Again a populist Budget!

From the trends of economic survey 2015-16, it is clear that this union budget is also going to be a populist one! Please do not startle yourself! Whatever I say is the outcome of the trends of economic survey! While I have confidence on my analysis, I do not have right to pronounce the idea of others as mistaken. This union budget to be introduce in Lok Sabha on February 29, 2016 is going to be a burden on the pockets of general people. I am not swirling nor I do have any intention to  do so. I am directly coming to the point. You can see from this economic survey that UPA II is blamed in this survey for the bad performance. While the government has GDP data upto 2014 only and also with the help of IMF and World Bank, the government is just trying to take credits of its newly implemented policies. I am not going to delve into this matter further as being human I could take the view mistaken which I do not want. Most of data used in this Economic Survey is of the period of previous governments and thus this government could not be tested at this juncture at least.

In the state of the economy chapter, it is said that India's consumption growth till 2001 was 5.5%, it was 6.4% from 2002 to 2007 and after that till 2014, it is 7.5%. It is also said that 72% of global growth is attributed by the final consumption from 1991 till 2013. 2007 recession has deep impact till now and except china world is seeing a nosedive in the investment arena. The economic survey is much choosy upon the subject of GDP growth. For the sake of clarity I bring the formula of GDP here;

GDP (Y) = Consumption (C) + Investment (I) + Government Expenditure (G) + Net Export (X-M)

where X is Export and M is import.

I would not like to go much on the formula rather coming back to  the discussion the Economic Survey 2015-16 (ES) envisages that the largest chunk is coming from private final consumption. It would constitute almost 60% of total GDP. If we take advance estimate then it could be Rs. 68,10,577 cr. According to the new series estimate, it was Rs. 49,45,926 cr. A whopping difference of Rs. 18,64,650 cr. Can you guess what does it say? Let us guess! This is a clear indication that some sort of social security scheme with longest lock-in period shall come into force. Schemes like Insurance whose benefit shall be reaped after say 20-30 years, a big thrust upon schemes like gold monetization schemes, savings in liquid assets which could easily utilized by the Government of India and this could be Fixed Deposits, Kisan Vikas Patra, PF and like. The ES indicates that the Government consumption has been lowered to nearest of 10% from 11%. This could cut the education grant, health grant and other such welfare schemes and the same could be given to private body of PPP model. The most disturbing part of the survey is fixed capital formation. In 2015-16 it is lowered to 29% from 34% in 2011-12. Fixed capital formation is indicator of business environment in the country. It is lowered generally during the recessionary period. Academically, I can argue that the fixed capital formation constitute the acquisition of fixed assets by business, government and household. Now this is much more complex as Railway announced three new freight corridor and thus we could expect that upto next year government is not going to start its process on new freight corridor. Infrastructure spending by the government is considered good because it saves money in the long run and reduces the Net present value of the government liabilities. But, where the capital formation has lowered, the government shall have to make endeavour to bring ideas for youths employment. We can cheer that the government is going to boost export which it has failed miserably.    

Government planned to finance central plan mostly by market borrowings and Public Sector Enterprises (PSEs). Yes, PSEs which is regularly questioned. Again  market borrowing shall be a burden upon the general public as the same could be initially funded by Foreign Institutional Investors but later the same could be turned to short term borrowing and the Insurance companies have to subscribe the same as the trend  goes. The budgeted estimate reveals that the government borrows Rs.  456405 crores from market and PSEs could contribute Rs. 317889 cr. out of total estimate of Rs. 578382 cr. made NITI Ayog. The government seems to be exerting all  its effort on mining which i personally finds a bad idea.  2015-16 Advance estimate has envisaged growth rate of Agriculture a meager 1.1%, mining 6.9%, manufacturing 9.5% and service 9.2%. First revised estimate of 2014-15 is embracing agriculture in  negative growth,  and mining whopping 10.8%. We should keep quite on manufacturing as it is only 5.5% and Service is 10.6%.

Indian GDP is primarily and mainly contributed by household sectors (45.5%) followed by private sectors (33.9%) in 2011-12. Trend suggest that while contribution of household (44.8%) and public sectors (19.4%) declined in 2014-15, private sectors prospered (35.9%) since 2011-12 till 2014-15. This budget could stimulate the private sectors with tax soaps and other loan waivers. The government could announce major amendment in tax laws for startups and other  SMEs and the farmers i.e. agriculture and fishing could be sidelined. 

John F Kennedy in his inaugural address dated January 20, 1961 said, "If a free society cannot help the many who are poor, it cannot save the few who are rich." In a nutshell, this budget seems to going to be a corporate presentation where the bottom-line of corporate should be looked after. Expenditure on Social Security Schemes could be lowered and instead of that insurance schemes could be floated under the banner of social security schemes. By doing so, this government could be a limited government instead of an activist government which is a force for public good.

Picture Courtesy

     

Bihar Election: Only voters will loose...

Election is near in Bihar. Election commission has already announced the date of election which will start on 12^th of October and ends on 5^th of November 2015. The political parties are making all the possible promises of development which could be included in election manifesto but have we considered anytime why is Bihar lagging behind in Industrial development viz-a-viz national growth? No political party has ever tried to address this very question rather all are blaming one another for the same which is not true. The state’s industrial demography has been made from the 90s in such a way that the obstacle for establishing industrial set up is gigantic there. First of all, I could discuss about the policy paralysis of the government. I can enumerate like there is no (i) single window redressing system, (ii) Land Bank so that industry can get Land immediately without any public outrage, (iii) marketing potential of the bye/end product, (iv) mechanism for identifying industrial sickness, (v) transparency, (vi) stringent but easy RTI law, (vii) adequate basic infrastructure like transport, water and un-interrupted electricity supply and last but not least there is a few effective established industrial park. These are common deficiencies in policy of the government rather much of them are that the government has identified only nine sectors for its key thrust areas which are Food Processing, Agriculture based Industries, Tourism related Industries, Super Specialty Hospital, Higher/Technical Educational Institutions, Information Technology based Industries, Electronic Hardware Industry, Textile Industry and Energy/Non-Conventional Energy. These obviously not included heavy industry, automobiles and export intensive industry like gems & jewellery, petroleum, medicament, ship’s boats, textile yarn and organic chemicals etc.

The government has much focussed on the traditional sector which can be good and can certainly lead to much development without any bigger effort, but how? There is no clear policy which is implemented on ground level to boost agriculture as during Lalu’s rein agriculture was much sought after and it grew on an average 10% growth while industry was witnessing meager 3.5% growth. During BJP-JD(U) coalition government industry grew with an average 10% while agriculture with 3.5% which is nothing but structural change and it means NDA government has done nothing but structural change which cannot be said to be healthy steps to revive the economy rather it was an act of pouring milk from one container to another. It would have been better to keep the pace of agricultural growth on top gear; the industrial growth could be accelerated with extra effort. Now let us forget the past and coming back to policy.

Incentives on land, capital, plant and machinery, quality certification and reimbursement of VAT etc. are meager and could not attract much attention for large/mega project e.g. plant and machinery subsidy is only 20% subject to maximum of Rs. 5.00 cr. for large industrial unit and Rs. 0.75 cr. for MSME. There is no special incentive on income tax, service tax etc. which the state could have given from the devolution of the central Government receipt. Are these the only cause of slow growth? Answer is no. let us examine further.    

Law and order in Bihar has become a thing of media blind fold. Comparison from 2001 to 2011 is not so impressive. According to the Bihar Police Website, total crime reported in 2001 which includes Cognizable, Murder, Dacoity, Robbery, Burgling, Theft, Riots, Kid, K.R., Rape, R.D., RR, BD are BR are 128,487  while in 2011 it was  188,917 an increase in 47% over the year 2001. Media was much blind over the issue reason best known to them but surely NDA regime was not a golden period of Bihar rather it could be said a blot on the Bihar. General people were satisfied with glory and false report rather victims failed to get proper attention. Public can be fooled but not the think tank of large corporate. Their risk tolerance in terms of law and order is very low. In spite of these which are heart touching, the government also failed to do good deeds with the established industry. State government made little effort to expand petroleum refinery industry and revive sugar industry with a growth in technology and Sugarcane productivity.

It is matter of fact that the few sugar mills in Bihar have old technology and substitute for the same could be the same as that of establishment of new mills and hence government has no scheme for the same also. Either government can develop the project or transfer the same to strategic investors after negotiations. I in totality can say that in last 10 years, the government has not taken any step which could boost the industrial growth.