Cloud seeding

The benefit of the thrust on the agri and infrastructure sectors will be apparent in the run-up to the 2019 general election

Rather than spend on installing new fittings, freeing a choked pipeline sometimes can produce better results at a far lower price. When Finance Minister Manmohan Singh introduced sweeping reforms in 1991, the structure had become rusty and was on the verge of collapse. The current situation is grave but not critical.The channels of delivery are up but not running satisfactorily. The need was for a plumber to spot the problem and carry out the repairs rather than an engineer to undertake extensive restructuring. The Union Budget for 2016-17, in a sense, is an effort to make the existing system work rather than undertake a renovation. There were four reasons to exercise caution. First, the turmoil in the global economy, with a wide swathe of markets facing slowdown or recession. So pump-priming of the economy might have produced results in the short term but turned out to be counterproductive in the long run. Second, India had faced two consecutive deficit monsoons, affecting consumption and triggering food inflation. Third, banks, the primary conduit to infuse liquidity to oil the wheels of the economy, are far from healthy, creating a credit crunch. Fourth, lack of investment from the private sector, saddled with excess capacity and slump in demand. Against this backdrop, Finance Minister Arun Jaitley had three challenges: control inflation, kick-start investment and address the rural distress. A mediocre book-keeper might have tried to tackle each problem separately. The solution was as much political as it was interlinked. Reviving the rural economy without straining the balance sheet was the prescription to restart the stalled growth.

Never has a budget focused so relentlessly on the agri,social and infrastructure sectors. Hopefully, the highest-ever outlay for the national rural employment guarantee scheme is correctly targeted to create tangible assets. Agriculture and rural allocation has been doubled. Ports and roads are the thrust areas. A regulator will scrutinize disputes in public-private projects. The target to electrify the entire country has been brought forward by a year to May 2018. Providers and users of affordable housing have been showered with duty concessions and deductions. Start-ups, small enterprises and self-employed, too, have been given tax breaks.Taken together, these provisions will boost consumption and generate employment. The amnesty scheme will avoid prolonged litigation and bring black money into the mainstream. 100% FDI in distribution of India-made food will avoid wastage and inefficiencies and keep prices down. The infrastructure and clean climate cess on passenger cars is a better option than dotting the highways with toll nakas. The insufficient recapitalization earmarked for public sector banks is the clearest indicator of the the government’s intention to dilute its stake when the market begins to give a second look at these institutions after a clean-up of their books. Gas pricing will be based on import parity with other fuels, encouraging exploration and production. An insolvency and bankruptcy board will decide the fate of sick companies within 180 days. Deepening of the bond market by allowing private placement, introducing an electronic trading platform and permitting foreign funds into unlisted debt securities and those issued by special purpose vehicles will diminish the need for capital-intensive projects to dilute equity.

The low price of oil has helped the government to stick to the fiscal deficit target this year. Spectrum and coal auctions and PSU divestment proceeds, too, have contributed. On the other side, increase in indirect tax collection due to enhanced service tax of 14% also has played a major role. Service tax is slated to go up another 0.5% due to the imposition of Krishi Kalyan Cess from 1 June 2016. Rationalization of fertilizer subsidy and reduction in fuel subsidy are expected to curtail expenditure next fiscal. The 10% tax on individual dividend income in excess of Rs 10 lakh a year will create a level playing field for the minority and majority shareholders. Promoters benefited hugely from the tax-free dividends. Imposition of need-based cess is a better idea than diverting tax revenues to populist schemes, widening the fiscal deficit , borrowing from the market and, thereby. putting pressure on interest rates. The controversy over taxing 60% of the EPF corpus that is not invested in annuity products henceforth is as bogus as the net-neutrality wailing. EPF is essentially a post retirement safety net offered to private sector employees deprived of life-long pension. It is not an SIP of a mutual fund that accrues capital gains. In short, the increase in rural, social and infra outlay along with fiscal discipline are basically ingredients for cloud seeding to build up a perfect storm in the stock market and sow the seeds for the NDA government’s comeback in 2019.