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The Pre-Budget 2013 Note


Folks, if you’re reading, I’m going to be live blogging and live-tweeting the budget (@deepakshenoy) as it unravels.

The more important, and more useful analysis will come in after the budget. Do check my posts on all past budgets, and do let me know your questions on twitter.

My pre-budget notes, before Chidambaram takes the floor at 11 AM:

  • TV channels expect a drop in STT or a drop in short term capital gains taxes or both. They believe the FM needs to excite markets. I don’t think that is an intention, since markets are just 5% off all time highs.
  • Elections are in 2014. That will definitely matter. Will we see populist policies like NREGA increase very much? A new one introduced?
  • Also foreign players and rating agencies are looking closely at Indian finances. If the deficit widens dramatically or we do not open up the economy any more, foreign capital flows will slow down and that is a huge problem for inflation and for the economy in general.
  • The budget is less important than it used to be. The bigger issues, and those that get very little attention, as the passage of silly bills without enough reasoned debate. Like the IT bill which a certain ponytailed pseudo professor is abusing. Or a woman’s exploitation bill that is very badly drafted. Or the Food Security Bill that is a nightmare of gargantuan proportions. But in India, you debate the random stuff because it’s more exciting. Sigh.
  • The underlying problem of people is corruption, as long as it doesn’t reduce property prices especially where they have just bought, despite it being that they will not sell in the next decade. You cannot solve this conundrum because dropping corruption needs a dramatic destruction of housing prices.
  • What we should see, according to me, is lesser government. This also needs lesser outrage from us, when things are legally fair. So if Reliance wins the auction for a development block in a fair auction and then makes a killing, they should. The only thing that is wrong is if the auction was unfair or if other players were not allowed to bid or such. But the less government is involved in the actual business the better it is for us. This also means a sale of all government stake in public sector institutions and banks where they are not regulators. I do not expect this to happen, but just saying.
  • We will automatically see a reduction in the fiscal deficit if the economy grows at a nominal rate of 15%+ and interest rates fall. Because the fiscal deficit is quoted as a percentage of the GDP and the government is curtailing spending by being indecisive.
  • The biggest ticket items – GST, the DTC and disinvestment – are not really part of this budget. But I expect some direction on these items.
  • Defence: there is large capex coming up this year. It is not wise to reduce that spend right now, but we could create policy that allows Indian private companies to serve this sector.
  • The power problem is still quite intense, and if the government needs to fix things, they need to consider moving more towards nuclear, solar (for off-grid), and natural gas (which is a cheaper import for the same energy produced).
  • We’ve done our deal on software exports. It’s now time to encourage exports of other things. Just that no one seems to want the stuff we make. Can the government create infrastructure to fix?

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