Would the FM's speech have won any Oscars?

5 MARCH 2011

'The King's Speech' won several Oscars, including Best Film and Best Actor. Would the FM's speech, had it been in the reckoning, have won any nominations? It would certainly have been nominated for best screenplay and maybe for special effects.

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On a serious note, the Budget was not bad, given the prevailing circumstances. The FM did not capitulate to populism in order to improve the corruption tarnished image of the party, something that would have deepened the fiscal hole. Fiscal deficit, in fact, has been brought down from 5.5 to 4.6% of GDP. Part of this was by restating, at a higher level, the GDP figure, after changing the way it was computed. And a part of it is based on assumptions that subsidies would be lower. Petro product subsidy figure has been taken at Rs 23,640 crores, lower than the Rs 38,386 crore figure this yea. This, in turn, is based on two assumptions, viz. that crude oil prices would come down (maybe after Gaddafi goes, as he should) and that Nandan Nilekani, in charge of a task force to change the system of delivery of subsidies, will be able to roll out the unique identification number scheme fast enough.

Nandan Nilekeni, the head of the UIDAI project, and former CEO of Infosys, is, perhaps, going to be one of the biggest contributors to India's success, if the project is able to deliver. He is competent enough. The unique identification project will have manifold benefits. It will give a nation wide, portable, identity to people, entitling them to benefits they are deprived of without such an identity and thus aiding the process of inclusion of all sections of society in India's growth. It will also curtail the misuse of Government largesse; studies have found that only 20% of Government funds from its well intentioned schemes reach the intended whilst a lot of it is siphoned away by vested interests.

And this, really, is the challenge. Last week, vested interests siphoning away funds from NREGA, murdered an activist, Niyamat Ansari, who used the RTI to expose them. A month ago, a District Collector in Maharashtra was burnt to death for seeking to prevent diesel adulteration. If the Government is slow to take action against such 'desh drohis' and if the judicial system does not significantly speed up its own act, then all the good that UIDAI would try to do would be unravelled.

The FM's speech also included an intention to proceed fast with the introduction of a simplified Direct Tax Code (DTC) and a unified GST (Goods and Services Tax). The latter, a good move that could, perhaps, boost India's GDP by 1% suo moto, is being opposed by BJP States for political reasons and not for logical ones. This is a failure of democracy, where economic welfare is held hostage to political shenanigans.

The FM's speech assumed that GDP would grow at 9% this year. This seems to be a triumph of hope over experience and is based upon the simple math of incremental savings rate being assumed at 36% and, given the incremental capital-output ratio to be 4, yields a figure of 9%. Yes, but there is many a slip between the cup and the lip and in the case of countries, it is the slippage of governance.

Poor governance was once again highlighted in the quashing, by the Supreme Court, of the appointment of the CVC (Chief Vigilance Commissioner), P J Thomas. This is no laughing matter. The logic of the Supreme Court in setting aside the judgement is unexceptionable, viz. that the Institution of the CVC matters more than the individual. It was not a judgement on the propriety of P J Thomas who has, one believes, an impeccable record of personal integrity. And therein lies the rub. The Court pulled up the Government for not taking into account the fact that Thomas was charged with corruption in a palmolien oil import case, though the case is yet to be decided, and that a person so charged should not be in an office such as the CVC, which is an office supposed to pull up others. In other words, the Supreme Court wanted the PM to be a doubting Thomas!

Ironically, though, the same standard does not apply to MPs and Ministers, more than half of whom continue in office although they have been charged in a criminal offense. Will the judiciary now move in that direction? Ironically also, it is the slowness of the judicial system that has still kept the palmolien case pending - it is quite likely that Thomas would be cleared of wrongdoing. One hopes, too, that judicial reform, especially the slowness of the system in delivering judgements, is addressed with equal alacrity.

In other news, polls in 5 states including West Bengal, Tamil Nadu and Assam, have been announced. One hopes that the recent trend of the electorate voting for good economic performance rather than on caste/creed/religion lines, prevails and Governments which have not delivered are thrown out.

In corporate news of interest last week, RIL (more flush with funds after its stake sale to BP of its gas blocks) is in talks with Orix Corporation of Japan (and with other shareholders of IL&FS) to buy its 23.8% in IL&FS. This would not only give RIL a large presence in the financial sector but also large land assets.

Lanco Infratech is to buy Australian Grifffen Coal for Rs 3400 crores, and Fortis acquired a 28.6% stake in Lanka Hospital for Rs 160 crores.

Alcatel Lucent has developed a new telecom tower that is small enough to be hand held, and can be put on any pole, electricity or lighting, to be used as a base tower. This will not only cut capex costs for installing such towers significantly but will also halve electricity costs. Telecom companies which were planning to divest their tower assets into a separate company would find a drop in valuations.

Last week the market took off, with the sensex gaining a whopping 623 points on Tuesday. Interestingly, the net buying, for delivery, by both foreign and domestic institutions, on that day, was only Rs 880 crores, indicating that the 623 point jump was on short covering. The market is thus derivative led.

One of the features of the FM's speech was the freedom he gave domestic mutual funds to sell their units to foreigners, after the normal KYC norms. Domestic mutual funds have seen a net outflow of funds, ever since SEBI removed upfront payment of brokerage to distributors. SEBI ought to review this decision, however well intentioned it may have been. In practical terms, no one markets anything without being compensated for it. In removing altogether the payment of commission, because some agents were giving investors a part of it as a kickback, was like throwing the baby out with the bathwater. This is not the right way to develop the market.

The truth is that perhaps 2% of India's population invests in shares and that the equity holding represents some 3% of financial assets of individuals. This shows the enormous scope (and need) to increase the investor base. Mutual funds is one way of doing so, especially when a majority of the population does not have financial literacy. For the industry to grow, SEBI must restore the distributor commission. Why should the industry grow on the back of foreign investors whilst discouraging domestic ones?

For the stockmarket, however, this liberty given to the fund industry represents a bullish factor. Investors all over the world are realising that India is a growth story and are now more willing to diversify portfolios after seeing the paltry growth in developed markets. The Fund industry must sieze this to market funds abroad.

The sensex ended the week up 785, at 18486. The Nifty gained 227 to end at 5530.

The sensex is just a tad below its 200 day EMA of 18650 which acts as a resistance. It looks as if this would be overcome. If that were to happen, as seems likely, the sensex could head towards 19,500.

Okay, lets give the FM credit for doing well in a bad situation and give him 'Best Supporting Actor' for the support his budget would give, if it delivers what it promises to, to the chances of the Government doing well in its next election!

J Mulraj is a stock market columnist and observer of long standing. His weekly column on stock markets has run for over 27 years. An MBA from IIM Calcutta, he has been a member of the BSE. He is Conference Head - India, for Euromoney. A keen observer of events and trends, he writes in a lucid yet readable style and takes up issues on behalf of the individual investor. Nothing pleases him more than a reader who confesses having no interest in stock markets yet being a reader of his columns. His other interests include reading, both fiction and non-fiction, bridge, snooker and chess.

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9 Responses to "Would the FM's speech have won any Oscars?"

Somnath Iyer

Mar 11, 2011

The weekly column is a delight to read every time.

As regards Budget, over the past 3-4 years the significance has reduced to merely presenting the intent of the Government. Most of the action happens (as it must happen) outside the Budget. I am happy that the FM resisted the temptation to raise the indirect taxes and further slow down the growth engine. It now remains to be seen how fast policy decisions are taken to revive growth in the economy. The State elections in the next few months will however slow down key policy decisions for some more time in my view.


Dilipkumar A Shah

Mar 7, 2011

The analysis is really good



Mar 7, 2011

May i negate your view of compensating mutual fund industry of reinstating the entry loads. my points are:
1) The only reason for time is so that everything doesn't happen at once. So, we donot want all the financially illeiterate people (as you rightly said to which i agree) viz, engineers, teachers, retiered citizens etc.. be investing with a quick hurried independent education of again an financially illiterate distributor of the mutual fund increase financially intellectual peoples urge to see those PERCENTAGES increase...Isnt it hard earned money lost with time of life invested with risk?
2) What would be your take of increase in PERCENTAGE of BSE/NSE same say next year on 07-03-2012..
3) how long has been the history of Mutual fund industry not claiming those entry loads? and is there a collapse in the industry?

Please share your views which are always welcomed as they come (can i say except this one :))..



Anamika Salian

Mar 6, 2011

I am so happy that you have written just what is wanted to know about the FM Budget.

Overall,the synopsis was good.



Mar 5, 2011

God forbid that the Indian stock market be derivative led.
Derivatives led the US markets to disaster that rippled across the world. And the pulses are still being felt.

If more of the Indian population is to invest in the stock markets let that be purely investing in stocks of good companies and not derivative based. In the US 65% of the population is invested in the stock markets by virtue of their 401k's. The Indian public is less educated so a mass fraud should not ensue.
This is where the "nationalized" banking sector comes in handy.
Something the US should learn from India.
Don't carry free markets too far !!



Mar 5, 2011

Always excellent articles. The language,the knowledge, the thoughts, the style all are a feast to the reader. keep it up. I don't invest. But regularly read your columns for the sake of supra.


Om Prakash Sharma

Mar 5, 2011

According to some analysts and politicians to allow foreigners to invest in Mutual Fund will open the gateway to black money of Indians and become and hence encourage more corruption.


Govind Gadiyar

Mar 5, 2011

Dear Sir jee,

The least we expected was to promote use of debit card and credit card in order to reduce CASH in India. Some incentives could be given to promote a war on CASH. This is one small step to fight corruption and terrorism.



Mar 5, 2011

It is good to see that corruption is being dealt with strictly. But is it selective ? Why has nothing been heard of the IPL honcho, Lalit Modi, enjoying a life of bliss in MOnaco and LOndon ?

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