In a year of unprecedented market volatility, real estate remains widely regarded as one of the safest investments you can make. Real estate has long been the
What are Balaji Viswanathan’s views about Union Budget 2016-17 of India?
Once again, it is a pretty decent budget. It does not contain anything extraordinary like Dhoni’s helicopter shot or Dilshan’s scoop. It is plain old Rahul Dravid’s drive. Things were good enough that even the staunchest India critics – Guardian  and BBC [ were positive. While it would have been easier for the government to spend a lot in an election year [and get kudos from everyone], it has taken a prudent, miserly approach focused on long term health of the economy.
The key theme this time has been boosting the rural economy with minor themes on clean environment and keeping spending prudent. At a time India is reeling through massive droughts, this cannot be better timed. We need rural India to modernize to grow quite fast. Besides economic reasons, there is also the political reality of elections in states with large rural areas [like UP].
Here is a quick background on how India spends its money:
Building rural India’s infrastructure
Here are some of the key projects for this:
- 100% rural electrification in 2 years.
- 100% usage of cooking gas in 3 years [replacing kerosene and wood].
- 100% FDI in food processing. More innovation and investments for processing will help increase the value of agriculture.
- Huge increase in irrigation expenses.
- 5 lakh farm ponds and 10 lakh compost pits.
- More loans to farmers and more spending on MGNREGA.
- 22% increase in infrastructure investment to build more roads and railways, most of which will be for rural areas. This will be the record year for amount of new roads added – 10,000 km of national highways and 50,000 km for upgrading existing roads. 2.2 lakh crores for this.
- Plenty of new investments in ports and new airports.
Cleaner, Greener India
- Backing up what was mentioned in the Railway budget, the electrification budget of railways increased by 50%. That replaces the polluting Diesel.
- Taxes on coal and motor vehicles increased.
- Big push on organic farming [Paramparagat Krishi Vikas Yojana] – 5 lakh acres to be brought under organic farming and a new project to add market value for organic produce on that launched in Northeast.
- 3000 more crores a year for nuclear power.
- 9000 crores for Swachh Bharat.
- Reduced paper usage with e-assessment and more spending on digital India.
Fixing nation’s health and mind
- The previous budgets had the problem of spending too less on health. Part of this is addressed this time, although a lot more is to be done. This year the spending on health and education increased to Rs. 1,51,581 crore.
- A “National Dialysis program” is launched.
- New health insurance of annual coverage about 1L and 1.3L for senior citizens.
- More spending on skill development and new navodyas. Other than that the education part of the spending is not spectacular.
Balancing expenses with expectations
Since 2014, a key objective for Jaitley has been to cut India’s deficit [how much we spend more than we borrow]. In the past, we have been recklessly spending and the people who lent us the money put India in the category of untrustworthy borrowers [credit rating in junk territory]. The huge spending also increased inflation and forced RBI to keep a high interest rate – thereby affecting entrepreneurs. It was a vicious circle.
For the past 2 years, India’s Finance Minister has been on a diet. The key here is to keep reducing the left chart [our expenses] while still growing the right chart [our growth]. This time, it is the lowest deficit in a long time. Sadly, no one is give you a party for dieting.
Rebuilding the banks & fixing bankruptcies
As I mentioned in my other post  India is facing a major NPA crisis. The budget brings 25000 crores of government money to back the banks from going bankrupt. And there is a long due proposal to fix the bankruptcy law to help get the assets from the bankrupt borrowers much more easily.
Bringing consistency to taxation
Over the years, many governments have made their taxation extremely complicated with huge amount of inconsistencies. This budget has cleaned up some of these. For instance, EPF was completely exempt from taxation while NPS and other pension schemes weren’t. Why this different handling? The budget now brings uniform taxation for all pension schemes.
In the same way, the big inconsistency was providing more tax deduction for home loan interest, while the deduction for renters was very low. The deduction for renters has been increased bringing it more closer to home owners.
Budget’s 9 pillars
The finance minister has outlined 9 pillars of interest and they are sound ones. While the corporations did expect more sops for them, in tough times we need something for everyone.
A few interesting ideas that went under the din and didn’t get their due coverage.
- At a time when a lot of the world is cutting R&D spending, there was a massive hike in science & research spending [about 17% rise when the inflation is < 5%]. The health research is especially a big beneficiary.
- Budget for new and renewable energy increased by 20 times.
- Government will use the Sikkim model [that is becoming completelyorganic farming] to rapidly expand organic farming – starting from northeast India.
- 228% increase in assistance to village governments [panchayats]. This is by far the biggest idea that went unstressed. – Panchayats will get Rs. 2.2 lakh crores [$30 billion] for growing rural India.
- 1.5 crore [15 million] women to get LPG connection this year under a new scheme. This will be supported by 3000 new stores and this is the push for 100% LPG in 5 years.
- Like in the more developed economies, Real Estate Investment Trusts look likely to be a reality now. These are sort of mutual funds for real estate [people can buy land in now very small units – as small as Rs. 10] –
- While startup is not a part of lexicon for most governments, there has been a slew of small things for startups – . There are a couple of minor irritations though:
- When loans go bad [like it happened with Kingfisher] we need to have mechanisms to make sure those assets are quickly used by the economy and the banks make fewest loss. The budget talks about newbankruptcy reforms and opening up of asset reconstructioncompanies. – Both of these will save public money & improve efficiency.
Now, the question is if these ideas are all good why did the Sensex go down slightly?
- More taxes on coal and oil to clean up the environment. Some of the biggest companies in BSE are energy companies [ ]. Their stocks went down.
- There are new taxes on car companies, again to clean up the environment. There are plenty of auto companies in the Sensex. Their stocks went down too.
- There is an increased levy on expensive ready made garments. – No good explanation for that.
However, as soon as the investors could see the other stronger elements of the budget, it did surge.
What could have been done better?
- Consolidation of all the Income Tax cess [ideally removal of all that] and allocate funds from the main budget. These cess place undue burden on the middle class.
- A better compensation to the working class for losing the EPF tax privilege.
<< Will be editing more as I analyze this more. So far, it is a “diet budget” – simple, prudent and non-extravagent>>