Movie Review: NH 10

NH 10 is a movie that contrasts the life of a liberated woman who inhabits the sprawling, developed, majestic city of Gurgaon - that houses malls & multinationals - with a woman in chains residing in the visceral, regressive, conservative, patriarchal society - just a stone throw away from the city.

Anushka Sharma (Meera) is happily married to Neil Bhoopalam (Arjun) & both seem to be enjoying their personal & their professional lives.  One day, while the couple are partying at a friends’ place, Meera receives an urgent call seeking intervention, since a batch of the feminine product - to be launched the next day - had failed. She starts off alone, at the dead of the night, only to be attacked by hoodlums, on a bike. While they break the glass of her car, she has the presence of mind to speed off, escaping the wrath of the attackers. Welcome to Gurgaon.

The couple lodge a complaint at a police station only to be sardonically told “Yeh shaher badhta bacha hai ji. Kud toh lagayaga hi,” The badlands of Haryana are described succinctly in one line by the cop: “jahaan aapke Gurgaon ka border khatam hota hai, wahan law khatam, madam”. He advises the couple to use their proximity to the DIG to procure a gun licence for personal safety. The irony is not lost on the viewers that the police - who are supposed to protect the common citizens - seem ill equipped to the task & are advising people to make their own arrangements. The satire is not lost either that while the connected can at least procure arms for personal safety, the plebeians are left to the mercy of the marauders. This is the first glimpse of an inept, corrupt police force; more shocking aspects are revealed later.

Arjun decides to make up for the skipped honeymoon with a getaway, to celebrate the birthday of his wife. Off they start for a private resort on NH10. As they drive past a toll way, they find one of the booths unmanned; a toll agent on being asked the reason, answers, nonchalantly, that 4 people - when stopped at the booth  - decided to kill the agent rather than pay the toll charges. The un-agitated way the toll agent replies gives an impression that this is not a rare occurrence after all; human lives come dirt cheap here. Welcome to the Bad- Lands of North India.

Driving through the picturesque NH 10, Meera & Arjun decide to take a break at a roadside dhaba where the former encounters a girl who begs for protection since she fears death from some miscreants; Meera just like any Indian brushes her off. Later, on hearing commotion outside the dhaba, Arjun comes out, despite Meera’s protestations, only to witness the horror of the girl & her paramour being kicked & dragged. A good samaritan, he tries to intervene but is brusquely told to mind his business. The leader of the gang Darshan Kumar (Satbir) tells Arjun that the girl is his sister; does a brother have the right to perpetuate humiliation on his co-born? Welcome, to the patriarchal world.

While all the onlookers remain mute spectators to the ignominy, Arjun persists at intervention only to be soundly slapped. While the gang drives off - with the shrieking couple - Meera & Arjun proceed onwards. However, Arjun’s honour has been wounded & he is seething within. Therefore, on sighting the gang’s vehicle he follows them to a secluded spot, revolver in hand, with an aim to seek revenge where he chillingly encounters the scene of the boy’s bones being broken & the girl being made to swallow poison. Clearly, it appears a case of honour killing at work & preparations are afoot to bury the couple.

Arjun bravado is quickly tempered & he is at his wits end; he tries to flee the scene but it is too late. A blow on his head brings him to the ground & his revolver snatched. Satbir uses the revolver to finish the girl while the boy is plonked with an iron rod to death. Satbir’s uncle Ravi Jhankal (Tauji) advises that Arjun be eliminated & dumped along with the dead couple in the same pit. While the gang is in a heated discussion, Arjun succeeds in snatching the revolver & in the enduring melee, shoots to death one of the gang members. Arjun unwittingly, thus, gets embroiled in a murder. The remaining part of the movie is about Arjun & Meera fleeing to save their skin.

Arjun & Meera, without their vehicle keys & only a revolver for security need someone to drive them to safety; however their cries for help go unheard & none stop their vehicle on the busy highway. Meera had brushed past the girl's cries for help earlier & now she faces a similar situation of horror. Survival is now the name of the game. The battle of wits continues & the thriller has viewers on the edge of their seats, rooting for the besieged couple.  Later, when Arjun gets knifed on his shin, Meera shoots dead another of the gang members, in a bid to protect her husband. Meera too, is a murderer now.

Meera carries a limping Arjun to the safety of a secluded spot under an overhead railway bridge & moves out to get help. There is a poignant shot where Meera cries out loudly, only to have her voice lost in the din of a speeding train on the overbridge above; typically reminiscent of our times. Thereafter, promising to bring help, she runs exhausted to a police station only to be thrown out. Meera snatches a cycle & encounters policeman’s boss on the way & seeks his help to retrieve her husband. The cop advises her against filing a report against his junior explaining that the latter had denied help since the policeman “has to remain in the same village as the killers & has the challenge of 3 sons to be married off especially when there are no women left”. He is, perhaps, alluding to the abysmally low gender ratio, in Haryana, of 879 per 1000, as per the 2011 census. He also talks patronisingly about Manu & Ambedkar & explains how the rules that they had ordained have helped maintain equilibrium in society. The cop reasons that when rules order us to keep to our left, any attempt at violation by riding in the opposite flank shall be punished. The lovers have been killed, he unwittingly reveals, for falling in love despite belonging to the same gotra. Our suspicion of an honour killing is thus proved right. That the law protectors are in cahoots with the law breakers is, chillingly, revealed.

Knowing that the cop is hand in glove with her tormenters, Meera escapes, after injuring him to find sanctuary in a quarry, guarded by a Bihari family. When Meera requests the guard’s help to help meet the sarpanch, she is told by the Bihari, that they are ordained to stay outside the village – a euphemism for caste segregation that is till rampant. Meera, therefore trudges alone to reach the village, bribes a kid to reach the sarpanch’s place only to realize that Deepti Naval (Ammaji) - the sarpanch – is the mother of the girl killed; shockingly, the honor killing has been executed as per her orders. Is a woman another woman’s worst enemy?

Meera is imprisoned by Ammaji but she manages to release herself only to find Arjun killed. Then comes the twist in the tale. While revenge is generally shown as a male preserve, a female protagonist, donning the honours elicited many whistles from the enthusiastic audience. She returns to the village to kill all the murderers. The modern woman - with an ability to fight injustice - has arrived.

This taut & riveting movie is Anushka’s first production venture & she has essayed a fine performance.  Navdeep Singh - who earlier directed “Manorama 6 feet under”- could not recreate the same magic although both the films belong to the same genre:thriller.  The director disagrees that the film is an Indian adaptation of “Eden Lake”; he calls it "girl hounded in the wilderness genre of cinema" which is a theme across at least 20 movies. The cinematography is outstanding & the shoot, largely in a night setting, succeeds in conveying an eerie feeling. Ravi Jhankaal steels the show in his Haryanvi accent & Deepti Naval is outstanding in her brief appearance as the brutal sarpanch. Darshan Kumar is menacing. This unconventional film is appropriate for these times when the debate on the violence against woman has taken centre-stage. The woman seeking revenge a la “Kill Bill” - proves that women are not the “weaker sex” after all. That, is a comforting feeling..

Dhana Sutra: The Art of Wealth Creation.

The Finance Minister’s (FM) budget announcement that an individual could potentially enjoy a deduction of 4.442 Lakhs made the middle class happily sit up & take notice. The happiness escalated into ecstasy when The Economic Times announced that the actual deductions were much higher than those promised by the FM, as per the list alongside. 

The deductions, seen in conjunction with the income between 0 to 2.5 lakh - that attracts zero tax – precludes an individual, with a salary approximating 10.15 lakhs, from paying taxes. There is however a catch. The deductions are contingent on investments in certain products, not all give an adequate return. That begs the question

What is an adequate return?

The following Dhana - Sutras attempt to answer the query.

     Rule 1: Nominal Rate = Real rate + Inflation Rate.

Rs 100/- saved today is expected to grow to cover at least inflation by the same time next year. The consumer price index (CPI) - a measure of inflation with the base year being 2001 - is listed alongside.

The inflation fig. between 2006 & 2014 was 9.1% while the corresponding fig for the period 2008-12 was 10%.  A rational investor should, therefore, reasonably expect a return of at least 9.1% & if the same is unavailable, then a tax benefit - devolved through govt. policy pronouncements  - should fill the gap. Needless to add, expected return changes with the times - for it is directly linked to the current inflation trends; when inflation drops the expected return drops accordingly.
 

Rule 2: Return is directly proportionate to the risk assumed.

Govt. securities - backed by a sovereign guarantee – carry a zero risk & hence offers the lowest interest rate, while betting - which carries the highest risk - rewards the investor with astronomical returns. A rational investor is, however, expected to avoid speculation & therefore, can reasonably expect a return in between the two extremes listed above. For achieving the objective the investor should evaluate the returns offered by each of the financial instruments - details of which are reproduced from The Economic Times Wealth issue of 8^th Mar 2015.

Some takeaways

•           A risk-averse investor goes for an EPF since the EPFO invests in high quality debt instruments. Withdrawal before retirement is not allowed under the scheme, except under some special circumstances like medical emergency, construction of a house or child’s marriage. Withdrawal of money before 5 years invites tax on the interest earned. The return of 8.75% offered is lower than the inflation rate of 9-10% & hence not fulfilling. EPF effectively offers a negative real rate of interest.
•        Self-employed personnel not covered by the EPF could invest in the PPF. Investment before the 5^th of a month earns interest for that month too. PPF is a long term investment with a 15 year term which can be extended in blocks of 5 years each. It offers limited flexibility with withdrawal & loan against PPF allowed post the 5^th year. However, here too, the return at 8.7% is much lower than the inflation rate.
•         Since both EPF & PPF are long term savings which the govt. can utilize for creating assets, GOI panders investors through a tax benefit that ensures that the actual return in higher, making it reasonably attractive. The principle invested, interest earned & amount post maturity are all exempt from tax under the Exempt, Exempt, Exempt (EEE) rule.  

Other Investment Options

The govt. offers tax benefits on investments in Equity Linked Saving schemes (ELSS), Life Insurance premiums, Unit Linked Insurance plans (ULIP), New Pension Plans (NPS) etc. too. Let us evaluate each one of them.

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• The average stock market returns are listed  alongside.BSE Sensex - started with an base index of 100 in1978-79 - gave a return of 17% by 2015 while NSE gave a return of 12% during the period 1995-2015. Equity, therefore, in the long run, can be expected to give an average return of 15%. Many of the Mutual Funds (MF), run by intelligent fund managers, can be expected to beat the market returns.
•         Investment in Equity Linked Saving schemes (ELSS) is recommended since it has the lowest lock in period of 3 years – unlike an EPF & PPF which blocks capital for a lifetime & 15 years respectively - & fulfills the equity requirement of the investment portfolio. Since dividends & withdrawal after 3 years for ELSS are tax free the actual return is higher than 15%.  Investors are advised to stagger investments through Systematic Investment Plan (SIP) since stock markets are volatile & any attempt to time the market would lead to failure.
•          Returns on a life insurance policy - a money back or endowment policy – at 5.5% is niggardly. Investors are better advised to buy a term policy instead which comes at a more reasonable cost. As an example LIC offers a 35 year term policy of Rs 10 Lakhs at Rs 3880/- per annum for an individual of age 30 years while an endowment policy for a similar profile comes for Rs 26810. Agents whose commissions are based as a % of premium secured would naturally be inclined to push for endowment plans.
•          ULIPs (Unit Linked Insurance plan) are sold as an investment cum insurance plans. Avoid them since they give returns in single digits. Instead, pick a MF (Mutual Fund) if the aim is investment & a term insurance plan for protection.
•          The FM has tried to make the NPS attractive with some announcements in the current budget. He has allowed an additional deduction of Rs 50000/- under sec 80CCD (1B) apart from increasing the benefit under sec 80C from 1 to 1.5 lakhs. The employer’s contributor is also tax deductible. Investors might not buy into NPS since exemption is restricted to the principle invested & interest earned alone while the final withdrawal is taxed, thereby falling under a EET ( Exempt, Exempt, Tax) rule unlike an EPF or PPF which allow for a EEE rule. To add to the agony, there is an additional rule that mandates an investment of 40% of the corpus into an annuity – which gives an abysmally low rate of interest- on maturity. This reduces the attractiveness further. NPS offers little flexibility since investments cannot be accessed till retirement. Unless the FM allows for the EEE rule & flexibility in withdrawals, NPS as it stands today shall not take off.
•          Health insurance depends on family size & age. For a family of 4 with parents at age 35 & 2 kids under 10 living in a metro, a “basic cover” of Rs 5 lakhs that comes with a premium of 10-12000/- shall suffice. For additional cover a “top up” can be added; a 10 lakh “top up” comes for under Rs 7000/-. For a family afflicted with a history of critical illnesses like diabetes, hypertension etc. a “benefits cover” should be added which also subsumes other ancillary expenses like food, travel etc.

Alternate Investments

In a country like India with low financial literacy, investments other than financial products have many takers; chief among them being real estate & gold. The returns derived from each of such asset classes is listed below

Gold:

Ten grams of gold was priced at Rs 18.75 in 1925 which has grown to Rs 26450 by 2015. But for the period 1925-45 when gold offered a 12.7% return, the growth during other periods has been in single digits; for the period 1925-2015 the return is 9.5%. Incidentally gold rates today at Rs 26450/- are equal to the 2011 levels.

Most of Indians have gold in the jewellery form which lends itself to wear & tear & hence depreciation. If you add the cost of security in the form of a locker then the return drops further. Therefore, be wary of stocking gold in a jewellery form; prefer gold exchange traded funds or coins/bars.

Assets behave differently during different time cycles. While the average return on gold has been 9.5%, gold bought in 1965 gave a return of 22.4% during the 1965-1975 decadal period. Likewise, gold bought in 1980 gave a return of 40% in one year. Therefore, gold should not be shunned; invest about 5-10% of the total savings in gold.

Real Estate:

Real estate is a difficult animal to predict since it is city specific.  Business cycles, have different impacts on residential property Vis a Vis commercial property. A fair estimate can however be made by studying the National Housing Bank’s (NHB) Residential Index (Residex) published for 26 cities every quarter since 2007.

Some Takeaways

•          The residential rates in Hyderabad & Kochi are, today, still less than their 2007 peaks.
•          Chennai has seen the highest growth. Rates in 2014 are 3.5 times their 2007 figs.
•          Between 2007 & 2014 only Faridabad, Ahmedabad, Chennai, Pune, Bhopal, Kolkata, Mumbai & Bhubaneshwar have returned double digit rates.
•          The common assumption that real estate can never fall nor give a negative return is, therefore, false. The hope of astronomical returns is not fully true either.
•          While some investors would flood the Chennai market - lured by high returns - there could be others who would bet that Kochi or Hyderabad - which have not seen a rise - would reach Chennai levels some-day & invest with the expectation of super normal returns.
•          For a normal rational investor, however, a self-occupied house which offers a deduction of 2 lakhs on interest is a recommended investment.

Conclusion

While fixed deposits & gold give an average return of about 9% & 9.5% respectively, real estate & equity give a higher return of about 15% - much higher than inflation.  An average Indian, keen to invest in a house, sinks a major chunk of his investable surplus into real estate. A portion is spent on gold to pander to the demands of his home minister. Post such investments & mandatory deductions, if any, he is generally left with a meagre surplus. A rational investor he shall be well served by investing the same in equity; engaging the services of experts -a Mutual Fund - is recommended.

Budget 2015: Main Themes

Finance Minister, Arun Jaitley’s 2^nd Union budget, was crisper & definitely better thought out than the one presented last year. While Prime Minister, Modi’s imprint on the budget, is visible, the man who seems to have done the heavy lifting, perhaps, living in the shadows, is Jayant Sinha, the MOS Finance. Expectedly Chidambaram opined that the budget “fails the tests of fiscal consolidation & equity” while Modi called it “a budget that will further reignite our growth engine, signalling the dawn of a prosperous future”. The truth shall lie somewhere in between the two assertions.

The BJP govt. was lucky to be welcomed into the saddle with a dramatic drop in the international commodity prices - including oil - that translated into an automatic saving in subsidy. The unexpected flare-up in Ukraine has reduced the attractiveness of Russia as an investment destination while other emerging economies continue to remain “fragile”; India, therefore, is a default gainer. The tapering off of QE (quantitative easing) in the US coincides magically with the introduction of one in Europe & Japan that shall sustain FII flows into India. Apart from the benign international environment, the RBI, too, has chipped in by taming inflation & the rupee. The CSO (Central Statistical Organization) estimates -under the new methodology - project a GDP growth of 7.4% this year & 8.1 - 8.5% next year. India definitely is in a “sweet spot”.

The 14^th finance commission recommended devolution of 42% of the national divisible tax pool to the states, against 32% today, & advised pruning of 66 nationally sponsored schemes to 36; the govt. accepted the first recommendation – a tribute to co-operative federalism - & the second partially. Critics of the 42% devolution, cringing at the possibility of burly states & a supine centre, can seek comfort from the fact that total transfers from the centre - including centrally sponsored schemes & grants – still stands at 62%, roughly the same as last year; therefore, this increased financial freedom to the states is not an un-bridled one. The centre’s assertion of a lack of fiscal space post devolution is, therefore, untrue.

The budget has defined the long term vision of the govt. as construction of 6 crore houses by 2022 – to ensure a roof for every family – each house to have 24 hrs. power supply, clean drinking water, toilet, road connectivity, senior secondary school within 5 Kms. for each child, greater farm incomes & prices, enhanced telecom connectivity in rural & making India a manufacturing hub through “Make in India” & “Skill India”. None shall dispute the intent but 2022 is afar & yearly milestones would have been more comforting. Watch the budgets of subsequent years, carefully, if these promises are, indeed, fulfilled.

The main themes of the budget need to be analysed against this background.

Increase savings rate:

India’s gross fixed capital formation has fallen from 36.8% in 07-08 to about 29.8% now, effecting investment. Household savings - that account for a bulk of domestic savings - has seen a shift from financial products into physical assets, affecting the flow of finance into projects with a long gestation period, like infrastructure. The govt. instead of raising the income tax slabs – the traditional response - has, therefore, creatively tried to incentivize savings into infra bonds, health insurance & pension contribution which is welcome.

With an incremental capital to output ratio (ICOR) of 4, a savings rate of about 30% can translate into a GDP growth of about 7.5% only, much less than our need for a double digit growth rate to annihilate poverty. If productivity is kicked in & transaction costs lowered – read reduction in corruption & increasing labour productivity – an ICOR of 3 can be achieved & at a higher savings rate of 36% a GDP growth trajectory of 12% is possible indeed.  That seems to be the professed aim of this budget.

Provide a universal social security net:

Labour reform without an adequate safety net could lead to social chaos. Incidentally, social security is an important feature, both in the socialist & the capitalist blocks. Surprisingly, however, Indian political leaders have paid only lip service to the concept of a “welfare state”, The Jan Dhan Yogana - with 12.5 crore bank accounts - apart from providing a banking account to the unbanked has a Rs 1 lakh accident insurance & Rs 0.3 lakh life insurance cover. This is the first attempt by GOI at creating a truly nationwide safety net. The specifics: accident insurance & life insurance of Rs 2 lakhs each  on a premium of Rs 12/- per annum & Rs 330/- per annum respectively for people between 18-50; pension plan at a contribution of Rs 1000/- for senior citizens above 60 years; & a senior citizen welfare fund with a Rs 9000 cr. corpus.  

The budget builds on this concept, further, through additional tax breaks for contributions to medical insurance by Rs 10,000/- & New pension scheme (NPS) by Rs 50,000/-. This could enthuse some of the 5 cr subscribers of EPFO (Employee Provident Fund Organization) – guided by conservative investment principles - to shift a portion of the 6 lakh crore corpus into the NPS – with 0.8 crore subscribers & 0.75 lakh crores corpus & a more liberal investment philosophy of investing into equity. 

Having laid a safety net the govt. moves stealthily on labour reform. The budget makes contribution to EPF (Employee Provident Fund) optional for employees below a certain threshold of monthly income. Employees can, now,  choose the health insurance provided by either Employment State Insurance (ESI) or an insurance plan recognized by IRDA (Insurance Regulatory Development Authority). Manish Sabarwal, of Teamlease, has argued that this is the “most impactful labour reform since independence” since EPFO runs the “world’s most expensive government securities mutual fund (440 basis points)” & its “45 million dormant accounts do not offer backpack benefits that are easily portable between employers”. The ESI according to him “offers India’s health insurance programme with the worst claims ratio (45 per cent) & sits on cash reserves of Rs 32,000 crore”. He averred that this move shall enhance formal employment. The last assertion is arguable though.

Clearly, the govt. wants to create a safety net before it initiates massive labour reforms & at the same time wants to regulate savings into the equity market.

Creation of jobs:

12 million citizens enter into the workforce every year who need to be provided jobs; else, the demographic dividend shall get converted into a demographic curse.

Traditionally, an attempt was made to attract Industry through investment allowance, tax breaks et al leading to a “revenue forgone” of about 5.8 lakh crore, enough to wipe out the fiscal deficit of the country. Industry, when confronted with the demand of job creation, complained about the delay in clearances by the environment ministry & when the same was expedited through CCI (Cabinet Committee of Investment), shifted the goalposts to slow clearances in the states & labour law reforms. Truth be told: Industry is plagued by excess capacity & until the capacity utilization crosses the 90% mark is unlikely to invest further. The finance ministry therefore was forced to look at other avenues to create jobs. It seems to have identified MSME, knowledge economy & tourism as the focussed sectors.

India has 5.77 crore MSME scale enterprises, offering employment to 12.8 crore people – about 4 times higher than the employment provided by organized Industry - with a major share in exports. 93% of these enterprises do not have access to formal sources of finance & pick up debt from money lenders at usurious rates of interest. While the industry clamours for changes in labour laws - which are difficult to be implemented since they have not been changed for the last 65 years - these enterprises have no such demands. The govt. is right in its intent to accelerate credit to this sector.

The govt. has, therefore, decided to start MUDRA bank to provide credit access to this sector. It would have been more prudent, however, to task the existing banking network to achieve the objective by ordaining a lending target similar to the target of 8.5 lakh crore affected for the agricultural sector. Unfortunately, the UPA govt. launched a Mahila Bank when challenged on women emancipation, while the BJP govt. plans to launch a Mudra bank for ensuring credit flow to the MSME sector; both are sub-optimal solutions. Electronic trade receivables exchange proposed, though, Is a welcome measure to help the working capital needs of this sector

That leaves us with the knowledge economy & tourism. The govt. has hit the bulls eye in recognizing the transition to a knowledge economy based on innovation & has created an innovation fund which is welcome; however the concern: what happened to the 10000 crore promised last year for a similar purpose?.11% of jobs worldwide are generated in the tourism sector & the govt. attempt to increase visa on arrival facility from the existing 43 countries to 150 is to harness the potential of this segment.

Rationalize taxes:

While the corporate tax rate is 30%, the govt. realizes only 23% post deductions.  The Hindu, on Mar 2^nd – in an article - shared that the 263 companies in India with net profit greater than 500 cr PA, pay an effective tax of 20.68% while 2.78 lakh companies with a profit less than 1 cr PA, pay a tax of 26.89%. Clearly, a flat 25% rate, without deductions, is welcome, although the notice period of 4 year is too long; the transition should have started this year, instead of the next. GOI will also be under pressure from corporate lobbies not to tinker with deductions. Industry is, however, surreptitiously being pushed to accelerate investments through this measure; as an example the incentives for the power sector expire in 2017 & they are hence being prodded to quicken investments, which is welcome. Will the govt. have the gall to remove deductions would be interesting to watch. 

Countries worldwide have been using wealth tax as a route to shore up revenues The Govt., surprisingly, chose to do away with the same citing revenue receipt of only Rs 1000 crore & instead adding an additional 2% surcharge on individuals with an income over 1 crore, to net an additional Rs 9000 cr in taxes. Taxing rich farmers & Hi-Net worth individuals, outside the tax net, would have been a more equitable solution. This appears more a move to appease patrons of the party. Removal of MAT on FII inflows including PN (Participatory Notes) – disapproved by the Tarapore committee since it was largely a case of double tripping of unaccounted black money – is, perhaps, another attempt at incentivising the party funders.

Dropping of MAT on FII’s, though, shall increase capital inflows & perhaps lead to a current account surplus. Import duty on gold - increased to 10%  to contain CAD (Current  Account Deficit) earlier but has led to an increase in smuggling- needs to be revoked. The CEA (Chief Economic Advisor), however, is arguing for a weaker rupee to accelerate exports. Clearly, expect the rupee to weaken in the coming days.

Public sector Investments

The Economic Survey indicated that stalled projects – due to delay in environment, land, fuel clearances, lack of demand or funds – is at 8.8 lakh crores or 7% of GDP. Most of the private infra firms are suffering from bloated balance sheets & delayed projects which have contributed to the increase in NPA’s of banks – currently at 4.5%. There is no way that any PPP projects, even if announced, would have found takers. Public investment, therefore, was the only solution which shall neither “crowd out’ the private sector nor cause inflation.

The budgets promises a spent of 3.17 lakh crore - Rs 80000 crore higher than last year – by the PSU’s & an additional Rs 70000 crore spent by the govt. to pump prime the economy. 5 UMPP (Ultra Mega Power Projects) of 4000MW each, with a plug & play feature – with a potential of 1 lakh crore investments -, corporatization of ports to attract investors as well as monetization of their land holdings, & 1lakh Kms of extra roads are additional such measures. However, this shall be a slow burn due to a time lag between the announcements & actual executions due to bureaucratic play.

Black Money

As an electronic trail shall help in controlling the domestic parallel black economy the govt. has promised to incentivize use of plastic – read credit/ debit cards. PAN is made mandatory for all transactions above Rs 1 lakh & cash transactions exceeding Rs 20000/- for immovable property are banned. The Black Money Act, promises punishment of false reporting or non-disclosure of foreign assets & incomes with upto10 years rigorous imprisonment & 300% penalty. Plans are also afoot to control domestic black money through the Benami transactions (Prohibition) bill. While the govt. plans a window for compliance without an amnesty scheme, there might not be many

takers. Money shall continue to flow either through the PN  or AIF (Alternate investment Fund) route. The budget announcement is more an attempt by the govt. to signal seriousness & warm the cockles of the citizens who have become frustrated with the govt. pronunciations on the HSBC accounts - which sounds much like the previous UPA govt.

Cashless transactions have another advantage. It shall help banks do away with large manpower deployed in handling cash, reduce the fixed costs of deploying ATMs, opportunity cost of holding cash & soiling of notes. Banks' can reduce their manpower in the long run thereby helping bottom-lines.

Protect local Industry & drive “Make in India”

Manufacturing accounts for 18% of India’s GDP as compared to 33% in China & 24% each in Indonesia & Malaysia. A CRISIL report laments that 11.1% of GDP is capital intensive manufacturing while we should be concentrating on labour intensive manufacturing – a view subscribed to by the Chief Economic Advisor. A Mckinsey report avers that manufacturing at 25% of GDP by 2025 shall create a 1 trillion industry & provide 60-90 million new jobs. The solution therefore is to encourage “Make in India” through subtle protectionism, well within the WTO guidelines which seems to be the govt.’s intent too.

Therefore, it has increased custom duties:  commercial vehicles from 10% to 20% which shall help companies like Tata Motors & Ashok Leyland; & on Iron & steel from 10% to 15% to counter cheap imports effecting local industry players like Tata Steel, SAIL, Jindal et al. Removal of the inverted duty structure – courtesy FTA (Free Trade Agreement) with Japan, South Korea & ASEAN - for 22 items shall help local manufacture. The list goes on.

Apart from incentivizing local manufacture the govt. is keen on quicker redeployment of assets for greater productivity in the economy through reduction in bank NPA's. SICA (Sick Industrial companies Act) & BIFR (Bureau for Industrial & Financial Reconstruction) are proposed to be replaced with a bankruptcy code & NBFC’s with a net worth above 500 cr are being brought under SARFAESI to ensures better investor protection.  This is, however, WIP (work in progress).

Reduction of tax on royalty & fees for technical services from 25% to 10% shall hopefully attract new technology in the pharmaceuticals, electronics & engineering areas. 

With GST expected to be implemented next year unification of excise & service tax rates would have been more prudent; however excise at 12.5% & service tax at 14% has left people confused. This seems to be more of an attempt to balance the account books.

Conclusion

The economic survey gave an impression that a “Big Bang” budget shall be unveiled but what has emerged are a series of small measures that when taken together could translate into a “Big Idea”. While critics have argued that a 15.8% growth in revenues against 9.9% last year is ambitious, what perhaps has been overlooked is that the additional Rs 4/- per litre cess on petrol & diesel shall generate an additional revenue Rs 40,000cr & the increase in excise & service tax rates that shall pool in additional revenues. The expense increase of only 5.7%, 2% less than last year is a surprise, though, & shall, unfortunately, be breached. Expect therefore drop in capital spending to balance the fisc. 

Implementation of the pay commission recommendations & GST, next year, would result in additional outflows to employees & compensation to states respectively. Therefore adherence to the fiscal deficit target of 3.6% this year & seeking a deviation next year, would have been more prudent. Revenue deficit at 2.8% - only 0.1% less than last year - is a sure sign of fiscal profligacy. 

The only consolation is that India is in a “sweet spot” & even if the animal spirits of the economy are not unleashed by the govt., the country shall still be amongst the fastest growing economies in the world, attracting investments on its own accord. The rise of India is inevitable.