India-Africa Ties: Economics and Multilateralism

If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there

The Leaders’ Declaration from G20 this year comes with an added annexure. It is called the G20 Africa Partnership, included at the insistence of Germany, which has the G20 presidency for 2017 and is at liberty to set the multilateral grouping’s agenda for the year. The annexure states its purpose: “The Partnership intends to support related initiatives of the G20 and facilitate investment compacts between interested African countries, international organisations and interested partners to support private investment, sustainable infrastructure and employment in African countries.”

Germany, as well as the European Union, have an abiding interest in Africa. The unrelenting waves of migration from North African shores (often leading to loss of lives while crossing the tempestuous Mediterranean Sea) and Europe’s volatile immigration politics are likely to have prompted Germany to rally the international community around Africa’s plight. Hence the partnership document focuses, among other things, on creating sustainable employment opportunities so that African youth do not risk lives in search of livelihood elsewhere.

Ironically, the G20 club includes only one African nation, South Africa. The Partnership document has its fair share of detractors, especially within African nations, and suspicions about its overwhelming reliance on private sector investment.

It also holds out three lessons for India.

The first relates to deeply embedded historical attitudes towards Africa. These rose to the surface again, perhaps unwittingly, while French President Emmanuel Macron was addressing a G20 press conference in Hamburg. Answering a question on why there was no Marshall Plan for Africa, Macron is believed to have said Africa had a different set of problems, which included “civilizational” problems. Some of the unique problems cited by Macron included failed states, complex democratic transitions and African women giving birth to seven-eight children. This predictably triggered a maelstrom of protests and diverted attention to Africa’s colonial past and France’s role in it. Macron’s statement was also viewed as reflecting Europe’s smug (and enduring) belief of civilizational superiority. Macron almost buried the partnership even before it had an opportunity to take off.

India must take note of this public relations disaster. The impact of government’s intensive outreach programmes has often been blunted by violent displays of racism against African students and citizens living in Indian cities. It is indeed an odd occurrence for India, which boasts of a long and shared history with Africa—especially cultural, social and trade ties. If at all, there is a felt need to accelerate the Indian Technical and Economic Cooperation (Itec) programme which provides capacity building for officials from low- income countries.

The second lesson arises from the G20’s internal contradictions and the possible impact on India. The document has a section on strengthening the framework for investments and private finance in Africa, in which the G20 welcomes other partners and “…complementary measures by the forthcoming EU External Investment Plan, the Forum of China Africa Cooperation, the Tokyo International Conference on African Development as well as others”.

Herein lie the conflicts within the G20: China, Japan, Turkey and the US are all independently competing for a foothold in Africa, with each country aggressively courting nations and their heads of state. Germany and the European Union are joining the fray now. India also has its own India Africa Forum Summit, which has been re-energized and supplemented with state visits by Prime Minister Narendra Modi, then president Pranab Mukherjee, vice-president Hamid Ansari and other senior ministers.

Given the multiplicity of competing interests, it has to be seen whether different countries will be willing to subsume their Africa ambitions under an over-arching multilateral approach. India will need to watch this effort closely. If required, India could consider activating the Asia-Africa Growth Corridor (AAGC), its joint initiative with Japan, through the G20 compact. The AAGC, which places significant emphasis on both infrastructure investment and capacity building, aligns well with the G20’s Africa approach.

The third point relates to the implicit assumptions behind private sector investments—that they will automatically generate more trade. Unfortunately, intra-Africa trade accounts for only 14% of Africa’s total trade. It is true that poor infrastructure slows down intra-Africa trade traffic, and therefore higher investments in road and rail infrastructure will surely help. The problem lies elsewhere—the lack of a trade facilitation culture and customs capacity which hinders cargo movement. India and Itec can definitely help here.

More importantly, there are other opportunities for India. Data from the African Development Bank shows only 31% of Africa’s trade is backed by bank-intermediated trade finance. This is clearly an opportunity for Indian banks. India’s banking presence in Africa seems to have lost its relevance over time: The geographical footprint is built around traditional Indian diaspora habitats in east and south Africa, and operations are tailored around ethnic banking services. Late in entering Africa, Chinese banks have already acquired stakes in leading banks. If India is serious about its Africa initiative, a lot will depend on how it marshals its banking and financial sector there.

The above article was published in Mint newspaper on July 26, 2017, and can also be accessed here 

Book Review: Repo And Its Masters

A RBI governor remembers his doughty fights, but cuts down on the math

WHO MOVED MY INTEREST RATE?
BY DUVVURI SUBBARAO
VIKING | PAGES: 323 | RS. 699

Central banks have been labelled exotic beasts: rarely seen in public, much less understood. Realisation of what central bankers do has been seeping in slowly. Over the past few decades, as bond and currency trading acquired gargantuan propor­ti­­ons, the arcane world of dealers kept a close watch on every statement coming out of central banks, parsing each phrase and analysing each nuance. Any action, or the faintest hint of a future one, had the potential to affect currency prices, bond rates and indi­vidual fortunes. This need for analysis and interpretation also produced a large tribe of writers called ‘central bank watchers’.

Over time, as societies overwhelmingly bec­a­me dependent on debt— for housing, education or buying their next television—larger sections of the population got interested in the central bank’s actions. Any increase or dec­­rease in interest rates, or liquidity conditions, had a direct impact on household incomes and lifestyles. And yet, despite this growing interface, cen­­tral banking remains shrouded in a mysterious and inscrutable cloak.

Former Reserve Bank of India governor Duv­vuri Subbarao makes a valiant attempt to lift this veil and demystify a central bank’s workings. This is a first and we hope this will enthuse others to share their views. But there are two ways of viewing the book’s purpose. One, in trying to explain a central bank’s operations, Subbarao creates an opportunity to justify his actions dur­ing 2008-13, a period of stubbornly high inf­l­ation, extraordinary exchange rate volat­ility and an unprecedented (and unbroken) spree of interest rate increases. A converse view is also possible: its primary function is to rationalise his actions and he uses it to dec­ode the RBI’s actions and working styles. Which set of lenses have been used? The narrative str­u­cture and the tenor seems to suggest it’s the latter.

This becomes clear as one ploughs thr­ough an otherwise eminently readable account. The book’s pre-launch publicity focused on the governor’s well-publicised conflicts with former Union finance ministers P. Chidambaram and Pranab Mukherjee. Central bankers have traditionally shared antagonistic relationships with fiscal authorities. The book dwells at length on Subbarao’s differences of opinion with Chida­m­baram and Pranab, and how rising prices and a slowing economy widened the rift between Mumbai’s Mint Street and Delhi’s Raisina Hill.

But, with due apologies to Shakespeare, met­hinks the governor doth complain a bit. This is not to imply he was wrong in his stand on interest rates. Subbarao stood up against the collective might of the government, Parliament, a misinfor­med finance sector and uninformed commentariat by defending his right to raise interest 13 times in quick succession. He explains quite expansively why the situation warranted such drastic action. The fiscal and monetary expansion post the 2008 trans-Atlantic financial crisis, without adequate investment in production and supply capacities, embedded inflationary tendencies in the economy. Given political leaders’ reluctance to tighten fiscal reins, it was left to the monetary authority to attempt demand compression through interest rate increases.

Face-offs between monetary and fiscal auth­orities are built into the design; Subbarao mentions as much in the book. In times of crisis, both work in lockstep, as was evident after the 2008 meltdown. But, the impact of an expansionary fiscal policy on inflation and economic growth was ignored by the political class and India’s cossetted business interests. Much of the book describes this clash of ideals.

But there are gaps in Subbarao’s acc­ounts—both when describing clashes with North Block or when recounting challenges faced during vital post-crisis moments. Here are two examples.

First, there’s no mention of his immediate predecessor’s track record. Subba­rao mentions Y.V. Reddy only in passing while mentioning how crisis forced him to rev­erse his predecessor’s string of interest rate increases. We are not asking for public display of dirty laundry. Reddy too had to contend with a frequently (and publicly) remonstrating finance ministry. Reddy’s interest rate increases, to burst speculative asset market bubbles, earned him unstinted praise from economists and observers worldwide.

But, here’s the thing. Subbarao was fin­ance secretary when Reddy was busy inc­reasing interest rates to stave off risks. Interestingly, even Chidambaram was fin­ance minister during that period and he made public his displeasures with Reddy’s insistence on rate hikes. It would have been interesting, and more honest, if the book also disclosed Subbarao’s role as Chidambaram’s finance secretary in his engagements with Reddy, and the lessons learnt from those interactions before moving to RBI. Subbarao limits his interface with Reddy to discussions on RBI’s balance-sheet; I am sure there must be more. If the governor is going to reveal all about his skirmishes with political authorities, his interaction with RBI as finance secretary should also be fair game.

Two, there’s not enough explanation about how the RBI managed its balance-sheet in the aftermath of the crisis. Or, enough inside dope about the crisis days following the closure of Lehman Brothers. Subbarao describes how the monetary tap was kept open at full tilt to give the financial sector confidence that funds were always available. This was largely a signalling and confidence-building measure to avoid payment imbroglios or defaults which get amplified into panic during crisis times. As part of the strategy, RBI kept repo rates (the interest rate at which RBI lends to banks against government securities) low; but the reverse repo rate (interest rate at which RBI accepts money from banks against securities) was always kept 1.5 per cent higher. This was particularly true of December 2008.

Interestingly, this rate difference converted RBI—usually known as a lender of last resort—into a borrower of last resort. Banks would occasionally use the repo window to smoothen temporary mismatches, but would dump far excess cash with RBI’s reverse repo window. Clearly, credit aversion in the immediate aftermath of the crisis forced banks to seek safe havens for their surplus cash. Given money’s fungible character, we also do not know if banks borrowed from the repo window, turned around and tipped over the same money at the reverse repo window, thereby earning a neat 1.5 per cent without breaking into a sweat. The central bank’s annual report for 2008-09 (June 30 year-ending) highlights this anomaly: outstanding repos shrunk to Rs 895 crore (previous year Rs 22,805 crore) and rev­erse repos swelled to Rs 88,335 crore (previous year Rs 300 crore). This surely had some consequences and it would have been interesting to know Subbarao’s views.

But, beyond this, Subbarao has done a superb task of shedding some light on a central bank’s specialised role, especially by making it accessible to a wider spectrum of readers. He uses simple language and infuses some humour when necessary. It stops short of being a complete masterclass because encounters with the political class keep intruding. But somebody needed to talk about these incidents because the public rarely gets to know how both institutions interact. Yet, it also doesn’t do full justice to the political economy of Indian central banking. So, what is it, a book on central banking or an expose? I see it as setting the record straight.

This book review first appeared in Outlook magazine and can also be read here

A new trajectory for India-Africa ties

India now sees Africa as a promising market for Indian goods, services, and investments. This is evident in the government’s recent concerted focus on the India-Africa relationship—high profile visits by top leaders to African countries, a recasting of India’s development diplomacy, and an attempt to match action to past promises

India’s relationship with Africa has been through an unprecedented intensification in June 2016. In the first week of the month, Vice President Hamid Ansari visited Tunisia and Morocco. In the second week, President Pranab Mukherjee embarked on a tour of western and southern Africa, covering Ghana, Cote d’Ivoire, and Namibia. And in July, Prime Minister Narendra Modi is scheduled to visit Kenya, Mozambique, Tanzania, and South Africa.

The present renewed outreach is also unabashedly about business, and a good example of geo-politics combining with geo-economics. India views Africa as a promising market for Indian goods, services, and investments. So far though, any follow-up on promises had remained anaemic. Now, Indian leaders are seeking out fresh investment opportunities for Indian public and private sector companies in different African countries.

The vice president’s visits to Morocco and Tunisia are crucial because India imports phosphate—a critical raw material for fertiliser production—from these countries. Ansari also inaugurated an India-Morocco Chamber of Commerce during his trip to Rabat.

The president’s three-country tour provided an opportunity to further India’s business interests. At the India-Ghana Business Forum, Mukherjee said: “…the Indian Government would be ready to work with you in key sectors and areas of common interest and encourage Indian private as well as public entrepreneurs to bring more investments into Ghana.”[1] India’s cumulative investments in Ghana are over $1 billion and two-way trade during 2015-16 amounted to $3 billion.[2]

In Cote d’Ivoire, Mukherjee said: “…your country is blessed with fertile soil and abundant agricultural and mineral resources. Our public and private sectors are keen to join you in exploring these resources efficiently and in setting up agro-based industries.”[3]

At the same time, India’s development diplomacy for the continent has been through a strategic shift. Exim Bank, for example, is now likely to focus more on service exports, rather than compete with China for infrastructure projects in Africa.

The bank is looking to disburse close to Rs. 10,000 crores in Africa over the next three years as both commercial and concessional credit.[4] Service exports aim to build on India’s traditional strengths in Africa and will include healthcare, education, and information technology services. Exim inaugurated an office in Cote d’Ivoire during Mukherjee’s visit. The office is expected to widen the bank’s footprint in West Africa.

Exim Bank is also looking to sharpen its focus on another area of India’s traditional exports to Africa: project exports. It has requested the Reserve Bank of India to ease regulatory and compliance guidelines regarding minimum equity capital, leverage (the multiples—3X, 4X or 8X—of share capital that a company can borrow) and the maximum that the bank can lend to a single borrower.[5] These will be necessary if the bank is to make project exports one of its thrust areas.

These actions are in line with promises made during the Third India-Africa Forum Summit (IAFS) in October 2015. The first two editions of the summit—in 2008 and 2011—made numerous pledges but fell short on follow-up and delivery. Both sides were responsible for the indifferent implementation.

The last IAFS, held in October 2015, saw a strategic shift in focus—apart from the usual rhetoric, there was a better alignment of India’s global ambitions (both political and geo-economic) and traditional strengths.[6] [7] Importantly, the third IAFS created a formal monitoring mechanism to regularly review the progress of various projects at different stages of completion.

The summit aimed high—it also sought to create a global alliance of solar-rich countries.[8] Such an alliance will help create goodwill for India among Africa countries, and generate solidarity through collective bargaining when accessing IPR-protected technology from rich countries.

It’s starting with this summit that Modi has been building bridges with different African countries and soliciting support for a host of multilateral initiatives. These include backing for India’s membership of the UN Security Council along with a united front of emerging and poor economies at the World Trade Organisation.

The high-octane official Africa engagements will also help assuage concerns regarding India after recent allegedly racist incidents involving African nationals living in the country. But it is now up to India to ensure that its belated recognition of the critical role Africa can play in our strategic calculus, as well as in India’s trade and investment expansion plans, is not just a temporary spurt.

This feature was exclusively written for Gateway House: Indian Council on Global Relations. You can also read it here.

References
[1] Mukherjee, Pranab, ‘Address at the India-Ghana Business Forum Event’; Speech delivered at Accra, 13 June 2016, <http://presidentofindia.nic.in/speeches-detail.htm?531>

[2] Press Release, Ministry of External Affairs, Government of India, Visit of President to Ghana (June 12-14, 2016), 6 June 2016, <http://www.mea.gov.in/press-releases.htm?dtl/26872/Visit_of_President_to_Ghana_June_1214_2016>

[3] Mukherjee, Pranab, ‘President of India; Speech in response to welcome speech by President of Cote d’Ivoire’ Speech delivered in Abidjan, Ivory Coast, 14 June 2016, <http://presidentofindia.nic.in/speeches-detail.htm?534>

[4] S, Arun, ‘Exim Bank’s African credit to boost service exports’, The Hindu, 12 June, 2016, <http://www.thehindu.com/business/Economy/exim-banks-african-credit-to-boost-services-exports/article8721312.ece>

[5] Lele, Abhijit, ‘Commerce ministry, RBI to review regulatory norms for Exim Bank’Business Standard, 24 May 2016, <http://www.business-standard.com/article/economy-policy/commerce-ministry-rbi-to-review-regulatory-norms-for-exim-bank-116052400042_1.html>

[6] Documents, Third India-Africa Forum Summit, India Africa Framework for Strategic Cooperation, 29 October 2015, <http://www.iafs.in/documents-detail.php?archive_id=323>

[7] Documents, Third India-Africa Forum Summit, Delhi Declaration 2015, 29 October 2015, <http://www.iafs.in/documents-detail.php?archive_id=322>

[8] Speeches, Third India-Africa Forum Summit, Speech by Prime Minister Shri Narendra Modi at the Inaugural Ceremony, 29 October 2015, <http://www.iafs.in/speeches-detail.php?speeches_id=276>

War Of The Lords

What an unholy row! The unseemly spectacle of India's two financial sector regulators locking horns in public, and sparring with flailing fists, can only spell disaster for the country’s financial sector and its "orderly" development.

These two regulators should also realize that, with this spat, they have played into the hands of the government. It is well known that North Block in New Delhi, which houses the Finance Ministry, is keen to play mid-wife to the birth of a new super-regulator for the financial sector.

Pranab-babu’s Budget speech in February had promised a new super-regulator for the financial sector but was conspicuously silent on the details. Since then speculation has mounted about this new creature and its genetic make-up. The latest spat between securities markets watchdog Sebi and the insurance regulator, Insurance Regulatory and Development Authority, has now fuelled rumours that the ministry might use this seemingly intractable row to insert itself and lay the foundations for a government controlled super-regulator. SEBI and IRDA will then have to report to this new organization.

It is strange that such a disagreement was not sorted out in the High Level Coordination Committee on Financial Markets, an informal body created to specifically sort out similar issues of turf between different regulators. In fact, the coordinated action by Reserve Bank of India and Sebi recently against Bank of Rajasthan proves that this apex level committee can stymie designs of those who want to profit from regulatory arbitrage. However, there could be one possible weakness: this organization lacks legislative teeth. Various committees have recommended that the HLCC should either be given legislative powers or a super-regulator be set up.

This has become necessary since institutional activities and products increasingly straddle multiple markets today. Also, as the recent crisis has shown, achieving overall financial stability – which means ensuring that risks in each and every part of the inter-connected financial system are within manageable limits – has now been accorded greater importance than ensuring the stability of the banking system alone. And, it is believed that a super-regulator with a 30,000-feet-helicopter-view alone can perform this job. But, the important question that arises is: is the government the right agency to undertake this responsibility? And, if all the regulators in the financial system are to report to this omniscient regulator, what are the consequences?

Conclusion: there should be a widespread debate before finalizing the DNA structure of the yet-to-be-born institution.

Too Many Wise Men?

How many men does it take to run the economy? Numerous, going by the number of experts voicing their opinion in Delhi.

The multiple lines of economic command have been visible for some time now. If there were ever any doubts, one had to only tune into the babble of eco-speak emanating from Delhi soon after the wholesale price index numbers for February were announced. There was understandable panic because the inflation rate was nudging the treacherous double-digit mark. But, going by the comments made, it would seem that there were many more people out there in Delhi who knew what the Reserve Bank should be doing and when it should be timing its next action. And, then came the unexpected RBI rate hike to quell some of the inflationary flames. But, instead of diminishing, the decibel level actually went up by a few notches with the experts now holding forth that RBI needed to implement another rate hike.

But, what has been described above is only a symptom of a larger trend in economic policy management. Over the past few years, the number of ecocrats has multiplied and with it have the number the divergent views and conflicting opinions. All this is, of course, great grist for the electronic media.

Here’s a look at the chief policy manager and the various people in the economic management team.

· Prime minister Manmohan Singh: An established economist with pucca Oxbridge cred. Gained respect worldwide for having pulled the Indian economy back from the brink of bankruptcy and then steering it out of the stifling, controlled regime to a new liberal and competitive framework.
· C Rangarajan: Another well regarded economist. The former RBI governor is currently the Chairman of the Prime Minister’s Economic Advisory Committee. Obviously, knows his monetary onions well and makes them public as well.
· Montek Singh Ahluwalia: Another Oxbridge-World Bank alum who gained fame as an economic advisor during Rajiv Gandhi’s time. Was Chief Economic Advisor in finance ministry when Manmohan Singh was finance minister. Is currently Deputy Chairman of the Planning Commission. A favourite with the sound-bite hunters on all topics – from the state of the monsoons to the interest rate structure.
· Kaushik Basu: A vociferous champion of free economy, this former don – he taught at Delhi School of Economics and Cornell University – has been recently appointed as Chief Economic Advisor to the finance minister. He is the hunting pack's new quarry.
· Pronab Sen: Chief Statistician, Sen is currently trying to overhaul the way data is collected, tossed and diced, and then the manner in which the decision-making apparatus interprets it. He has also been vocal with his views on inflation and interest rates.
· Raghuram Rajan: Occupant of tenured chair at University of Chicago and a former Chief Economist at IMF, this man has been quietly advising the PM on a number of issues, including financial sector reforms. The super regulator proposed in Budget 2010 – which is expected to supercede all the other financial sector regulators in the country, such as RBI, SEBI, IRDA -- was suggested by the panel headed by him.
· Pranab Mukherjee: The man who, as finance minister, is in the thick of it but does not speak much at all, except to voice the government’s overall concern from time to time over inflation, interest rates and their impact on credit growth and the general well-being in the economy.
· D Subbarao: Governor at RBI, who played an impressive role in launching the fire-fighting operations in close coordination with the fiscal authorities soon after Lehman Brothers went belly up. He is also trying to improve some of RBI’s traditional ways (such as, communication), but unfortunately that is seen as a weakness and he is considered fair game by everyone in Delhi. So, almost every ecocrat has a word of advice for him.

There is nothing wrong in having such a large and high-calibre team of economists in charge of policy management. But, policy direction starts sounding out of whack when all of them speak in different and contradictory tongues.

Two Big Bs -- Budget & Babu

Now that the media dust is beginning to settle on the Budget, here are some random thoughts and observations.

• The sleight of hand on Fringe Benefit Tax sucks. Making a grand announcement in Parliament (“I propose to abolish Fringe Benefit Tax”) while slipping in a proposal through the Explanatory Memorandum (to shift the burden to employees) not only stinks but reeks of traditional Congress behaviour – double standards and hypocrisy. It is also symptomatic of the party’s historical political culture. One would have expected the Ministry and the Finance Minister to be a bit more transparent. If this is how the government of the day behaves – surreptitiously, hiding behind opaque deals while making pious announcements in Lok Sabha – then one wonders what kind of example they’re setting.
• The market has come under heavy flak, and rightly so. It overplayed its hand and came up short. But, the market never seems to learn – this is a kind of behavourial pattern that keeps repeating itself. Many institutions published reports stating that the government was unlikely to accelerate its reforms programme from 0 mph to 90 mph in just a month after getting elected. And, that sounded pretty logical. But, markets never leave anything to chance – what in case Pranab-babu has a change of heart? What if Rahul-baba weighs in? Buy now or repent later. Interestingly, it may be instructive to read some of the Budget reports published by the broking houses – both foreign and domestic – the next day. Almost all of them have taken this holier-than-thou attitude and have roundly criticised the market for over-reacting. If everybody in the market is criticising everybody else, then who – in the name of the sweet lord -- sold? Somebody’s gotta come clean soon.

• Some governance rules never change. When not in favour of fast-tracking a proposal or an idea, set up a committee. Pranab-babu has announced a huge number of committees in his budget speech. Mocha Master’s pick from the many committees announced – an expert group “to advise on a viable and sustainable system of pricing petroleum products”. Which means: free pricing in petroleum products is unlikely till the Maharashtra Assembly polls next year.

• And, finally, this is what a friend and former colleague, who now lives in Hyderabad, had to say about the Budget: “Pranabda was doing more than just sniffling behind his hanky...he was playing hanky-panky..!”

Budget Badinage

First, my sincere apologies to all readers. Travel schedules and attempts to understand the vagaries of my new daytime job have kept me slightly busy. Promise to be more regular in the future.

The approaching Budget and speculation about its format is occupying the minds of most market observers. That is not surprising. Given the mandate won by this government, everybody is keen to see what form and shape this budget takes. Everybody also has his pet hypothesis. So, as all eyes converge on Pranab Mukerjee, here is this column’s take on the Budget (which is a bit of my own loud thinking and a bit of mish-mash from all that’s appeared so far in the media).

First, the man himself. Pranab Mukherjee is a seasoned politician and not an “economic technocrat”. This is sure to reflect in the Budget. Those hoping for a reforms blitzkrieg may be in for some nasty shocks. Those hoping for a totally populist budget without any market-friendly giveaways may also have got it wrong. The answer might lie in the way the political landscape has shifted.

First, the FM has to mend the gaping hole in the fisc. 'We have to deliberate on ways and means to bring back the economy to higher growth trajectory without fiscal profligacy,' Mr Mukherjee is believed to have told a conference of state ministers. So, out with all hopes of heavy tax cuts. Any substantial tax cuts would have to be substituted with increases in indirect tax rates, an utterly undesirable proposition. But, there are likely to be some tax changes – such as, some tinkering with Fringe Benefit Tax or Securities Transaction Tax which leave an okay taste in the mouth without upsetting the consolidation process.

He may also look at some new tax exemption schemes on a prospective basis to keep the household spending engine on track. Increasing the threshold level for tax breaks on interest paid for new home loans is something that’s already figured in the media. More of such similar schemes might worm their way into the document.

But, he also has to think of the forthcoming assembly elections in some of the states, such as Maharashtra. Therefore, food guarantee programmes, higher procurement prices for rice and other such schemes might find mention in the Budget document. Plus, given the way this monsoon is behaving, Mr Mukherjee might be forced to provide some rural handouts and concessions.

Think state-wise, especially about states that are likely to go to the polls in the next couple of years, when you read the Budget document. The Congress party, emboldened by its improved performance in Uttar Pradesh and some other states where it had reached rock-bottom, will want to consolidate its hold in many states before its current allies (Mamata or Karunanidhi) get too strong or some of the existing political opponents can regroup. See how quickly CBI has acted in arresting NCP man Padamsinh Patil. Or, witness the alacrity with which the Kerala governor has acted against Pinarayi Vijayan, supposed to be close to Prakash Karat. That should provide some clues about not only the shape of politics to come but also hold some pointers to the nature of this year’s Budget document.