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.