents A Reformist Rail Budget 2015

The Railway Budget presentation 2015 had a completely new, vigorous and modernist ring to it.It had the Modi stamp of cleanliness, digitization, better design, food and bed linen, revamped stations, high speed trains, incremental gains in user-friendliness for the blind and differently-abled.

There are new helplines, easier ticketing, stress on safety, increased speed of existing trains, better designed passenger wagons, 17,000 more bio-toilets, and vacuum toilets too. The high speed corridors are also firmly on the anvil. Some new coastal tracks of about 1,200 km length will also be added.

But Rail Minister Prabhu confidently spoke of nothing less than transforming the Indian Railways over the next five years.

The Opposition, including several former Rail Ministers seemed a little jealous even as they were clearly miffed with the newness of it all. To cover up their confusion they promptly complained that there was no clarity on how the many announcements would be financed. Most were probably dwelling on how little they had accomplished in their time, and missed the traditional dwelling on petty lists of facts and figures that used to stand in for the big ideas. Never before has a Railway Budget concentrated so boldly on how it would revive its fortunes from the mess they have long been in.

For the first time, there were no politically motivated new trains and routes announced, with a clear thrust instead on bringing the existing network up to speed, despite being severely strapped for cash.  

And yet there were no hikes in passenger fares for the Opposition to pounce upon. This marked the one populist move, given that the Railways still lose Rs. 26,000 crores every year on passenger fares alone! But, with the fall in diesel prices, it would have been difficult to justify so soon after the over 14.2% hike in June 2014.

Suresh Prabhu delivered a staunchly reformist budget speech, with robust plans to make sweeping changes for the better in the existing network. He intends to raise much of the financing needed on his own, as opposed to praying for all funds from the Ministry of Finance (MoF).

The Indian Railways, will however, to kick off, have access to more than Rs. 6 lakh crores in pension funds courtesy the MoF. It also plans to collaborate with various States and PSUs, according to a template used to finance the Konkan Railways in the past. This, in addition to partnering with foreign countries and financing agencies. Prabhu indicated that he had received expressions of interest from many quarters, without elaborating further.

Mr. Prabhu’s budget speech concentrated largely on plans to consolidate and better the consumer experience, and allocated 67% of its available funds to this end. It raised freight rates, expected to yield a modest Rs. 4,000/- crores. The Indian Railways will, it is calculated, raise another Rs. 17,655 crores on its own. The operating ratio is expected to be 88.5% in 2015-16.

Budgetary allocation towards capital expenditure however has been enhanced 84% over the previous year. 800 km. of track will undergo gauge conversion. Seventy-seven projects, involving doubling, tripling and even quadrupling of track over 9,400 km. along with its electrification will be taken up this year, representing an incredible 2,700% rise over allocations in 2013; at some Rs. 96, 182 crores! 

Just goes to show how the infrastructure of the Indian Railways has been neglected in the past.

Over the next five years, Prabhu indicated that at least Rs. 8.5 lakh crores will be invested in upgradation of facilities.  This then, is to be seen as the first stage of a five year jigsaw with some infrastructure initiatives that will extend even beyond this time-frame.

The key shift in emphasis for the moment which went down well with the public all over the country, is in terms of plans to sharply improve the customer experience by way of security, safety, comfort, hygiene, catering, design, and so on.

The Indian Railways will raise part of the finances necessary for its capital expenditure via multiple strategies including the leveraging of its land banks, some of which have been encroached upon, public-private partnerships, special purpose vehicles (SPVs) etc.

While this crucial area has not been detailed in the budget presentation, perhaps for strategic reasons, the tone of the Railway Minister indicated he had quite a few aces up his sleeve.

Over 70% of the common people interviewed by the various TV channels were happy with the Railway Budget, volubly appreciating the many people friendly efforts, even as the stock market seemed to signal its disappointment, probably because the project financing and timelines were not defined.

Besides, the Stock Market is far more concerned with the Union Budget, coming up on the 28^th. Investors are probably not used to regarding the Indian Railways as a driver of GDP growth and infrastructure.  But Suresh Prabhu, with his emphasis on better management practices, faster decision-making, greater accountability, etc. may be on his way to change this perception too.

For: NitiCentral

(826 words)

February 26^th, 2015

Gautam Mukherjee

Demystifying The Land Aquisition Ordinance: CONSENT

Demystifying The Land Acquisition Ordinance

 Part Two: Consent

Consent is attractive because it hands the dignity of choice to the land owner. But, in practice, it is also the easiest thing to manipulate.

The Opposition is piously outraged at the striking down of this clause, because it defangs their protests. It is shouting, along with clueless professional agitators like Anna Hazare, that it is anti-farmer and anti-poor, ignoring the fact that without development there is nothing. And no growth means no money to help anybody with.

Remember that Mamata Banerjee who calls the Ordinance ‘draconian’, kicked TATA out of Singur all the way to Sanand. But that land agitation lifted her to the Chief Ministership and the TMC into power.  It also gave West Bengal an anti-industry image but who cares? To them, sacrificing a car factory with thousands of would-have-been jobs and knock-on prosperity was a small price to pay.

But this time, the Opposition is gnashing its teeth, because the BJP is firmly in the saddle till 2019. Still, it is making a meal about the changes made. It is deliberately ignoring that the original 2013 law was hostile to business, industry, and infrastructure development.

On the plus side, minus this double-edged weapon, vital government/private projects cannot be blocked. The Modi Land Acquisition Ordinance has removed the Consent Clause from defence projects, rural infrastructure, housing for the poor, industrial corridors, infrastructure and social infrastructure including public-private partnerships which are owned by the Government. The side-car to consent, the loosely defined process for ‘social impact assessment’ has also been dropped for these priority sectors.

The 2013 law included land acquired five years or more before the Act came into effect. It also applied to those properties which were stuck in litigation or subject to court ‘stays’. All this retrospective stuff too has been zapped.

The Government has given itself more time to implement its long term projects, and scuttled the provision to return unutilised land after five years. The trouble is, land is owned in tiny bits and pieces by hundreds and thousands of people. Any builder ‘group housing project’ which is a ‘collaboration’, has pages and pages of collaborators. So in an industrial corridor stretching from Delhi to Mumbai, just imagine the complications. A small farmer could turn up and want his one Kanal back after five years!

Those less crucial private or public land purchases which still have to deal with the Consent Clause, and the Social Impact Assessment, will just have to pay their way out of trouble!

The Land Acquisition Ordinance is the standing law. Creating a ruckus in place of reasoned debate will not undo it. Theoretically, any ordinance can be extended time and again. Besides, once the dust settles, the Government has the numbers to pass it into law by calling a joint session of parliament.

Failing adequate cooperation in the Rajya Sabha  where a debate has been admitted at last, the Government will withdraw the bill that would replace the Ordinance. Why shouldn’t the ‘united’ Opposition be frustrated?

For: The Quint

(491 words)

February 26^th, 2015

Gautam Mukherjee

Gautam Mukherjee is a plugged-in commentator and instant analyser.

Demystifying The Land Acquisition Ordinance: Social Impact

Demystifying the Land Acquisition Ordinance

 Part One: Social Impact

Modi is right to hang tough on the Land Ordinance despite the Opposition hullabaloo.  The greatest injustice done to land owners since the year dot was the compulsory acquisition for a pittance.  It was always a paltry sum, with no reference to the land’s productive or market value, determined unilaterally by the Government. This, happily is no longer the case, even though farming nowadays is far from lucrative.

The Modi Government’s Land Acquisition Ordinance in force has made the enhanced compensation formula, enacted in the 2013 law, applicable across the board to ALL land acquisition by the Government, without exception. This, by implication, also establishes the valuation, in any given area, for the private sector too.

The compensation rates applicable under the Ordinance are twice the going rate for urban agricultural land, and four times that obtaining in rural areas. The intention is to render the pay-out roughly the same in both cases.

The grey area is how this is going to be calculated. Not much has actually been transacted since 2013 when the Land Act was first passed by the UPA Government. India Inc. thinks the high compensation is unworkable, no matter how it is reckoned, and has been making do with earlier land banks while waiting for clarity on how it works in practice.

Some say the price will be a multiple of the last highest registered amount for a land transaction in the area; others say it is multiples of the declared circle rates.  The idea is to approximate market rates as far as possible.

But will the money be paid out at one go? Will it be paid partly by cheque or draft and partly in kind, say by the allocation of an urban ‘developed’ plot? What if several people own the same bit of land? We don’t know all this, as yet. In urban Gurgaon, Haryana, there is talk of a 350 sq.yd. plot for each acre acquired, plus the cheque amount. In any event, that this compensation formula is very much fairer than the old arbitrary method is undeniable.

The 2013 law sounded good, but was a hollow thing, except for that enhanced compensation clause. This has been retained unchanged by Modi’s Ordinance. The Rahul Gandhi/UPA sponsored law however had exemptions as long as your arm!

The farmers had to quietly hand over their fields and accept  that old-style whatever compensation, and  in any sequence of dribbles and drabbles,  if  it was land  the Government said it needed for any or all of the following: coal mining, highways, other kind of mines, atomic energy, tramways, railways, ancient monuments and archeological remains, petroleum pipelines, dams/ resultant lakes, electricity, metro railways; or it just took the Government’s fancy under the Requisition or Acquisition of Immovable Property Act, implying buildings thereon.

One might not be blamed for asking what was left out for the compensating? Perhaps the original idea was to have ONLY the private sector pay out the higher compensation to the beloved farmer!  

For: The Quint

(498 words)

February 25, 2015

Gautam Mukherjee

Gautam Mukherjee is a plugged-in commentator and instant analyser.

How To Table A Big-bang Reformist Budget Disguised As A Populist One

 

How To Table A Big-bang Reformist Budget Disguised As A Populist One

 This is not the time for either/ or choices for Modi  and  his Government in the presentation of the Union Budget 2015. The politically correct stance now has, no doubt, been revised to  both; and then some. The earlier ‘bitter medicine’ proposals have been jettisoned in the cause of squashing the revival and glue of socialism, spreading  afresh across the parliamentary aisle.

Nevertheless, Budget 2015 promises to match deeds to the soaring words, the blueprint to the vision. It is crucial that it do so, in order to restore Narendra Modi’s credibility, dented by the upset loss to the upstart Arvind Kejriwal and his paper-hat clad flock, in the prestigious quasi-state of Delhi.

Will the Budget then signal a paradigm shift in the fate of this nation? I have little doubt that it will, but with the use of a little artifice. It will appear to be equal parts populist and reformist. This is the compulsion of the Indian DNA, the pull and drag of the old way over the new. The foreign observer expecting unequivocal free-market clarity must contend with the fact that we necessarily must be like this only. Our electorate demands it, and so does the hypocrisy that is embedded in our politics.

So Modi and Jaitley will present a budget that will frustrate the plans of Rahul Gandhi and Arvind Kejriwal. The BJP will out-welfare the welfarists, and usher in second generation reforms, under the cover of all the ensuing people’s delight.

Will it be expensive and dilatory, earning the ire of the international rating agencies? Not if they look closely at the net effect. It would have been worth their getting upset, if the fiscal deficit were to rise.

But, former RBI Governor Jalan’s suggestion to let that happen at the altar of growth, will be given the go by. There will be no rise in the fiscal deficit because of budget profligacy. For the first time, Plan expenditure may even be cut, much to the horror of the Left and the economic purist. But it won’t be cut so much that the welfarism is reduced. More sops will be actually added!

The real action on the reforms front, involving billions in foreign investment, will simply be outside the budget. Budget provisions will lay out the markers on the airstrip. It will be strongly manufacturing oriented towards defence and other SEZ led growth; financed by foreign investment. The budget will only wax eloquent on tax waivers, concessions and moratoriums to facilitate it. Will it mean losses to the exchequer? Yes, apparently, but what the nation loses with one hand it will make back along with bonuses, from the other.

Will the Budget satisfy all stakeholders clamouring for concessions and sops for their own special interest groups?  It seems highly unlikely. Sops and concessions, subsidies and grants are not the hallmark of good budgeting. And yet they will definitely be increased to benefit the poor. There will be increased allocations to health, education and electricity provision, the emphasis always being on poverty elimination rather than poverty alleviation.

Overall, the Government is widely expected to cut  its subsidy bill by some 20%  in fiscal 2015. Perhaps even more. But most of this will come, courtesy the diesel deregulation implemented early in the day, and continued low petroleum prices 50% below their peak.

Will the Government dare to trim other welfare programmes and build the promised rural infrastructure with the savings? No. Rural infrastructure and farmer-helping backbones will be built, using mostly private sector financing and overseas investment, but not at the expense of UPA origin welfare programmes. This Government is not looking for fresh rods for its back.

This will be a welfare cum incentivisation budget. The one to keep critics at  bay, and the other to attract productive investment and know-how from all over the world.

This is the major thrust of the Modi Government’s approach. It wants foreigners and other countries to invest massively in India. In this context, there will also be measures to revive the investment cycle to address the Indian end of joint ventures. And others to ease the burdens of the beleaguered construction industry, essential to achieve the Smart Cities vision and housing for all by 2022. But it won’t appear to be an ‘Industrialists Budget’ at all. The broad strokes will be so people-friendly, that it will make most sections applaud it.

Taxes in general, both individual and corporate, will be lowered. ‘Make In India’ will be facilitated at some considerable length. Exemption limits for salaried middle class people will be raised. GST will only come about in 2016, given more BJP wins in the states, particularly Bihar, because it is dependent on the big states adopting it, and they will, if they are BJP controlled. Others then will have to follow suit, or be left out of its benefits.

The Railway Budget, with its emphasis on huge bilateral funding of its signature projects would have already set the tone on the 26^th.  Welcome to Reforms 2.0.

For: NitiCentral

 (838 words)

February 22^nd 2015
Gautam Mukherjee

 

What Can Suresh Prabhu Do To Revive The Indian Railways?

What Can Suresh Prabhu Do to Revive The Indian Railways?

The Indian Railways (IR) is broke. And so is the Government of India (GOI) in context; despite a $ 2 trillion economy, and $ 333 billion in foreign exchange reserves. This is because of the immense developmental back-log, and the massive ambition to not only revive but bring the IR into the 21^st century at the earliest.

The States of the Indian Union, long slack on fiscal prudence, are also financially strapped, subsisting on massive bank overdrafts to tide over their revenue deficits, paying out high interest costs. Almost uniformly, excepting Gujarat, they have little or nothing left over for development.

None of these entities have the free and clear funds, or the ability to substantially finance their development ambitions. The Centre too cannot do very much on its own without losing a grip on the nation’s fiscal deficit, with dire consequences to follow. There is therefore a very good reason for Modi’s hectic international diplomacy seeking investment pledges, conducted over the last nine months and ongoing.

All that the usual IR budgets can do, is pay for its gargantuan day-to-day needs. The stark truth is that years of socialist practice and pathetically low growth, has impoverished this country, and left all its institutions, structures, and facilities in an inadequate and dilapidated state. Indian infrastructure is at least 50 years behind that of any civilised nation. The population meanwhile, has more than tripled since independence!

When a Government, as committed to development and progress, as was the erstwhile Vajpayee Government, or the current Modi Government, comes to power, it faces  considerable challenges. And yet the Vajpayee Government found the wherewithal to implement the visionary Golden Quadrilateral Project. And this administration, despite difficulties, will also most certainly deliver.

The current Railway fares, amongst the lowest in the world, were indeed raised in 2014. Passenger fares went up 14.2%, and freight by 6.5%. This after the UPA refused to bite the bullet.  The hike has provided a modicum of relief to IR’s stressed balance sheet. But there is also a looming pension bill crisis, threatening to swamp IR finances altogether.  Besides fares alone cannot cope with the IR’s development financing needs.

The 50% drop in international fuel prices, coming as a windfall over the last nine months, has certainly helped a bulk consumer like the IR. But plans mooted as early as August 2014, to privatise various railway projects, ran into stiff trade union opposition.

But if not national and international private sector money, then what? Can the Government go in for bilateral financing and technological support, with interested countries such as China, Japan and France?

This may indeed be a good option, and is expected to be the central theme of Suresh Prabhu’s path breaking maiden Railway Budget on the 26^th of February 2015. Bilateral cooperation between India and a slew of interested nations, supported by lending from international lending institutions, will pay for most initiatives from the manufacturing of modern rakes and wagons, rail-track, electrification, signaling equipment, bio-toilets, extension of the railway network, the dedicated freight corridors, revamping of railway stations, high speed trains, upgradation of existing networks, safety infrastructure, digitization of processes and so on.

This makes sense. Infrastructure projects have long gestation periods, and slow return on investment trajectories. Private manufacturers, who make a lot of what we need internationally, can then supply equipment and know-how under the aegis of a Government umbrella; with attractive profits for them, and now without attracting the Leftist political backlash.

To bring the entire IR system into the 21^st century is a massive task. We have the fourth-largest network in the world, but it still does not even connect many parts of the country.

The magnitude of all the expected expenditure on IR will also have a beneficial effect on the GDP. It is at nearly 6% now, and headed towards 7% in fiscal 2015. This makes India the fastest growing economy in the world,  but rising from a low base of $ 2 trillion, compared to China’s $10 trillion!

 Railway Minister Suresh Prabhu wants to finance at least the start-ups from domestic resources. He has been publicly pleading with the Ministry of Finance (MoF) to let him access the over Rs. 6 lakh crore in public pension funds.  But will the MoF agree?  

The Indian Railways also owns a great deal of prime land. And theoretically, could exploit it commercially in collaboration with private developers. Will its unions allow this?  Even if this comes about, liberal terms must be offered, and big brotherly attitudes, typical of sarkari tendering, have to be curbed. Besides, this can only yield results and cash flow gradually, and does not address the immediate requirements.

So, on balance, all hopes are indeed pinned on bilateral funds to make this Railway Budget a grand success.

For: NitiCentral

(797 words)

February 22, 2015

Gautam Mukherjee

The One Big Bang Reform That Can Establish "Make In India"

The One Big Bang Reform That Can Establish ‘Make In India’

Prime Minister Narendra Modi has often said his number one priority is to create millions of new jobs for the young people of India. To do this he has emphasised manufacturing and has spent the last nine months drumming up investment interest from some of the leading countries in the world.

The reason for his doing so are simple-the government or private sector in India does not have the amount of money required for the scale of increase that is envisaged. But while the pledges have come, most would-be investors want a number of reforms before they make their investments in India. Mostly they envisage an easing of rules and regulations, lowering of taxes, reformation of labour laws, provision of adequate land, utilities and connectivity.

But to get them going without prevarication, we need to become not only the fastest growing economy in the world, but the most attractive investment destination for long-term capital.

The present share of manufacturing in the GDP is at a national average of around 12-17 per cent, depending on how it is calculated. Modi wants to take it up to 25% which, if it is 12% currently, is a neat doubling. This may be ambitious but not far-fetched, when our defence manufacturing needs alone easily tops $ 100 billion.

The same conundrum confronts infrastructure development, because again we do not have the dollar billions, if not trillions, it will take. And in this sector of roads, ports, power plants, solar and nuclear installations, mining, railways, airports etc. the gestation periods are long, and the returns tend to be modest.

So most of the money to come into this sector has to be institutional funding from entities such as the World Bank, the ADB, BRICS Bank, the Sovereign Funds, and so on. The execution however can be done by joint ventures with foreign companies, particularly from China and Japan, who have the ready interest, as well as the expertise and know-how.

But manufacturing, less capital intensive, can attract corporate interest and self-funding provided the Government of India (GOI) makes it attractive, as China did, in its time, 30 years ago.  The trouble is that it will take a visionary intervention from the Prime Minister himself, his own Kamal Ataturk moment as it were, to make it happen, as it took Deng Xiaoping, mentor extraordinaire, to do so in China. A bold move of this type cannot come from anywhere else.

The GOI needs to declare a total tax holiday on all FDI against its ‘Make In India’ call, for a period of ten years from the first day production commences. And it might need to stay in perpetuity as well based on a review at the end of the time. It should cover any and all forms of taxation and excise, including import duties on equipment, state and municipal taxes etc. The finished products from such joint venture technology transferred entities should also be exempted from each and every Indian tax. In short, this is a call for FDI fuelled, tax-free manufacturing, with total freedom to repatriate profits at any time.

This policy should apply to all manufacturing with a FDI component of 49% or above, right up to 100%. Of course, where the majority holding of 51% is in Indian hands, they too will be incentivised by the tax-free status. The tax moratorium for 10 years from commencement of manufacturing should apply to each and every FDI funded new manufacturing unit established in India on or after May 16^th 2014, the day the Modi Government won the general election.

If any FDI promoted manufacturing units are established by already existing players, who have expanded capacity or added facilities after the commencement date of May 16^th 2014, they too should benefit from this incentive.

Before the nay-sayers are allowed any play, it needs to be pointed out that there is no tax loss to the exchequer from a zero manufacturing tax on FDI collaborations, as we stand today. Almost none that would qualify under this proposal exist today.

There is therefore no need to block it before it can begin. Even though this is exactly what happened when it was proposed, in the run up to the general elections, that income and corporate taxes should be abolished in favour of a minute expenditure tax on each and every bank transaction. The argument advanced then was was that it would be cumbersome to administer to the point of impracticality, and that the Government could not afford the loss of tax income it might engender.

If this tax-free manufacturing proposal is adopted however, Modi’s pledge to create millions of new jobs from his ‘Make in India’ vision would be well on its way to success. It can form part of the upcoming budget or be announced as a stand-alone adjunct to the Make in India policy which is attracting a great deal of foreign attention already.

For: NitiCentral

(818 words)

February 15^th, 2015

Gautam Mukherjee

Right And Wrong Indian Style

Right and Wrong Indian Style

Here we go again. It is hard to tell on whose side certain members of the Indian Coast guard are on. You can never get a Pakistani official or even a member of Civil Society there, to espouse anything but the official line. Here in India, it’s democracy at work, interpreted more often than not as rank indiscipline. The once apolitical Armed Forces may also no longer be so.

Congress meanwhile, reduced to 44 seats in the  Lok Sabha, still sees things differently.  It heckled the Defence Ministry when the Pakistani fishing boat, laden with explosives, blew itself up 350 km. from Porbandar . That it should do so, when challenged by the Indian Coast Guard, was not accepted as an intended terrorist attack. That it was off the Gujarat coast on the eve of the Vibrant Gujarat Summit wasn’t convincing. Not even when the Summit was expecting John Kerry, Ban Ki Moon, the Prime Minister, several other notables, and hundreds of business leaders.

Congress said it could have been a vessel engaged in mere smuggling, flying in the face of reports of satellite phone intercepts between the boat’s crew and its handlers in Pakistan.  Other parties also kept quiet. To the Congress Party and fellow travellers, any criticism of Islamic terrorism, even if it clearly emanates from Pakistan, is deemed to be ‘communal’ and ‘anti-secular’. And now a senior member of the Coast Guard alleges that it blew up the Pakistani boat! 

The ISI and the Pakistani military establishment have long known our internal weakness, and exploits it. It counts on little or no retaliation.

This has changed under NDA II to an extent, with a robust will to roll back such aggression. Determined efforts are also on to install a high tech border fence along the LoC, another bordering Bangladesh, roads along the Chinese border and the LaC, intensive patrolling of the desert border with Pakistan in Rajasthan and so on.

But over the last decade, Pakistan has also managed to foster the Indian Mujahideen (IM) and similar organisations, aided from Pakistan and its cells in Bangladesh, Nepal, the UAE, Thailand, etc., so that it can claim all domestic Islamic terrorism is home-grown disaffection.

We may know this to be clear misinformation in truth, but the parties wooing Muslim vote banks don’t care to counter it. Pakistani propaganda has long said that Indian Muslims are unhappy, more so wherever the Muslims are in large numbers : Lucknow, Allahabad, Hyderabad, Meerut, Mumbai, Kolkata, New Delhi, and, of course, in J&K.  It depicts India as no more than a Hindu majority state, at some variance from its ‘secular’ pretensions.

India’s nearly 190 million Muslims are second-class citizens, according to this narrative. Pakistan maintains India, ruled by the Left or the Right, Congress or BJP, irrespective, only pays lip- service to Muslim welfare.

It is ironic therefore that the grand old party tries to portray itself as secular, along with its sisters under the skin, and the BJP/NDA as communal! 

The half-truth in the Pakistani slur, comes from the lack of Narendra Modi’s far more muscular level playing field pitch, implemented over the last 13 years by him for Gujarat’s Muslims in an environment of security. But one is not going to get AAP, Congress, the CPM, TMC, and others of their persuasion, to admit it. 

Similarly, the another popular canard, beloved of the Left-Leaning Liberal in India, is that we have brought the terrorism and anti-statism upon ourselves. They think the insurgents in the North East, the Maoists in the jungles of Central India and the East, are justified and a consequence of years of blatant neglect and exploitation/discrimination against the disadvantaged.

To their liberal followers, equally hypocritical themselves, all the murder and mayhem, the hundreds of soldiers and policemen being killed in peace-time, including those in J&K, is not particularly condemnable. Cross-border terrorism isn’t cross border in origin to their view, but a consequence of Army oppression!

But spies have always had it dead to rights- that perfectly cynical take on human nature. They need to understand the mechanics of deception as a stock-in-trade. Their lives, let alone their missions, depend on it.  Spies need to surf popular currents of emotion, to infiltrate, fit in, be trusted, be alert to undercurrents. Spies need to belong in the very communities they routinely betray.

In the acclaimed TV Serial The Americans, about a seemingly married couple of embedded KGB agents in the US  during the Cold Warring eighties; one of the protagonists tells her  teenage daughter, born in America, part offspring, part cover: ‘We see what we need to see in people, things that are not really there’.

This kind of selective view of reality amongst some of the political drivers of this country could cost us very much more than it already has.  The San Andreas style tectonic fault in India’s body politic is the willingness to distort the truth. 

We are under threat, not just in the realms of formal security on the borders, but via a guerilla war of attrition in our homes and streets. This could, if unchecked, bring to naught all of India’s much vaunted economic promise.

 Let us recall that James Headley, the half-American half-Pakistani double-agent (CIA/ISI), scoped out several Indian targets, including the nuclear facilities at Trombay, essentially using the goodwill of his Indian friends.

He was able to advance plan the micro-route map for 26/11, nine months in advance. It is providential that the subsequent operations did not simultaneously involve all of his recommended targets.

There have been scores of small and big terrorist atrocities over the years. And the fact is, we are ever vulnerable, partially because this country is far from being united in how to fight it.

To be ruthlessly effective in dedicated intelligence gathering, and action taken on its findings, let alone aggressive counter espionage, the political will must be unwavering. 

The UPA Government, when 26/11 happened, was beholden to, and dependent on, its minority vote bank as usual, and felt it was impolitic, though they will   never admit it, to vigorously pursue Islamic terrorism in this country. It has  always refused to distinguish between the terrorist and our millions of patriotic citizens who happen to be Muslim.

And now, something of its political inheritor, the AAP, is already vanguarding the revival of the great socialist come back. It is eliciting support from the CPM, the TMC, Nitish Kumar’s JD(U) , the minorities, the dalits, the migrant labourers, and other disadvantaged sections. The AAP, with its come- one- come-all attitude, its newbieness, is easy to fund and infiltrate.

For: The Pioneer

(1,098 words)

February 18^th, 2015

Gautam Mukherjee