Has the budget already gone for a toss?
In this issue:
» Why education stocks are not doing too well?
» Steel tycoon LN Mittal positive on India?
» 'Competition does not always lead to cheaper drugs'
» Realty firms diversify into unrelated businesses
» ...and more!
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As reported by a leading daily, there are already whispers in the official circuit that the Finance Minister (FM) has got his subsidy math wrong. The FM had stated categorically during his budget speech that he was looking at restricting this year's subsidy bill to 2% of GDP. If we break down the values, the Budget has allocated Rs 750 bn towards food subsidy. But as per the Planning Commission, food subsidy would eat up at least Rs 1,000 bn if the Food Security Bill has to become a reality. And even this amount is an underestimate.
So the FM has two choices. One is to stick to his initial Budget target. If he does this, then he would need to raise the prices of things like diesel, kerosene and LPG gas to meet the needs of food subsidies. If he doesn't raise the prices of these goods then the food subsidy payout would fall short. If this happens, the Food Corporation will have to borrow more money from the government to buy food grains. This in turn would add to the fiscal burden in the form of higher interest costs.
Option two is to raise the subsidies. This again would throw the fiscal balance way off the target. Either ways the government looks set to miss the fiscal targets that it has set for itself in the Budget. The point is why come up with such targets and revise them throughout the year? It seems to have become a regular feature with the government. If one looks at the amount paid out as food subsidy last year, it was a good Rs 800 bn. The target was set at a level even below the actual payout. In light of higher food prices and fuel prices it was but natural that the FM was going to miss his targets. So why set them so low? The answer is simple. It makes the government look good. Albeit temporarily.
Do you think the government will be able to deliver on its subsidy and fiscal target promises this year? Share your comments with us or post your views on our Facebook page / Google+ page.
01:30 | Chart of the day | |
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Source: Financial Express * Budget estimates |
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What possibly could have gone wrong? We think it has to do with the realization that not every macro story can be turned into a stock market success. There is no doubt that sector potential and future growth rates are important indicators. But what's even more important perhaps is the ability and the integrity of the management as well as the scalability of these businesses. And it is here that most businesses in the education space seem to be floundering. Besides, there were such high expectations built into the stock price back in 2008 that even with very good growth rates, it would have been difficult for shareholders to make money on the stock. Thus, if investors need to profit from the education story, it is important that they back the right management. And also take into account the scalability of the business. Last but not the least, the valuations too should not have excessive optimism built into them.
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We would be fools if we take his polite words at face value. In the correct context, what he really meant was this- 'Good bye and thank you very much'. Behind his polite pep talk lies the unfortunate truth that India must face. Arcelor-Mittal, the global steel giant has decided to focus investments in other markets that deliver quicker returns instead of India. Mr Mittal's native country ranks pretty low on his investment priority list. The credit certainly goes to the policy paralysis and the lethargic approval process. For instance, the Mittal group has encountered several problems in acquiring captive iron ore mines for green-field steel projects in Orissa, Jharkhand and Karnataka. Now, the facts are before us. India's problems are weighing heavily on its future prospects. Will the Indian establishment muster enough will and courage to deal with the issues? Let's just hope and pray.
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04:56 | Today's Investing mantra |
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6 Responses to "Has the budget already gone for a toss?"
Deva
May 2, 2012Promises are made to be broken. Indian Government is well known for not keeping the promises and also for breaking the promises. Therefore it nothing new for Pranabda to give such rosy picture budget and then go about changing. Who will know about it until our great CAG one day will come up with a nice report giving TRP increases for our news channels.
Ramanand
Apr 30, 2012Very well said Mr. Sthithaprajna. I feel last few articles of 5 Min. wrapup have improved quite a lot (New writer?). This one and one last week wherein we got a good glimpse of the global economic uncertainty were very well written!
umesh sharma
Apr 30, 2012Why we have to talk about subsidy and petroleum products together.In fact the subsidies could be wound up if the customs duties are properly framed One does not understand why the rising prices of petroleum should be accompanied by pro-rata increase in duties which are to be borne by the citizens.Similarly if the Government observes some discipline in spending lower taxes would not hurt.Who wants development schemes which do not yield any benefit to the target group and fill the pockets of government officers.If there is a will there will always a way.One has to be sincere in addressing such tasks instead of crying fowl all the time
Sthithapragnja
Apr 30, 2012Eq.MasterTeam,
After going through your comments ,I am prompted to observe(with all humility fortified with abundant
ignorance) as under:
I am quoting an instance to validate my observations appropriately/effectively:
A PASSENGER WAITING ON THE PLATFORM ANXIOUSLY FOR THE ARRIVAL OF THE TRAIN, WAS THINKIG LOUD !! If the Indian Railways cannot keep up the punctuality of the trains, why make an utter farce of having schedules,Time-tables etc.??
TO THIS A WAG STANDING NEARBY EXCLAIMED..THUS:
“”My DEAR Sir,only if you have a time-table, can you really know how late the train is running??
LIKEWISE ONLY WHEN YOU HAVE A BUDGET ESTIMATE IN PLACE CAN YOU KNOW HOW MUCH EXCESS IS YOUR ACTUAL EXPENDITURE OVER THE BUDGET ESTIMATES??
I hasten to conclude !!!
Pradeep Kumar Nair P
Apr 30, 2012Listed entities in Realty investing in non-core activities like Cricket
Brigade Group, DLF, Purvankara . How come their balance sheets reflect such poor quality but they have the money to buy teams and nurture!
sampath m p
May 12, 2012The government should implement the minimum wages act based on cost price index .once this is impented than subsidies in all forms should be abolished.in the present scenario subsidies help poor people, but the benefits of subsidiy goes to big industrialist due to low wages they pay which is well below minimum wages required.we can clearly conclude that subisdies are benefitting rich industrialist.its high time that the government implement minimum wages act and abolish all kinds of subsisdies.