Indian Economy: News and Discussion (Jan 1 2010)

somnath · Post by **somnath** » 28 Feb 2011 10:56

A lot of people seem to have missed out on the new Index of Govt Economic Power (IGEP) in this year's Economic Survey..

Its an interesting concept, and will eagerly await the details that would be published in a paper later..

In the meanwhile, for those interested..
http://indiabudget.nic.in/es2010-11/echap-02.pdf

The top 10 positions in 2009 are:
(1) the United States, (2) China, (3) Japan, (4) Germany, (5)
India, (6) Russia, (7) Brazil, (8) France, (9) Italy, and (10) the
United Kingdom.

Compared to, in 2000
(1)
the United States, (2) Japan, (3) China, (4) Germany, (5)
France, (6) the United Kingdom, (7) Italy, (8) (Republic of)
Korea, (9) Canada, and (10) India

The movements of Brazil (from 13th to 7th) and India are the most dramatic..

Kaushik Basu has made the Economic Survey a document to "read", rather than one to "refer to" (for data)...

Once the details of IGEP comes out, it might be a useful exercise to to see if someone (maybe in BR!) can modify it to represent an Index of Comprehensive National Power (ICNP)...Would be a worthwhile exercise..

somnath · Post by **somnath** » 28 Feb 2011 12:02

Defence Budget is pegged @ 1.64 lac crore..

vina · Post by **vina** » 28 Feb 2011 12:47

A great and pragmatic budget. Keeps the growth rate intact, gets the fiscal deficit under control (I think Pranab Da said that the claims of the govt borrowing as a percent of total will come down to 44% from the 52% recommended under something..) .

Good focus on infra, strong focus on the minutia and clean up in terms of delivery of subsidy and a push towards direct payments and not indirect subsidies etc.

I think finally we will see the appearance of modern US/Canada/Australia style of grain silos with cutting edge material handling properties and not the grungy FCI kind of Godowns /Mandis with grains stored in the open and rats feasting on foodgrains , all this moved with sweaty laborers heaving sacks of grain on their backs , a scene straight from the time of the Pharaohs and the Pyramids and a beloved of the Commies and their labor /dockyard/ union /dignity of man kind of thing in their endless Propah-Gandha fillums.

A large part of his speech and focus was in getting the farm to fork linkages and handling and leakages . I think the Kangress learned it's lesson from the recent food price inflation and the political costs of holding back on the reforms while being beholden to the small time subzi mandi and street corner folks enjoying political patronage from the local goondas and politicos and kickbacks kind of policies .

Jai Ho. All Piss, Plogress and Plospelity onree!

On another note, Glandpa Hu, per reports, came on national internet chat and said that China is going to aim for a lower growth rate in the next five years (around 7% or so) , with the focus being firmly on the "quality" and "equity" of that growth and moving away from export oriented low value slave labor oriented stuff and towards domestic consumption.

Err. I had taken a bet with the ChiPanda posters here on that same topic and said that in the next 5 years, India's growth rates are going to surpass China's (this was before that kind of talk from Kaushik Basu etc) , and talked about the inevitability of the export led model reaching it's limits and China having to grow by conumption and that will by it's inherent nature will lead to slower growth.

Well, looks like that the Chinese are going to adopt the Yindoo growth model!. Welcome on board folks.

.

Psst. Can the person, I think it was wrdos get ready to sign and mail the $10 check please ?. You can mail it to the charity I will let you know once you acknowledge it.

After all, when Grandpa Wen says something, it always happens in China, doesn't it, or are you going to sign that check after 5 years from now?

amit · Post by **amit** » 28 Feb 2011 13:03

This seems at first glance a good move.

Independent agency to manage debt

NEW DELHI: An independent debt management agency will be set up to help enforce fiscal responsibilities among states and the central government, Finance Minister Pranab Mukherjee said on Monday.

"The government is in the process of setting up an independent debt management office in the finance ministry. A middle office is already operational and in a next step, I propose to introduce the Public Debt Management Agency of India Bill in the next financial year," said Mukherjee while presenting the budget for 2011-12 in the Lok Sabha.

He said statutory targets set under the Fiscal Responsibility and Budget Management (FRBM) Act of 2003 had a positive impact in reducing fiscal and revenue deficits.

"In the course of a year, the central government will introduce an amendment to the FRBM Act, laying down the fiscal roadmap for the next five years," Mukherjee said.

amit · Post by **amit** » 28 Feb 2011 13:04

Another good move. (Caveat: first reaction).

FII investment cap in infrastructure raised

amit · Post by **amit** » 28 Feb 2011 13:07

Fiscal deficit seen at 4.1% in FY 13, 3.5% in FY 14

^^^^^^

Hope they can stick to this, despite this:

Union Budget 2011 to bring in food bill for poor

amit · Post by **amit** » 28 Feb 2011 13:09

This is the big one:

GST Constitution Amendment Bill in this session: FM

amit · Post by **amit** » 28 Feb 2011 13:11

Slew of measures to spur infra investment

Presenting the Union Budget for 2011-12, Mukherjee said the government intends to spend Rs 2.14 lakh crore as budgetary support for the infrastructure sector in 2011-12 and will set up an infra debt fund to promote foreign investment in the sector.

"We will introduce special infrastructure debt funds to attract foreign financing in infrastructure," he said.

Mukherjee said the Indian Railways Finance Corporation (IRFC) and National Highways Authority of India Limited (NHAI) will issue tax-free bonds of Rs 10,000 crore each, while tax-free bonds worth Rs 5,000 crore each will be issued by HUDCO and the port sector, respectively.

He also announced that foreign portfolio investment would be permitted in Sebi-registered mutual funds and hiked the FII investment limit by an additional $20 billion for investment in infrastructure-related sectors.

With this step, he said that FIIs will be eligible to invest up to $40 billion in corporate bonds, including a total of $25 billion in the infrastructure sector.

Mukherjee also said the government has kept a target for spending Rs 2.14 lakh crore in the infrastructure sector, accounting for about 48.5% of Gross Budgetary Support of total plan expenditure.

The Finance Minister added that Indian Infrastructure Finance Company Limited (IIFCL) will disburse loans worth about Rs 20,000 crore by the end of this fiscal for investment in the infrastructure sector.

Mukherjee added that IIFCL is expected to disburse loans of about Rs 25,000 crore in the next fiscal.

amit · Post by **amit** » 28 Feb 2011 13:19

40,000 crore disinvestment target. Pretty ambitious, doable?

chetak · Post by **chetak** » 28 Feb 2011 13:23

amit wrote:40,000 crore disinvestment target. Pretty ambitious, doable?

Rajmata's foreign influenced NAC must already be salivating!!

More money for "social causes".

amit · Post by **amit** » 28 Feb 2011 13:31

chetak wrote:Rajmata's foreign influenced NAC must already be salivating!!

More money for "social causes".

Very incisive critique Chetak Saar!

somnath · Post by **somnath** » 28 Feb 2011 13:45

amit wrote:40,000 crore disinvestment target. Pretty ambitious, doable?

Not really - unlikely, but then this number has almost never been met (barring 1-2 occasions)...

vina · Post by **vina** » 28 Feb 2011 13:53

Not really - unlikely, but then this number has almost never been met (barring 1-2 occasions)...

I think Rs40K crore approx $8b very easily doable. Watch out for reforms /cutbacks in subsidy in stuff like Kerosene, cooking fuel etc to happen, diesel to be removed from APM once the infrastructure and direct payments stuff gets working and big IPOs like IOC, FPOs in other oil retailers, ONGC, GAIL etc to happen and more of Coal India like gems in the govt sector to see listings.

Oh yeah, I think I will be bullish on the stock market (from being vina the bear who called the mortgage meltdown here in BR, I will morph into vina the bull!). With a 9% +- 0.25% growth penciled in and inflation moderating, this might be the year when India is the fastest growing significant economy and pips PRC. Even otherwise, those kind of growth targets are simply not to be sniffed at and expect the India weightages in all the FIIs to be cranked up.

In such a strong market with growth expectations, raising $8b via FPO/IPO and divestments, privatizations etc will be easy.

amit · Post by **amit** » 28 Feb 2011 14:07

^^^^^^
The divestment targets this year are: IOC, Power Finance Corporation , SAIL, Hindustan Copper and Rashtriya Ispat Nigam Limited.

The first two alone can raise more than half the amount, provided the stock markets hold up, which they should with the other measures announced.

However, political will is a necessity.

somnath · Post by **somnath** » 28 Feb 2011 14:19

^^^Its doable commercially..And remember it doesnt all need to be FII-led...Domestic flows are strong too..But there are too many variables for each FPO in a PSU, largely political..

Importantly though, it is such a small amount of the fisc that not meeting it doesnt really change things around a whole lot...

I actually think that all such one-off revenues should be parked in a sovereign fund ringfenced from the Budget...And used for strategic projects...

amit · Post by **amit** » 28 Feb 2011 14:28

somnath wrote:I actually think that all such one-off revenues should be parked in a sovereign fund ringfenced from the Budget...And used for strategic projects...

That's an interesting idea.

However, the problem is if the FM doesn't have a chance to dip into the money then the incentive to divest also goes.

Maybe some form legislative mechanism can be created to ensure this?

amit · Post by **amit** » 28 Feb 2011 14:31

This explains why IT stocks are shooting through the roof.

India banks on IT to reboot key projects

The minister said that Technology Advisory Group for Unique Projects (TAGUP), the group headed by Unique Identification of Authority of India (UIDAI) Chairman Nandan Nilekani to look into technology aspects of five large government projects including the Tax information network (TIN), National Pension Scheme ( NPS )), Goods and Service Tax (GST) and National Treasury Management Agency (NTMA), has received in-principle approval from the government.

The initiative on GST should satisfy Narendra Modi saab who's been saying that the opposition to the GST was, among others, rooted to a lack of a nationwide information technology network for GST.

Link

somnath · Post by **somnath** » 28 Feb 2011 18:30

amit wrote: However, the problem is if the FM doesn't have a chance to dip into the money then the incentive to divest also goes.

Maybe some form legislative mechanism can be created to ensure this?

It would require a legislative sanction...My 2 pence idea would be to create a fund which manages all monies generated from one-off asset sales...The fund mandatorily invests in G-secs (or govt-g'teed bonds)...The FM can only call upon the "surplus", ie, returns generated in the fund, rather than the corpus per se...As the fund deploys in G-secs, "net impact" on the fisc shuld not be too much (only the servcing cost of the additional borrowing)...Top of my head, about 3 lac crore would be the corpus generated through disinvestment and telecom auctions...That should generate an annual surplus of around 30k crores, not too differnt from the disinvestment target (which is anyway unlikely to be met)! And preserves public money from national asset sales for the public...

Anyways, the key take-aways from the budget (on reform):

1. GST is happening this year.
2. Direct cash transfer on select subsidies, especially fuel from 2012 - would be interesting to see the implementation plan.

Otherwise, quite a conservative budget - expenses have gone up only in line with expected revenue growth...

Theo_Fidel · Post by **Theo_Fidel** » 28 Feb 2011 19:49

Any news on JNNURM. Havn't heard a peep so far. I was hoping more allocation this year, something like a proper Rs50,000 crore. Most important program for India to grow & force cities to reform IMHO.

Here is the project list. As usual dominated by the usual suspects, MH, AP, TN, KA, GJ etc. When are the other states going to get going.

http://jnnurm.nic.in/nurmudweb/Project/ ... roject.pdf

Here is the full list. It is staggering how much of the construction I see in Chennai is partially funded by this program.

http://jnnurm.nic.in/nurmudweb/Project/state.pdf

Singha · Post by **Singha** » 28 Feb 2011 20:34

all the swank marcopolo and volvo buses in BLR are JNURM. without this grant we'd be back in the 70s era regular BMTC buses 100% onlee rather than 80%.

putnanja · Post by **putnanja** » 28 Feb 2011 20:57

Singha wrote:all the swank marcopolo and volvo buses in BLR are JNURM. without this grant we'd be back in the 70s era regular BMTC buses 100% onlee rather than 80%.

BMTC had introduced volvo buses even before JNURM project started. If I recall correctly, KSRTC & BMTC were the first to introduce volvo buses in India among state transport corporations.

Suraj · Post by **Suraj** » 01 Mar 2011 00:44

Along with the budget, the Q3 GDP data too was released:
Agri & services growth pushes Q3 GDP growth to 8.2%

Driven by good performance of agriculture and services sector, the Indian economy grew by 8.2% in the third quarter of the current fiscal, up from 7.3% in the corresponding period a year ago.

According to the data released by the government today, farm sector during the third quarter ending December, recorded a growth rate of 8.9%, up from a decline of 1.6% in the corresponding period a year ago.

The services sector, including financing, insurance, real estate and business services during the same period recorded a growth rate of 11.2% as compared to 8.5% during the same period last year.

Electricity, gas and water supply is another sector that has done well as it grew at the rate of 6.4% in third quarter compared to 4.5% in the same period last fiscal.

Mining and quarrying growth jumped to 6% in third quarter from 5.2% in the same three-month period last fiscal.

Manufacturing and construction activity has slowed down, growing at pace of 5.6% and 8% cent, respectively, in the three-month period as against 11.4 and 8.3% respectively in the corresponding quarter.

So far in 2010-11:
Q1: 8.9%
Q2: 8.9%
Q3: 8.2%
So far, Q4 (Jan-Mar 2011) has been good. The overall fiscal year real GDP growth should finish between 8.6-8.9% .

The best part of the budget is the strong emphasis on infrastructure and core sector investment - $60 billion in investment by GoI in these two. The ceiling for FII investment in corporate bonds is up to $40 billion now, including $25 billion for infrastructure bonds. The lack of a deep bond market was one of the primary impediments in the way, that's now being addressed.

I'd consider this a dream budget in that sense - these two are foundations necessary to sustain growth, and maintain or increase the current investment/GDP level. I hope we'll soon touch the 40% investment/GDP figure, that ought to translate to near 10% trend growth rate with the current ICOR.

Some interesting news on social spending: NREGS funding has been cut in nominal and real terms:
Fund squeeze for flagship schemes

Though the finance minister referred to wages under the 100-day employment programme having being increased after being indexed to the Consumer Price Index, he did not mention the fact the allocation had been kept unchanged at Rs 40,000 crore. In fact, it has been reduced by Rs 100 crore as compared to last year.

This status quo in allocation comes in the wake of allegations of poor implementation and charges of widespread corruption in the scheme. NREGS spending has remained around 50-60 per cent and the average number of working days had been just 35 this year.

As far as the the Bharat Nirman set of schemes was concerned, the Budget announces an increase of Rs 10,000 crore in allocation. However, for most schemes, the increases have been nominal and it can be termed high only when compared to Budget estimates of last year.

The total allocation has been increased to Rs 58,000 crore, which the Budget says is an increase of Rs 10,000 crore.

Indira Awas Yojana, funded mostly from the National Investment Fund (money from disinvestment of PSUs) will get almost the same as last year. The allocation stays at Rs 8,996 crore, of which Rs 8,448 comes from the NIF.

Pradhan Mantri Grameen Sadak Yojana, the rural-road scheme, got Rs 19,886 crore in the revised estimates last year. The same has been reduced to Rs 18,217 crore this year. However, it is Rs 8,000 crore more from last year’s allocation.

Either the status quo has been maintained or there has been a decline in the allocation for rural electrification, rural telephony, and rural irrigation.

The funds for rural electrification have risen from Rs 4,429 crore (revised estimate) to Rs 5,326 crore. Rural telephony funds have declined from Rs 3,100 (revised estimate) to Rs 2,100 crore.

However for rural telephony, the Budget makes provision for rural broadband connectivity to all 2,50,000 panchayats in the coming three years.

Rural drinking water programme allocations have gone up from Rs 9,512 crore (revised estimate) to Rs 9,900 crore.

The allocations for Bharat Nirman and NREGS only reflect the general trend towards all social sector schemes, whether it is the National Rural Livelihood Mission, the Skill Development Mission or the initiatives announced for dry land farmers.

The National Rural Livelihood Mission to empower self-help groups around the country through credit and training, has been left with the same allocation as last year.

Suraj · Post by **Suraj** » 01 Mar 2011 02:38

Sanjaya Baru commends Kaushik Basu's work on the Economic Survey this year. As a regular watcher of that document every year since 2006-07, I'm struck by the changes this year too. I would urge even irregular watchers of this thread to read the survey documents: Economic Survey 2010-11
Kaushik's calculus

Just when most economic analysts were beginning to question the utility of wasting so much paper on an annual official Economic Survey, when so much of the data is now regularly published and comprehensively analysed by so many from quarter to quarter, the Union government’s chief economic advisor (CEA) Kaushik Basu has injected new life into an otherwise dull document.

Last year, when Dr Basu returned from a two-decade hibernation in the groves of an American ivy league institution, to take up his very first assignment in the government, many of New Delhi’s number-crunching policy wonks poked fun, asking the game theorist and developmental economist whether he could reel off numbers like fiscal deficit and tax/GDP ratio from memory! A chief economic advisor must not only be au fait with numbers, was their point, but must have his feet on the ground with a grasp of the real world, and forget the cerebral world of theorems and theories.

More than an year into his job, economist Kaushik Basu has had the last laugh. Not only has he demonstrated his fine grasp of the new India that he has returned to analyse and shape, but he has converted a dull book full of numbers and boring facts into an intellectually provocative and exciting document. The finance ministry may not be a master of all that it surveys, but Dr Basu has proved to be a master of his survey of India.

The Survey’s first two chapters and the several boxes, reporting results of research both within the ministry and outside, offer a glimpse of the kind of ideas that are shaping policy within the Union finance ministry and, indeed, the higher echelons of the Union government.

Last year, Dr Basu offered us a new way of looking at the problem of subsidies and showed how the strategy of “inclusive growth” can be made fiscally sustainable. This year, Dr Basu offers us a new perspective on inflation and a new index of India’s global standing. These two ideas apart, there are several boxes that offer new perspectives on how policy makers may be looking at issues like subsidies, infrastructure policy, management of the balance of payments and social sector programmes.

In his highly readable style, Dr Basu puts forward a credible argument in support of the Survey’s view that the economy is back on the “pre-crisis track” of 9.0 per cent growth. It is not just the savings and investment rate, but the learning-by-doing effects of human development and human capital formation, and their impact on labour and capital productivity, along with the underlying favourable demographic transition underway that are driving the India growth story.

Theo_Fidel · Post by **Theo_Fidel** » 01 Mar 2011 03:57

One item caught my eye.

Agriculture Share in GDP. 2009-2010 - 14.6% .

amit · Post by **amit** » 01 Mar 2011 05:43

Budgetary allocation for defence up 12% to Rs 1.64 lakh cr

BANGALORE: Keeping a balance between fiscal prudence and the India's strategic imperatives, Union Finance Minister Pranab Mukherjee hiked the country's defence budget by almost 12 percent to Rs 1.64 lakh crores for fiscal 2011-12.

Most importantly, defence capital acquisition for the financial year 2011-12 has been hiked to Rs 55,000 crores, while capital expenditure for the same has been raised by about 12 percent to Rs 69,199 crores a move that should provide a sizable boost to the ongoing military modernisation programme.

From the Rs 69,199 crore capital outlay, the Army got Rs 18,986 crore, Navy Rs 5,688 crore, Naval Fleet Rs 7,320 crore and Air Force Rs 30,699 crore.

The hike of 12% in defence budgetary allocations, compared to 4% last year, emphasises New Delhi's two-pronged strategic approach, a more secure northern border, which it shares with China and Pakistan, and a greater presence in the Indian Ocean.

amit · Post by **amit** » 01 Mar 2011 05:50

somnath wrote:1. GST is happening this year.

I wouldn't bet on it. The main opposition to GST is political in nature.

Let's see if the move to build the IT backbone for the GST infrastructure will satisfy the opponents. As I wrote in an earlier post Narendra Modi said that's the sticking point.

Have to wait and watch.

amit · Post by **amit** » 01 Mar 2011 06:02

This IE editorial has an interesting paragraph.

Is India is becoming the sort of country it hoped it could become? According to the ministry of finance, the allocation for the social sector in this budget is Rs. 1,60,887 crore. As a bit of perspective, the defence budget is Rs. 1,64,415 crore. (Almost Rs. 70,000 crore is capital expenditure, and even if a large proportion of that is committed liabilities, that still leaves wiggle room for expenditure.) Defence is not up in real terms, since it has increased by 11 per cent, not that much below the sum of inflation and real growth — and, in any case, what was holding back defence was not the allocation but an unwillingness to buy.

amit · Post by **amit** » 01 Mar 2011 06:10

Here's more details on the opening up of the bond market, pointed out by Suraj.

The budget for 2011-12 has moved ahead on opening up India’s capital account. While no announcement has been made on foreign direct investment, the FM announced that discussions are under way to further liberalise the FDI policy. However, on foreign portfolio investment, important announcements have been made. The recommendations of the finance ministry’s working group on foreign investment, headed by U.K. Sinha, have been implemented. These include opening up the rupee-denominated corporate debt market to FIIs. The limit on purchase of bonds of infrastructure companies has been increased from $5 billion to $25 billion. This means that the limit for FII investment in corporate bonds has suddenly jumped from $20 billion to $40 billion. A doubling of FII investment in corporate bonds will help both the development of the corporate bond market, and India’s infrastructure funding needs. Foreign investors have also been permitted to invest in Indian mutual funds. While currently FIIs and sub-accounts are allowed to invest, the FM announced that other foreign investors who meet Know Your Client norms will also be allowed to invest. These are significant steps towards greater capital-account openness, and will attract long-term capital into the country.

And given the legislative support needed for the FM to keep his promises, the budget can be as ambitious as the budget session of Parliament allows itself to be. The UPA’s floor managers have their work cut out.

amit · Post by **amit** » 01 Mar 2011 06:20

Can we do a point by point tabulation of what appears to be the main highlights of this budget?

I would put the following:

* Opening up of the bond market

* Direct cash transfers for kerosene, fertilizers and cooking gas, instead of subsidies

* Proposal for a banking licenses for private players

* Proposal to build grain silos and other agri infra.

* 20 per cent export duty hike on iron ore (makes it that much more expensive for the Panda).

* The proposed Constitutional Amendment Bill to pave the way for GST introduction, perhaps by next year.

Can folks please add to this list, so that we can have a at a glance kind of table?

TIA

somnath · Post by **somnath** » 01 Mar 2011 06:26

Suraj wrote:The best part of the budget is the strong emphasis on infrastructure and core sector investment - $60 billion in investment by GoI in these two. The ceiling for FII investment in corporate bonds is up to $40 billion now, including $25 billion for infrastructure bonds. The lack of a deep bond market was one of the primary impediments in the way, that's now being addressed.

I'd consider this a dream budget in that sense - these two are foundations necessary to sustain growth, and maintain or increase the current investment/GDP level. I hope we'll soon touch the 40% investment/GDP figure, that ought to translate to near 10% trend growth rate with the current ICOR.

Suraj-ji, the budget is extremely conservative on expenditure in general..Across heads, budgetary outlays have kept pace with revenue growth projections...

1. Total headline central capital expenditure has actually declined marginally from FY2011 to FY2012..
2. Most of the hit has been taken in non-plan capital expenditure - But bulk of the "hit" is on account of the recapitalisation of banks done last year, mostly through a World Bank loan...
3. Stripped of the above, capex outlay shows an increase of about 8-9% over last year's actuals..
3. Plan capital expenditure has gone up, by 14% odd, in line with overall revenue growth projections..
4. The total capex outlay, at 1.6 lac crores, or about 37-38 billion dollars is buffeted by the capex outlay of public sector exterprises, estimated at about 2.5 lac crores, or about 55 billion dollars. The total capital expenditure budget therefore is a fairly substantial ~90 odd billion dollars, ~ 4-5% of GDP..

http://indiabudget.nic.in/ub2011-12/eb/stat01.pdf

5. One big assumption in the budget is a significant drop in total subsidy bill - from 1.64 lac in 2011 to 1.43 lac in 2012...This needs to be taken with a pinch of salt, given the general experience with these subsidies, including last year (where the revised numbers oversoht the budgeted numbers by a wide margin)...But if Pranab da manages to hold that out, full marks to him!

http://indiabudget.nic.in/ub2011-12/eb/stat04.pdf

6. Lastly, finally, really finally, after many years social sector outlays are somewhere close to defence outlays...While it might not please jingos, really at the end of the day India needs a HUGE dose of the former on a sustained basis to acieve our destiny!

7. Final observation..Expenditure growth is budgetd to be 3.5%..3.5%? Surjit Bhalla writes that it is the LOWEST expenditure growth budgeted since 1971!!!

A point about the FII debt quota increase...Its a welcome step at the margin, but is really peripheral to the cause of a deeper debt market...There is no great lack of institutional depth in the Indian bond markets - proliferation of insurance companies and mutual funds and their bulging corpuses have taken care of that...The key hurdle is the absence of a deeper retail bond market, a la the retail segment of the equity market..The issues there are more structural..Till those are tackled, a few billion dollars of FII flows, while welcome at the margin, isnt going to solve the bigger issue..It is ironic how much retail appetite there is for long term Indian papers offshore - almost nothing (close to zero) gets sold onshore, because of the issues around the market..

Defence too has received an increase in line with rest of the heads..The FM has kept it really simple - outlays across the board have gone up fairly similarly!

But really, net net, a budget of a fiscal conservative!

Hari Seldon · Post by **Hari Seldon** » 01 Mar 2011 06:56

Hop, skip and jump
Bibek Debroy's comments on the Budget in IE. Some interesting points made.

'Provocation for its own sake' piece from FT
Is India turning Japanese?

There are uncomfortable parallels between Asia’s most indebted major sovereign – Japan – and the number two, India.
...
Worse, 2011 is the last year of India’s current five-year plan, when expenditure has always tended to surge. That will mean more debt, stuffed into compliant local institutions. 92 per cent of India’s national debt is held domestically, mostly through banks (two-fifths) and insurers (one-fifth) – almost identical proportions to Japan.

ShauryaT · Post by **ShauryaT** » 01 Mar 2011 06:58

Decoding defence budget

It means that India can sign deals for new defence equipment worth Rs 60,000 crore this year.

Union Budget for 2011–12 has seen the defence budget going up by 11.6% to Rs 164,415 crore from Rs 1,47,344 crore last year. Before delving on this any further, let us just consider the following equations.

Defence Budget = Revenue Expenditure + Capital Expenditure

Capital Expenditure = Capital Acquisition Budget + Other items

Capital Acquisition Budget = Committed Liabilities + New Purchases

So the Revenue Expenditure of Rs 99387.85 crore is just the operating expense to keep India’s military juggernaut running. It doesn’t augment India’s military capability in any manner whatsoever.

But it would be a mistake to assume that all of Capital Expenditure goes towards acquisition. As a rough yardstick, only three-fourths of the capital expenditure budget goes towards capital acquisition. Out of that acquisition budget, 60% would already be due out as payment for committed liabilities. That leaves around (0.40*0.75=0.30) i.e. 30% of the capital budget available for new defence purchases.

As per the Finance Minister’s budget speech, the increase in the budget was to procure modern weapon systems and defence equipment, and Rs 69,199 crore has been allocated as capital expenditure for the same. Incidentally, capital expenditure was Rs 60,000 crore last year. As per the back of envelope calculations, 30% of Rs 69,199 means approximately Rs 20,000 crore being available for new defence purchases this year.

Forget all the headlines like “With an eye on China, India steps up defence spending“, this is the only figure that matters in the defence budget — Rs 20,000 crore. If only one-third of the total amount for a defence deal were to be paid upfront, this would mean that for Rs 20,000 crore, India can actually afford to sign deals for new defence items worth Rs 60,000 crore in the coming year.

In any case, Rs 60,000 crore is not some loose change. Even then, we can perhaps take solace in the sentence that we hear every year, from every finance minister, unfailingly: “Needless to say, any further requirement for the country’s defence would be met.”

somnath · Post by **somnath** » 01 Mar 2011 07:13

^^^Usually, Pragmatic Euphony is pretty good with its comments..But this one is utter rubbish..

First,

So the Revenue Expenditure of Rs 99387.85 crore is just the operating expense to keep India’s military juggernaut running. It doesn’t augment India’s military capability in any manner whatsoever.

Balderdash - part of the revenue expenditure is to augment and sustain what is termed as "war wastage reserves"...That number is hideously difficult to estimate, but it presents the sustenance of the nation's war fighting capability..

But it would be a mistake to assume that all of Capital Expenditure goes towards acquisition. As a rough yardstick, only three-fourths of the capital expenditure budget goes towards capital acquisition. Out of that acquisition budget, 60% would already be due out as payment for committed liabilities. That leaves around (0.40*0.75=0.30) i.e. 30% of the capital budget available for new defence purchases

these assumptions are as heroic as those of Modern Portfolio Theory..How does he know what the composition is for this year? I would in fact expect bulk of the payments for the big ticket items in pipeline (Gorshkov, Phalcon, the new Krivaks) to have happened...Depending on the scheduling in any given year, the composition would change..

Forget all the headlines like “With an eye on China, India steps up defence spending“, this is the only figure that matters in the defence budget — Rs 20,000 crore. If only one-third of the total amount for a defence deal were to be paid upfront, this would mean that for Rs 20,000 crore, India can actually afford to sign deals for new defence items worth Rs 60,000 crore in the coming year.

the bigest gem..By this logic, combining with the numbers assumed above, each deal would be "turned over" in 3-4 years! The fact is that large acquisitions are stretched across many years, decades...For example, Su30, for which the total outlay will probably turn out to be close to 10 billion, is already 15 years old and counting......

Here's the defence capex budget in detail..

http://indiabudget.nic.in/ub2011-12/eb/sbe27.pdf

somnath · Post by **somnath** » 01 Mar 2011 07:28

Now for a bit of "bitching", the nasty little bits that dont add up..

1. Allocation for NREGA - the outlay has been kept constant @ 40k crore...At the same time, the wages of NREGA has been linked to CPI..Which means that without any increase in coverage the outlay should go up by 10%!

2. Oil subisdy - unless more burden is shifted to oil companies, the 24k crore budget wont stand..Not unless oil prices go down to 60 dollars by some magic...

3. Money for the new Food Security Act has not been provided for..Less critical given the controversies around it....By the time the bill gets passed, half the year would have flown by..

4. Lastly, the 3.5% expenditure growth target doesnt seem realistic...Not when inflation itself runs at 7-8% levels...It can mean either of two things - a) the deficit's going to be higher, b) the FM expects revenue growth numbers to exceed the 18% budgeted...

Even if the deficit is higher, I am not too concerned about that, and the bond markets too are not al that jittery...Onshore bond yields remained fairly benign after the budget...Question is higher by how much...Its quite a bit about perception - right now, most of the street seems to be giving a thumbs up to the FM on his fiscal prudence!

Arjun · Post by **Arjun** » 01 Mar 2011 09:51

The two best things about the budget from my perspective: (a) the directional message on fiscal consolidation and (b) the announcement regarding intent to move towards cash transfer scheme on subsidies. To some extent also the opening of banking to new private sector entrants (though this was already known based on the RBI white paper).

But the key will be executing to the messages that have been delivered, and given the global environment that can be a challenge. The market will be quick to sense if on ground execution doesn't match up to the vision.

A good summary here from Nilesh Shah, another commentator who I rate among the more insightful (All is Well, Lets now focus on Execution)

amit · Post by **amit** » 01 Mar 2011 12:12

somnath wrote:Surjit Bhalla writes that it is the LOWEST expenditure growth budgeted since 1971!!!

Wow, Surjit Bhalla, who's not exactly known to be very close to UPA seems really excited.

This is not a workmanlike budget; this is not a conventional budget. It is radical. It smells of good economics. Expenditures on infrastructure and education have increased. Capital flows have been eased, and investment encouraged. Taxes have not increased. And there is a commitment to and planning for further disinvestment. It is likely that this budget is a major turning point in India’s fiscal history. In short, a brilliant budget, one exceeding all expectations.

For that, the finance minister and the budget-makers need to be congratulated.

For completeness here's what he wrote about the lowest expenditure bit:

In 2009-10, the government had budgeted a total expenditure level of Rs. 11,09,000 crore for 2010-11. What actually happened? The spending level was actually about 10 per cent higher, at Rs. 12,16,000 crore. Revenue growth in excess of budgeted estimates was also 10 per cent higher, so the excess expenditure growth was not felt on the fisc.

For 2011-12, the government has budgeted the following. First, nominal GDP growth of 14.1 per cent — and, though the break-up is not given, it should roughly be in the zone of 8.5 per cent GDP growth and 5.6 per cent inflation. The numbers are consistent and seem broadly accurate. Tax revenue growth is budgeted at 18 per cent, which, given a nominal GDP growth of 14 per cent, is also realisable. The reduction in effective tax rates via exemption-slab expansion should help compliance and tax buoyancy. But, and this is the key point, total expenditure growth is budgeted to increase by only 3.3 per cent!

A perspective on this expenditure growth is that if realised, this will be the second slowest expenditure growth in Indian history since 1970-71. The lowest realised growth: 1.5 per cent, in 2005-06. In that year, the UPA government was committed to sensible macro policies, before the rot set in. The lesson from Bihar is unmistakeable: good politics is good economics. With its back to the wall, more than any government since 1991 (or before), the UPA government is doing what is absolutely necessary for its survival.

Link

amit · Post by **amit** » 01 Mar 2011 12:17

However, there are contarian views on this which should be noted as well, because they focus on very valid points.

Let’s count what we have

You can’t get more ambitious than this. Finance Minister Pranab Mukherjee expects that the total expenditure will grow by a meagre 3.38 per cent, or just Rs. 41,153 crore in absolute terms, in 2011-12 compared with what the government spent in 2010-11. In real terms — even if one accepts the minister’s estimate that average annual inflation rate for the next year will be 5 per cent or so — then the government’s expenditure is actually shrinking. If Mukherjee manages to control government expenditure in such a brilliant fashion, he certainly deserves kudos. But I’ll wait till he presents his supplementary demand for grants during the year.

Going ahead, given the rise in global crude oil prices due to a volatile and still simmering political milieu in West Asia, there is little to suggest that subsidies on petroleum products or fertilisers would be any less in the coming financial year. The current trend in global food prices also do not provide any room for cuts on food subsidy. On the contrary, enactment of a law on food security — which Mukherjee has promised in the budget — may only increase the subsidy burden of the government.

Oil prices is the joker in the pack that can upset most of Pranab da's calculations.

somnath · Post by **somnath** » 01 Mar 2011 12:35

The expenditure estimates would be the key...Unless the FM expects the revenue estimates to be exceeded, a 3.5% expenditure growth seems a lot of stretch, even acounting for "one-off items" last year (basically the bank recapitalisation, which accounts for 15k crores I think)...

As always, the mathematics of the budget (revenues, expdt etc - much of which is non-discretionary really) are less exciting than the announcements...GST, amendment to FRBM and cash transfers on subsidies are the three big announcements made - lets see how the govt proposes to progress the execution...

vina · Post by **vina** » 01 Mar 2011 13:36

I am just loving it !

Pranab Da's budget has just made mincemeat of all the shorts in the market

.

I think I was one of the minuscule few who was (pretty much invested long) and removed all my shorts in this market before the budget. Most of all, I was long on Auto stocks and specifically a particular one which I though had deep relative value and kept buying when there was heavy selling by the shorts and the D&G buzz they kept up over the past few weeks. Also was long on banks.

Well, its pay day baby! Auto Index up over 5% and my stock has massively outperformed the Auto Index in the bounce. Bank stocks are afire! Also the pharma ones I picked.

AK PHYRRR! Hallelujah!

Lungi Dance!! Lungi Dance!!

Aditya_V · Post by **Aditya_V** » 01 Mar 2011 13:57

vina wrote:I am just loving it !

Pranab Da's budget has just made mincemeat of all the shorts in the market .

I think I was one of the minuscule few who was (pretty much invested long) and removed all my shorts in this market before the budget. Most of all, I was long on Auto stocks and specifically a particular one which I though had deep relative value and kept buying when there was heavy selling by the shorts and the D&G buzz they kept up over the past few weeks. Also was long on banks.

Well, its pay day baby! Auto Index up over 5% and my stock has massively outperformed the Auto Index in the bounce. Bank stocks are afire! Also the pharma ones I picked.

AK PHYRRR! Hallelujah!

Lungi Dance!! Lungi Dance!!

All you Incometaxwallahs now you have a target to recover Shart Term Capital Gains From