Budget 2017: Can Jaitley Pull a Manmohan?

Dec 22, 2016

In this issue:
» Indian M&A activity creates a new record
» Gap between 'Rich' India and 'Middle India' wider than anticipated
» ...and more!
Rahul Shah, Co-Head of Research

A vivid memory of my growing up years is a big black instrument occupying a corner in our living room. We were one of the few households in the neighbourhood with a landline connection. The phone made us celebrities of sorts. Nobody dared risk getting into our bad books.

Likewise, we didn't risk getting into the bad books of one of our other neighbours. They had a TV set.

I am not the kind of person who believes in overnight transformations. Structural changes happen slowly, step-by-step. They're more a result of a series of events than any one big-bang announcement.

However, there's no denying the vast chasm between the India of my growing up years and the India of today. And we can indeed attribute it to one major event.

The 1991 Union Budget finally put the Indian consumer centrestage. It allowed market forces to flourish and private players to enter a whole gamut of sectors.

Underestimate the importance of these reforms at your own peril. It wasn't just a shift in policy; it was a shift in the entire mindset of the Indian economy.

Twenty-five years later, the transformation is evident all around us. We didn't just grow faster than in any other period in history; there was far less volatility and in the process we became a key global player. We are now the third-largest economy in the world, a key market not just for consumption but also a provider of goods and services.

Now, I am no economist. But it is clear to me that, despite great success, not all the objectives of the 1991 reforms have been met.

The rich-poor disparity seems worse than before. Millions enter the workforce every year and struggle to find meaningful jobs. Technology and product development has a lot of catching up to do across a range of sectors. And growth must pick up even more if we are to confront some of the most pressing challenges facing the economy.

The present government seemed to be headed in the right direction. It had initiated considerable reforms. Financial inclusion, LPG accessibility, direct transfers through Jan Dhan, Make in India, support for startups, etc. And then we got demonetisation...

So it is worth pondering: Is this government capable of the kind of big-bang reforms Manmohan Singh announced 25 years ago? Will Jaitley do a Singh come February? Sure, India has been transformed and the situation is not nearly as dire as it was in 1991. However, the current growth rates are not going to get us to our long-term goals. We need an India consistently growing at 9-10% for many years to come.

The Modi government has a golden chance to become the architect of this change. Will it oblige?

Since this involves peering into the future, it's undoubtedly difficult to make a call. But I am cautiously optimistic. If not for any reason, maybe the law of averages will catch up, and India will finally get a Budget that meets expectations.

What do you think? Tell us...

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03:00 Chart of the day

Merger and acquisition activity in India is on a high. The value of M&As that have taken place this year - at US$ 69.75 billion - are the highest on record for the country. This even beats the previous record of US$ 66.96 billion set in 2007.

In a year of otherwise sluggish economic activity, what does this trend indicate?

The slowdown in the economy had led to many corporates seeing stress on their balance sheets due to a reduced capacity to service debt. Thus many wanted to sell off assets in a bid to reduce debt. However, they've been wanting to do so for a few years know. So why this sudden pickup in activity in 2016? Yes, sellers of assets abounded. But just having sellers isn't enough for a transaction. You need buyers too. Thus perhaps this big bump up in buyer interest during 2016, which led to many big deals taking place, was an indication of increased confidence in the Indian economy.

That said, it does seem likely that the demonetisation move by the government and the resultant uncertainty will put on the speed breakers on M&A activity in the short term.

Indian M&A activity at an All Time High in 2016


Like I began with, we've always intuitively felt and known the disparity between the rich and the poor in India. But a recent survey puts some numbers to this, and the results may surprise you. The 'Household Survey on India's Citizen Environment & Consumer Economy' (ICE 360° survey) conducted this year illustrates the disparity.

If you consider the richest 20% of Indians to be 'rich India', and the next 60% to be 'middle India', one realizes that in terms of size, rich India is just one-third of middle India. But that doesn't stop rich India from hogging up a much larger share of the consumer economy than does the three times larger middle India. Whether it is consumer durables and household appliances, or consumer essentials, rich India has a greater share of the market than is warranted by its share of the population.

The gap is the widest in ownership of things like cars, refrigerators and washing machines. Evidently, these still remain objects of aspiration for most of India. Luckily, when it comes to items like TVs and two-wheelers, the gap though still there, is relatively lesser.

Indeed, as we look towards Budget 2017, we earnestly hope that narrowing the income disparity in the country remains the focal point of government discussion and policy making.


The Indian share markets were seen consistently sliding deeper into the negative today. At the time of writing, BSE Sensex was trading lower by 240 points. The mid cap and small cap indices were trading lower by 1.5% and 1.2%, respectively.

04:56 Today's investment mantra

"As an investor you never have perfect information, and the biggest profits are always available when competition and information are scarce". - Seth Klarman

This edition of The 5 Minute WrapUp is authored by Rahul Shah (Research Analyst).

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11 Responses to "Budget 2017: Can Jaitley Pull a Manmohan?"

Maj Gen Inderjit Kashyap

Dec 24, 2016

Brave or bold decisions have been made by the PM, who is leading the Govt & the nations for achieving the vision that he has & will be made in future too. That's not where the risk lies as has been seen for nearly 2 months & likely to be continued for another 2-3 months. This was also experienced in the earlier months of the present Govt. What I am referring to is the the inability or refusal of the Govt to accept the ground realities thus ignoring serious omissions & commissions. The reasons are many, one such being the eagerness to proceed at reforms at the speed decided & second, to pay no heed to observations of eminent & well meaning persons of repute who are as patriotic as those desiring or dictating the changes. "Sab ka Sath & SabKa Vikas" is languishing badly because of the above plus a few other reasons. This is the risk & it means that the end result of the bold reforms initiated will fall much short of the desired targets.
Whether, one admits it or not, every political party, is pursuing "Vote Bank Politics" & this despite the PM's promise of "inclusiveness" has resulted in "Pulling Down" syndrome by all. This has to targeted & set right by the PM himself, otherwise we may see the progress much lower than anticipated & more importantly the politics will continue in the direction not desired at all & affect all of the populace. We, based on our convictions may point fingers at one party or parties but the sum total of the recent wash out of the Winter session of both Houses of Parliament, is the result of the combined effort of all political parties. This sad state has to be corrected to obviate the loss of respect & faith in the polity.



Dec 23, 2016

In the whole story there is no mention of P V Narasimha rao who gave the political impetus and backing for Manmohan singh to go ahead with the reforms, The first phase of the reforms undertaken in 1991 was a compulsion and that was the option available to India at that point, Phase 2 which needs to be initiated now needs more structural reforms and if demonetisation is any indicator this government can take bold decisions and what Jaitley is or not capable is anybody's guess, So time can only reveal what this budget would do and that time is not that far away.



Dec 23, 2016

It is being observed that Black Money is being Flourish as it is as it was before 8/11/20016 at the time of Demonetization. Black Money Holders are not ready to make change. All the Ferzy Bills are being putting as CASH VOUCHERS in same manners and cash is being withdrawn from the cash books and fresh holding of the Cash is started. They managed the Change of their old Cash . the Only Way is the Salary of Pvt sector including Hospitals & Education Institutions where More than 20 Employees must be route through their accounts without LIMIT. Cash Payment for PURCHASES are to be allowed for 2000-3000.



Dec 23, 2016

Go to village. Many farmers are not even getting five thousand from banks. They are borrowing cash at 5% per month. They are not even able to sell their produce in mandis. THIS WILL HAVE HUGE IMPACT ON CONSUMTION.


Premji Bhanushali

Dec 23, 2016

'Market forces' term is a misnomer n to use it so casually is negligence. If the few rich n powerful can manipulate demand,supply n rates so much so they become 'parallel economy', these term in economic analysis is not applicable. Today producers like farmers suffer and rich marketers with more money n clout amass more money at the cost of the producers. More the disparity between the rich n d poor, more is the manipulative power of the rich n thus more is the disparity. This vicious circle continues n 'market forces' in reality are absent. It is this malaise which requires remedy. All rich are not bad but hoarders, smugglers, tax evaders black moneyed rich are certainly bad n anti-national.



Dec 22, 2016

No, never. Primarily,Mr.Singh is an economist wich Jaitly is not. Again, Singh was not bound by any dogmas which you cannot say about Jaitly. And about vision of future Singh is very highly placed, where as Mr.Jaitly does not have a clue of it.

Like (1)

dipu m desai

Dec 22, 2016

Sir i fully agree an opportunity gain or lost for jaitley ji .but i am 200% conform that India will achieve 8% by 2017-18 Demonetization is boldest stap by any mean &after effect just think bank is flooded with all most 14.5 lak crs. just transform it to smart city/development &there is ans.

Like (1)


Dec 22, 2016

Well said by Rahul Shah. Even having a Radio at home in the 1960s, as my father explained, gave him the celebrities status. Otherwise,anyone wanting to hear to news in a Radio have to walk a long distance to reach a public park, where if he is lucky he can hear the news from the Radio selectively kept in some big public parks at a secured height for the public to hear. With the unemployment growing astronomically in India day-by-day, having a meaningful job look to be distance dream going forward, unless Government wakes up and do something to address the alarming situation. A case where we have enough of all modern gadgets around but not a job to afford them would spell a worse situation than the ones we saw in the olden days. God save the jobless.

Like (1)

Adarsh Kumar

Dec 22, 2016

Yes this can happen despite Mr. Vivek Pul and Mr. Rahul G doomsday presentation. The changes will come inspite of doomsday presentation by some writers. India will grow under PM Modi. I am a midle class retired person( GM) and B.Tech and PGDMM and have seen India strugling since my birth in 1947 just after Independence. I have travelled on business just 40 countries around the world and travelled to China several times since 1996 and seen growth there. Demonetisation was required.

Like (1)

capt. Praveen Kumar

Dec 22, 2016

A sea change is what is expected in the given situation. World has tended to minimum cash element in their transactions. Only the illegal trade leans towards cash transactions. Currption can be minimised though it cannot be eliminated completely unless a ideal fair legal regime prevails. We are far away from dismantaling the devils mechanism of corruption. No harm in following the path of continuous improvrment
Devil of corruption is creative and wildly immaginative. It finds ingenious ways to tranish and retard ourvpath of improvement. Hope our leadership of the day does not falter and stands form against this tremendous challenge.

Like (1)
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