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Investing in India - Honest Truth by Ajit Dayal
Jaitley's Budget spurs true Indian economic boom A  A  A
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26 JUNE 2014

Yes, that is the kind of headline I would like to read on social media and websites on July 10, minutes after Finance Minister Arun Jaitley presents his maiden budget speech to the Lok Sabha.

There is a difference between an "Indian economic boom" and a "true Indian economic boom".
Let me explain.

Ram Rajya and beyond...
The "Indian economic boom" is what we had from 2004 to 2009 - the years that were driven by government policies of the UPA Version 1.0 and Version 420.

This boom was a boom of numbers, the one that kept the Planning Commission and various economists in great demand at conferences like Davos and seminars organized by global media houses where bubbles are assumed to be a reality.

This "bubble boom" basically:

  1. Transferred wealth from the national exchequer to a few industrial families by funneling scarce national and natural resources to them. Coal, iron ore, oil and gas, real estate, spectrum were gifted to a favoured few.

  2. Contributed to the surge in the prices of property in Singapore, Dubai, London, and New York spurt as some of that favoured wealth found its way to buy homes in these global cities; the price of owning a cricket player or a private jet also surged in this era;

  3. Left the middle class caught in a trap of high consumption expectations paid for by higher personal debt to fund an inflated cost of living; basically stuck in a traffic jam with potholes as the "lal batti" cars went roaring by;

  4. Boosted incomes for the poor due to NREGA and other schemes but left them to deal with increased corruption, inadequate infrastructure, and little training for a better future
In the true Ram Rajya, where every Hindu - remember, Hinduism is a philosophy and not a religion - is invited to make India their home, the leaders work for the good of their subjects: the elected remember that they have been chosen to represent the broader interests of society.

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In such a Ram Rajya, GDP has little meaning. The overall wealth and happiness of a society is sacred. Bhutan, our neighbouring sovereign state, is always ranked high on GHP - Gross Happiness Product.

Note that the first trip made by Prime Minister Narendra Modi was to Bhutan.

A believer in studying successful models, Prime Minister Modi, wants to emulate Japan on their railway networks, China on how it grants quick approvals for projects, and Bhutan on the final cocktail of GHP.

Finance Minister Jaitley is the trusted economic lieutenant of the Prime Minister. Given his astute legal mind with its penchant for facts, his first-hand knowledge of the unreal from the liberal use of aircraft supplied by miscellaneous supporters during the recent election campaigns, and his exposure to the game of cricket with all its shenanigans and power mongering, Finance Minister Jaitley has taken the cue from Prime Minister Modi and decided to give India a clean break from its recent past.

Supporting his brilliant analysis is the statement from Ashok Chawla, the Chairman of the Competition Commission who recently said, "The fundamental objective of Competition Law is to promote and sustain market competition as its rationale lies in the proposition that competition yields social benefits and therefore needs to be nurtured. The process of competition is, however, not automatic, as vested interest groups, incumbent monopolistic firms, collusive businesses and other stakeholders may distort the process of competition or capture the benefits of market-oriented economic reforms,".

Nine steps to Nirvana
And so, with this background, Finance Minister Jaitley's budget speech will:
  1. Restrict the growth of India's 100 largest business groups. They will no longer be given any more approval or capital to expand their businesses;

  2. Reversing the ridiculous mantra that "Big Is Beautiful" adopted by regulators like SEBI and IRDA, Finance Minister Jaitley will encourage the creation of regional or city-centric insurance and banking companies and put in place limits on market share - the danger of having large financial firms has been seen globally; this will nurture local competition since many more people have the capital to compete at a local level versus a national level;

  3. In a desire to spur true entrepreneurship, all loans given to any of the Top 100 business groups by any bank will be wound down by 50% every year - the logic being that these business groups are mature and can access capital wherever they wish; the sizeable money freed up from this will be given to smaller businesses and entrepreneurs;

  4. All approvals for any new projects, within the above parameters, will be made by the state governments in conjunction with the district officers or municipalities where the new projects will be set up;

  5. There will be no divestment of PSU shares but there will be a total independence of management; all government nominees on the boards of any listed PSU will quit within one year and they will be replaced by Independent members of the Board (any individual who has been on the Board of any of the Top 100 business houses anytime over the previous 5 years will not be classified as an Independent Board; the former SEBI Chairman, Mr Bhave, will be given the role of cleaning up this historic mess and transitioning to a new system.

  6. Tax rates on incomes for individuals will range from zero tax (for those with incomes below Rs 5 lakh per annum) to 25% for those with incomes from Rs 5 lakh to 1 crore, to 40% rate of tax for those individuals earning between Rs 1 and 2 crore and 50% for any income above Rs 2 crore per annum; Taxes will apply to all individuals with no exemption for agriculturalists; Short term capital gains (selling an asset within 3 years) will be taxed at 10% irrespective of whether that entity is based in India or in any tax haven and long term capital gains tax will be zero;

  7. Companies will pay a 30% rate of income tax on reported profits - no fiddling around with exemptions that currently reduces the effective rate of tax of corporate India to a shameful 19%; being a successful lawyer, Finance Minister Jaitley is well versed with the legal loopholes that allow this "abuse of intention" to occur and he will rewrite the law;

  8. Lawyer's fees to fight any government case will not be treated as a deductible expense - this will limit the practice of hiring an army of lawyers to clog the system and/or delay the process of justice;

  9. As a corollary to the above, if any employee from any government entity or department is caught taking a bribe or even asking for a bribe or harassing an individual, they will be sent on permanent hardship duty to one of the border posts; since India is reportedly contemplating sending troops to Iraq to fight the menace of the ISIS, a one-way ticket to Iraq may also be considered for corrupt officials;
The ingredients for a "true Indian economic boom" are actually very simple and can be described as the 3 C's that you may hear at any chai pe charcha:
  1. Chhodo bhaiya, aur kitna paisa banaoge - doosron ko badhne do (Come on, brother, how much money do you want to make - let others grow now);

  2. Chhoti Sarkar, sundar Sarkar (a small government is a beautiful government);

  3. Chori hai barbadi (theft and corruption results in ruin).
The question is: Now that a humble chai-wallah has made it to being the Prime Minister and proved the powerful beauty of democracy, will Parliament endorse what they already know in the tea stalls of India?

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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Equitymaster requests your view! Post a comment on "Jaitley's Budget spurs true Indian economic boom". Click here!
13 Responses to "Jaitley's Budget spurs true Indian economic boom"
bongie
Jul 7, 2014
Privatise Air India save 25000 cr in 5 yrs. introduce gst and make 100000 cr. use targeted subsidy save 50000 cr. build better highways and save fuel. encourage electric cars in city and villages to earn by producing solar power. get corporates to adopt and earn from tourist attractions: 20 million tourists a year make 50000 cr . connect northeast by bullet trains and highways via Bangladesh. make india the medical hub of asia and above all encourage water conservation &modern irrigation. Let the next Apple come from India . Like (4)
Pranab Roy
Jul 4, 2014
Its a great wish list !Even one of them comes true, it is going to make a huge positive impact on common man..But wish list is wish list !!! Like (4)
Ramaswamy
Jul 2, 2014
Even if 50% of your predictions come true! it will be a pathbreaking budget Like (4)
sachin salunkhe
Jun 30, 2014
'One way ticket to Iraq'...amusing quote by Ajit. Anyway if Mr Jaitley reads this article it will be definitely make him think! Like (2)
devendra dass kochar
Jun 28, 2014
An amazing article especially 'one way ticket to Iraq'. I think our poloticos & Babus can learn by this method only.
Great & keep it up.
D D Kochar
Retd Air Force pilot
Like (2)
Terence Shenoy
Jun 28, 2014
Suppressing big business will be counter productive.(almost socialist) Creating a level playing field for all players will be better.

Increasing income tax on high earners is actually punishing the more productive and those who perform. With hardly 2% of the population paying income tax, I would prefer a game changer, something radical.

Income tax should be abolished. Black money will be abolished overnight. Some indirect tax can be increased to compensate for the loss of revenue. An expenditure tax is more fair and all black money will start becoming productively utilized.
Like (1)
Louis Colaco
Jun 28, 2014
We had enough of talk and spilled venom during the election campaign, and voters listened attentively. Now the Govt has to deliver the promises and the ideal -Nirvana! People have given their endorsement for a CHANGE, through giving BJP/NDA a thumping majority. Now the impatient people are evaluators, waiting not for the 5-year report card but need an answer sheet for mid-term test results. Today's young culture is of instant gratification and rightly so, after 67 years of independence. The writing is on the wall! Is anybody moving with times and stopping to read and learn; or, just happy administering its own age-old preconceived concoction? Most evaluators now have laptops and are nimble on social media to let go their disappointments viral, much like what happened during election campaign. Two sides to the same coin - WIN or LOSE - HEAD to think & deliver or TAIL to run and make excuses! Like (1)
MRJoshi
Jun 27, 2014
There are many subsidies which are worth scrapping and in fact make the beneficiary lazy and gives impression that such beneficiary need not work. In fact government should encourage people (specially in the working age group) to work and earn, and NOT, do not work and get subsidies. The doles given to the freedom fighters where more than three generations of such beneficiaries have been given benefits, if one example and such things now must stop. Also, all the Govt schemes should NOT have names of the politicians given to them. The money spent for such schmes/subsidies comes from the pockets of the tax payers and not from the individuals in whose name the scheme is being operated. This is treating some individuals "more equal" than others. Like (1)
MRJoshi
Jun 27, 2014
The corrupt officials of the Government, found with prima facie evidence credible enough to suspend them, can be straightway removed/dismissed from the service, by giving three months pay. No burden of suspension allowance, having departmental enquiry being continued for years together and so on. Even the pending cases where the officers have been caught with huge sums of money, can be this way dealt with. The existing rules governing conduct of govt servants do provide for such procedure. Like (2)
Flute Anantha Ram.b.k
Jun 27, 2014
beautiful navarathnas. hope if all these are implemented the Rama Rajya is not too far. let everyone strengthen the hands of our beloved PM sri. Modiji and the NDA Govt. live & let live Like (2)
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