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No Viagra, just some dal
Yes, I am disappointed. Not because I came to the markets for a one night stand, but because this budget was a dal-roti-chawal budget. Good, basic food for the stomach but nothing for the taste buds. It lacked that little masala, that extra spice to tell you how you felt as you digested the food.
I was hoping that the Finance Minister would announce a higher interest rate tax incentive for homes less than Rs 20 lakhs in value. And, while it is difficult to cut taxes when the government deficits are increasing, an increase in the exemption limit for the lower and middle class would have been a good psychological boost. And while I was keen to see some statement on divestment, I was hoping that there would be a limited change in FDI rules in insurance. I am not a supporter of the lobby that says increased foreign ownership of insurance companies in India is a must for economic growth.
But the budget has some really important long-term statements within its scope of being an annual accounting exercise. The focus on rural India, on helping those at the lowest rung of the economic ladder with the guaranteed job employment schemes - are all very good. Every rupee allocated to the poor should be welcomed. Every rupee that finds its way to the poor - and more will with the increased usage of the Right To Information Act - is building a base for the sustainability of a 6.5% rate of growth in India's GDP.
The decision to remove the tax surcharge, to make the tax code simpler, to give full tax deduction to donations to political parties, and to remove the Fringe Benefit Tax are all moves in the right direction. Simplicity dilutes the power of corruption.
Kautilya at work?
Yet, the budget has failed in explaining how it will take India to a 9% rate of growth in the long term. Or how the borrowings and deficit-financing will be met. Maybe that will be announced on another forum. We need to remember that the budget is open to a debate in Parliament and sale of shares in government-owned entities will draw the familiar criticisms from political ideologies fighting for their survival.
The Finance Minister may be doing a little bit of Kautilya here: only revealing what is necessary when it is necessary - and staying away from the unnecessary. From an economic perspective, the government has no choice but to sell its stakes in many companies. The rich have no choice but to pay their fair share of taxes. The politicians have maybe 3 years to start delivering on what they have failed to provide for the poor. Or the next election will be won by the Naxalites! Last year's budget was an HUF budget. And I had said we need 19 more of those budgets. Well, we need 18 more such budgets now.
And every time the HUF budget is announced there is a risk that the stock markets will sell off. Let the stock markets do what they want to. The markets are not gods, or beacons, or any kind of barometer for policy making. They have become gambling dens where speculators come for one night stands. The Finance Minister may not have banned the P-Note punting money that slips into India under the FII policy, but he has probably burnt them. May they stay away from India while we build the country.
The noise and wild mood swings of the short term speculators and P-Note holders should not scare us from investing for the long term. As long term investors, we know you can find great companies in growing economies. And we will continue to look for them in earnest.
Yes, I liked the dal-roti-chawal - it is good basic food, but I did miss the masala. Is this the end of the party? No, we can still make a case for an Index of 21,000 by June 2010. The budget would have given the market momentum to make that level more visible.