What not to expect in the Union Budget
In this issue:
» Should investors make a beeline for US stocks in 2012?
» Is the worst of the Euro crisis over?
» Obama calls for taxing the wealthy
» Japan reports trade deficit after 30 years
» ...and more!
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Whether it is cost of electricity, farm subsidies, subsidized pricing of diesel or direct taxes for individuals and corporate, the coming Union Budget is unlikely to dole out any generous aid. Both the RBI and the Planning Commission have confirmed that de-controlling diesel prices is a matter of time. The tight fiscal situation and inability to raise funds through disinvestment have made the government rethink its subsidy policies. Further raising the cost of power is a necessity given the dire state that India's power generation companies are in. Also, as pointed out by Reserve Bank Of India (RBI) deputy governor Subir Gokarn, it is time the government focuses on investment rather than consumption for growth. The desired capital formation will fructify only if the government offers sufficient support to private sector investments and complements the same with its own planned outlay. Needless to say that reforms in the financial sector can help the Union Budget address India's investment deficit. But what can be an informed guess is that large scale subsidies are certainly not likely to be an eventuality in the coming Budget.
We hope that the Finance Ministry picks up the cues from the (RBI's) Monetary Policy review and the Planning Commission's foreword for the 12th 5-year Plan to decide what best suits the Indian economy in trying times. Only then will it be able to check the decline in GDP growth rate and bring back investor confidence from a long term perspective.
Do you think the upcoming Union Budget will continue to dole out subsidies? Let us know your comments or post them on our Facebook page / Google+ page.
01:15 | Chart of the day | |
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Data source: The Economist |
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Investors should thus make a beeline for equities in 2012 as per the firm. Well, we believe that there could be a couple of fundamental flaws in what the firm has tried to assess. For starters, it is next to impossible to make a prediction for a period as short as one year. Secondly, the economic background and the financial health that the US economy currently possesses are vastly different from the one prevailing in the 1990s. Thus, calling for a revival in equities just on the basis of historical valuations could be a dangerous thing to do as per us. As Warren Buffett once famously said, 'If past history was all there was to the game, the richest people would be librarians'.
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One of the reasons for this is that the yields on 10-year bonds have reduced drastically than November 2011 levels. Not that these are not very high, but the possibility of the governments being able to fund themselves looks more likely. The other arguments put forth are that the purchasing managers' sentiments has been the highest in 4 months and that the new Italian and Spanish governments seem committed to bringing durable fiscal and economic improvement. We are not so sure. What seems certain is that it will take a long time for these countries to get back on their feet given the scale of the problems. Whether the scenario will get worse from now on remains highly debatable though.
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Given that the 2012 general elections are some months away, Mr Obama made a speech that was a clear attempt to secure the chance of getting re-elected as president. Predictably populist and hardly any different from last year, the focus of his speech was on economic fairness. Among other things, he held up legendary investor Warren Buffett's suggestion that the wealthy should be taxed more. There is little chance that most of the promises that he made yesterday will see the light of day. But will Mr Obama see another term as US President? That is the only question that he seems to be interested in.
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04:45 | Today's Investing Mantra |
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5 Responses to "What not to expect in the Union Budget"
Piyush Singh
Jan 26, 2012Subsidies are instrument to compass monetary equity in a developing nation like India. Over the time, subsidies have earned a status of a norm - especially in agriculture, power, & Oil-and-Gas. Subsidies, apart from all the assistance it provides to the needy section, has also become a impetus of vote-banks. A segment of the society which could not be expected to understand the economics, has to take some hardships - but for the good in a long run.
The government also must be proactive a pick cues from what's happening in the West. It might not like to be remembered as a government which piled deficits, & disrupted 'India's Growth Story'.
sarvotham yerdoor
Jan 25, 2012The business model of political parties particularly that of Congress party is based on doling out more and more subsidies to the vote banks. Having got used to free this and that the vote banks also expect more and more of boondoggles. Controlling this tendency and expectations will be very difficult as any efforts in this direction will be exploited by the opposition to discredit the ruling party.
Albert
Jan 25, 2012Cancel ALL subsidies and social programs because its quite evident from the various measures like literacy, health, etc. that they are simply not working. Instead of benefiting the poor, our taxes are lining the pockets of the wrong people. Run all government enterprises and PSU's like a proper business by laying off the moochers who keep feeding off them like parasites. Put a hiring freeze in place and trim the flab from all local, state and central government departments. Improve logistics and storage facilities for agri products to reduce inflation. That should fix the deficit in no time.
Ajay Kaul.
Jan 25, 20121. Budget will aim at reducing deficits.
2. It will launch speedy reforms but ensure fine control on inflation thru balanced Policies.
3. Technology and manufacturing should get impetus.
Ajay Kaul
Jan 26, 2012Balanced Policies would mean unleashing higher outputs and gains thru sectors which are highly productive and cross-subsidise other wanting sectors only with an aim of increasing their productivity quickly so that subsidy burden on Govt. reduces year after year. It would also mean widening of Tax Base in the Country.