Budget 2009
During the whole budget Mr. Pranab Mukherjee (FM) has a naughty smile on his face. However this was not due to the fact that he was hiding something which he can do from the remaining politicians and the other millions who watched the Budget eagerly.
The FM has very little head room to move. As he is the one on the fiscal side representing the Govnt. of India (GOI) and their measure on the Indian economic condition, he was squeezed into a corner from where he has to fight his way back into the center of attention.
India's increasing Fiscal Deficit, unfavorable Balance of Payments (BoP), and not so strong global currency are to be kept in mind for global evaluation. Domestic concers are like interest rates and inflation. However they all form a loop which add additional pressure on the FM to do what he wishes to do.
Just days before the Budget 2009 was presented, the Economic Survery 2009 (ES09) was tabled. According to the ES09, many huge expectations were built up. The biggest were from investors and traders of the stock market of India led by BSE and NSE brokers.
However expectations like.... a cut in STT or Short Term Capital Gains would come were desperately looked at by the brokers. The GOI has always promoted investing and not trading. They have even gone that far to ban the P-Notes. Then why would they tamper with the STCG or STT. LTCG is nil, which indirectly indicates that the GOI indicates to invest in equities more than one year.
The surcharge on Personal Income tax was a multi-fold incentive. It increased the amount of money with the people, which is a favoritism measure, and also it now has left the people with more money to spend. This will lead to increase in consumption.
For many years now, all global finaicial institutions and fund houses like JP Morgan, Goldmans Sacs, Merril Lynch, Bank of America, UBS, have been positive on India only due to the fact that the economy of India has one major positive over China. We have our major GDP from domestic consumption unlike China who depend majorly on exports.
In recent past we also saw that due to the banking sector being protected and not fully opened up to the global players, we were partly saved from the global liquidity crunch. We were affected, but indirectly.
The FM has tried his very best to boost domestic consumption, but keeping Excise duties low and cutting Personal IT surcharge which will encourage more spending. Also to protect India's sunshine sector, the STPI clause has been extended for a year more. The Auditing threshold limits were increased, so that the GOI focuses on major income players and dont waste their time on small players.
Let us now come to the much debated Divestment. The ES09 stated that Rs. 25,000 cr per year would be divested over the next five years. Nothing of this sort was in the Budget. Only a paltry mention of Rs. 1,120 cr was mentioned.
The ES09 was just a road map for the next five years, the current FM is a long term thinker and strategiser. He is building his ground on better Budgets in coming years with improved economic conditions.
If we look back at the traditional meaning of the Budget, it is a statement of accounts of the GOI. It is like any other Annual General Meeting (AGM) of any other company. The accounts are presented and some future plans are reveled. Let is take for example the case of Tata acquiring Corus. Tata did not mention in its previous AGM that they would look to acquire CORUS, but mentinoed that their focus is on growing organically (internally) and inorganically (by acquisitions). They also mentioned that they would like to have a global presence. But suddenly they announced their intention of acquiring CORUS.
Same way the GOI need not say everything it will do in next one year to reduce Fiscal Deficit in the Budget speech only. For all you know the GOI may divest more than 25,000 cr in this year it self. There are many implicatios like filing of documents with SEBI and Stock exchanges. And the most important will be talking to Labour unions. We have seen what a problem divestment news makes on the co to be divested... eg: Air India.
To avoid this the GOI has taken some precautionary measures. I'm sure the FM has some tricks up his sleeve, hence the naughty smile during the budget speech.
Just consider it this way, that your fired from your Job, have to sustain for 6 months without income; then how would u sustain youf family which consists of 6 members (2 Parents, yourself, spouse, and 2 children). The FM is in similar position. He is trying his best. Slow rectification is better than big bang measures which will dry out the country's assets.
This is just a personal view on the Budget. Nothing shoud be considered as personal remarks to anyone or disregard/disrespect to anyone. It has been posted to help those who did not under stand the meaning of such a "dull" budget.
A post on sector specific and stock specific (if possible) implications would be posted soon. Keep visiting --> http://mubinfpanjwani.blogspot.com
By Mubin Panjwani
