India’s Prime Minister Narendra Modi is in a spot of trouble. He has to face re-election in a few months amid growing dissatisfaction with his government’s performance; he’s likely to use every lever available to eke out a win. One such lever, unfortunately, was the interim federal budget that his lame-duck government presented last week, to keep official machinery running till the next government can come in with a mandate and make decisions about taxation and spending.
Interim budget 2019 can be assessed from the viewpoint of purist, public and impact on country’s future.
The purist would baulk at dilution of fiscal discipline that is not uncommon in countries facing polls. The deviation in this budget from the glide path of fiscal deficit makes it that much harder to reach central govt debt to GDP ratio of 40 per cent by 2024-25, especially when we hear that programmes in this budget are only a trailer.
The drowning of miners, in mid December 2018, who were working manually, in rat hole mines in agricultural land, in the Jaintia hills in Meghalaya, came as a severe shock to readers of newspapers. However, they naturally presumed that the State would handle it, and went back to their duties. What a shock it was, when no help was forthcoming, and the miners died the most terrible and tragic death, where the water rushes in, and the lungs burst, and their tears wash away in the mud, and their screams cannot be heard.
The roll-out of income support as a core centrally sponsored scheme is a better option than debt waiver, believes India Ratings and Research (Ind-Ra). There is likelihood that the union government may announce a relief package for farmers while presenting the vote on account for 2019-20 in line with the Rythu Bandhu scheme of the government of Telangana.
The Government is going to present its Interim Budget for the year 2019-20. As this is the pre-Election Budget, there are expectations that it could be a populist and please-all Budget. This is especially more so after the election results in recent Assembly polls. However, the question is whether the government has fiscal space to do so when there are large downside risks on achieving FRBM targets in the current year, i.e., 2018-19. As per the revised FRBM Act, Centre needs to achieve the fiscal deficit target of 3.3 per cent of GDP.
Breast beating about agrarian distress is the flavour of the poll season. The crisis has been building over decades and has reached a tipping point. Quick fix solutions like loan waivers may be good options, but are unlikely to make a dent on the problem. The population explosion and lack of structural and factor reforms have resulted in the agriculture sector, which contribute about 17-18% of the GDP being forced to support more than 50% of the country's population. A demographic disaster is staring the country.
The Indian corporate history has been replete with the instances of how the internal tussles/power struggles amongst the family members of a company leads to value destruction for the shareholders in the process.
In a country where a majority of businesses are family run, incidents such as Singh vs Singh, Singahnia vs Singhania and several such cases have a potential negative impact on amongst a wide spectrum of stakeholders.
One of the worst tendencies in American politics is to restrict supply and subsidize demand. (The phrase is from the economist Arnold Kling.) The likely result of such policies is high and rising prices, restricted access and often poor quality. If you limit the number of homes and apartments, for example, but give buyers subsidies, that is a formula for exorbitant prices.
Sebi’s rejection of L&T’s buyback on account of the fact that consolidated debt-equity is a breach of its regulatory threshold of 2:1 post-buyback is possibly the first time that the regulator has raised the question of consolidated financial metrics vs. standalone financial metrics. Perhaps a lesson from the recent meltdown in the IL&FS group is playing on Sebi’s mind. Even so, we argue that while L&T is not incorrect its stance, the regulator too has a point of view that should not be ignored.
This is the Lok Sabha elections season. The Union budget though technically “interim”, in practical it could be a full budget with many populist announcements. If finance minister Arun Jaitley finally has his way, it will be yet another first for Modi government that advanced budget date to February 1, one full month early. In an election year, the practice was to present the interim budget and President’s address put off to first session of the new government.