'Dhoka' Budget 2018

   

   

The fact that, ahead of Budget 2018, market regulator SEBI and stock exchanges have taken precautions by asking brokers to collect higher margins from those with sizeable positions in futures and options i.e. foreign institutions, wealthy investors and proprietary desks anticipating a significant run-up in the equity market indicates that Modi, Jaitley & Co are fully aware of distressed economic condition and their worst budget 2018, and that their talking bluffs on the floor of the house will not go down well on stock market operators. Expectedly,  Sensex lost 1000+ points on Budget Day and aided with global negative indicators lost another 1000+ points on the following day. Investors saw their wealth erosion of nearly Rs.10 lakh crores. 

Ironically, Budget 2018 (a 'Dhoka' Budget) satisfies none and every segment stands aggrieved. 

Moody's recent conditional upgrade of India to 'baa2' may very well get reversed to 'baa3' which is only a notch above 'junk' category.

Today, every economic indicator is worse than that of 2014 (when Sonia Gandhi-Manmohan Singh's Congress led UPA was voted out and Modi's BJP led NDA was voted in) and Modi & Jaitley owe an explanation to the nation where the '3 year low oil bonanza money 2015-2018' of over Rs. 6 lakh crores was squandered away, while our PSU banks are starved of recapitalization funds arising out of mounting NPA's.? 

P.Chidambaram, former FM analyses that the Budget overstates income, understates expenditure the realistic deficit could be 4.15% of GDP and if  National Health Protection Scheme for Rs.5 lakhs health insurance for poor takes off with an estimated expenditure of between Rs.10,000 crores and Rs.1,00,000 crores leaves a very big hole in the budget with run away inflation. If crude oil prices goes up, there will be serious trouble.

Riding on economic distress and unpopularity, Modi's BJP suffered electoral reverses. Extrapolating Gujarat election results (swing of 9%) and Rajasthan bye poll losses (swing of 18%), Modi's BJP may not get even 240/542 LS seats in 2019 general election. Modi's charisma is waning and Rahul Gandhi's popularity rising, sends jitters to Modi and BJP. If NDA allies walk out of alliance, which is quite likely, Modi & BJP will have to sit in opposition benches.

What Sonia Gandhi could't achieve in 10 years, Modi is likely to do it in just 5 years! 

It is not development of India but making Rahul Gandhi as Prime minister!

Gujarat model OR Gujarat muddle?

Scholars have shown that Gujarat’s development achievements are actually far from dazzling. The State has grown fast in the last twenty years. And anyone who travels around Gujarat is bound to notice the good roads, mushrooming factories, and regular power supply. But what about people’s living conditions? Whether we look at poverty, nutrition, education, health or related indicators, the dominant pattern is one of indifferent outcomes. Gujarat is doing a little better than the all-India average in many respects, but there is nothing there that justifies it being called a “model.” Anyone who doubts this can download the latest National Family Health Survey report and verify the facts.

• Development economist and activist John Dreze today said there was "no evidence" that the so-called "Gujarat Model" was a model in any sense, pointing out to the state's backwardness in social indicators.
• Almost all ranking of development indicators, whether it is social indicators, human development index, child development index, multi-dimensional poverty index and all the standard poverty indexes of the planning commission. Gujarat almost always comes around the middle.
• It was the case much before Modi became chief minister and it remained the case after that, said Dreze, who helped draft the first version of NREGA (now called the MNREGA).
• He describes the Gujarat's development model as a counter-example, because of the disappointing social indicators inspite of the high growth in terms of standard economic indicators.
• Dreze believes that something lacking and it can be an illustration of the limitations of relying on private-enterprise growth for development in the larger sense.
• Commenting on ratings-agency Moody's recent upgrade of India's sovereign-credit rating to 'Baa2' from 'Baa3', Dreze says he doubts the credibility of such an index. "If you dig into the methods behind these indexes, there is very little to them, except that they are taken seriously!"
• He also raised concerns about the Aadhaar scheme, fearing that it will create an infrastructure of surveillance. His opposition to Aadhaar was not related to welfare programmes, but civil liberties. Aadhaar multiplies the power of the state to keep track of everybody over time - he said, flagging apprehensions that it could lead to stifling of dissent, as a lot of the databases that are going to be linked will become accessible to the government.
• Dreze partly blamed the stagnation of agricultural growth for the unrest and the recent agitations of Patidars, Jats and others for reservations. The people, who have seen the size of their landholding shrink with the population explosion in the last few decades, have certainly suffered. That creates a sense of grievance, but there must be other things also.

 

Read the article "Gujarat Muddle" dated April 11, 2014

Any development model with Public Private Partnership (PPP) is fundamentally flawed and unsustainable because it enables few enterprising people become extraordinarily rich at the state expense, breeding corruption and impoverishes the state and its people. The state ends up paying huge amounts of money in future payments in the range of 2-10 times. Consequently rich poor divide will increase. Modi's Ahmedabad-Mumbai bullet train is another white elephant in disguise which will enable Japan loot away our money perennially. Development based on market borrowing is not development at all but is similar to selling family silver for fancy expenses. 

Implications of Moody's ratings upgrade for India

• Moody's upgrading India's ratings from 'Baa3' to 'Baa2' two days ago - even though a notch up but still remains in 'Investment grade-Moderate credit risk' band only. The rating outlook was only changed to 'positive' from 'stable'.
• However, Moody’s have put out a caveat that they will watch out for any deterioration of the fiscal situation or banking system. 
• S&P has stated that it will continue to keep India's rating unchanged.
• The only jubilation for BJP is that Manmohan Singh tried but couldn't get it. And Modi tried and failed in 2016, but could get it citing demonetisation and GST roll out as reforms now in 2017.
• India’s last upgrade by Moody’s was 13 years ago in 2004 to 'Baa3' from 'Ba1'. 
• From Jan, 1988 India had a credit rating of A-2, the highest investment grade rating it ever got. But on Oct, 1990, it was downgraded to Baa1 in the wake of India’s twin crisis of worsening balance of payments and fiscal indiscipline. On Mar, 1991, it was further downgraded two notches to Baa3, which was the last category of investment grade rating. On Jun, 1991, India plunged into the non-investment category at Ba2, a downgrade of two notches. From Jun, 1998 (in the aftermath of India’s nuclear tests in Pokhran) India remained classified in the non-investment or ‘junk’ category 'Ba2'. 

• In the last 13 years, investment flows from abroad have seen a steady rise and Indian companies have been borrowing more from overseas markets, though the terms of these loans could have been better with a higher rating from Moody’s. Nevertheless, a rating of Baa3 has really not come in the way of either more foreign investment or higher foreign borrowing. 
• On the back drop of botched demonetisation and badly implemented GST, Moody’s upgrade found it reassuring that the economic outlook is better now, thus puncturing the domestic narrative. But ground reality remains same that economy is in shambles and much needed to be done for its revival.
• Economic decisions should be analysed only from an economic point of view only. Seen through the colour of political ideologies, all kinds of biases creep in.
• For corporates, who are leveraged and have overseas borrowing, it will lower cost of borrowings. 
• The increased flow of foreign exchange into the country is likely to see appreciation of INR, which is already overvalued and impacts already stressed exports and surge in imports that might not augur well for current account deficit that has already widened to over 2% GDP.
• The combined fiscal deficit of states and the Centre is still in control at 6.4% of GDP in 2016-17 that gave the Moody’s some confidence in India’s ability to stay on the path of fiscal consolidation.
• If the health of the banking system does not improve in the next year or two, the risks of a downgrade may lurk once again.
• If oil prices rise and the government is not able to manage their consequences in the domestic economy properly, then the newly acquired rating could be subjected to a review.
• Moody’s has noted that the combined debt of the governments has risen to 68% of GDP, which is significantly higher than the median rate of 44% for all countries classified under the Baa group. While there are many other positive countervailing factors in India’s case, but further growth in debt can be a cause for concern.
• If elections could be won with the help of good economic news from international agencies, leaders of the BJP should consider themselves fortunate but elections are hardly won on external certifications.

Moody's upgrading India rating with a caveat and S&P maintaining status quo clearly indicates that Moody's had succumbed to intense lobbying by Modi & Co and hence this upgrading speaks out nothing and reaffirms domestic narrative that Indian economy is in shambles following botched demonetisation and badly rolled out GST. Now we can see Modi & BJP bombarding nation with high pitch campaigns that our economy is booming and targeting Congress with choicest abuses. Moody's decision of politics hurts its integrity and its ratings will be of no use going forward.

Moody's upgrades India's rating

• International rating agency Moody's has upgraded India's local and foreign currency issuer ratings to Baa2 from Baa3 and changed the outlook on the rating to stable from positive. 
• The rating agency has cited+ the government's implementation of its reform programme which includes introduction of the GST, Aadhaar system of biometric accounts and direct benefit transfer schemes and measures taken to address bad loans in the banking system.
• The rating upgrade comes after a gap of 13 years - Moody's had last upgraded India's rating to 'Baa3' in 2004 during Vajpayee led NDA-regime.
• The rating upgrade will reduce cost of international borrowing for Indian government and Indian corporates due to reduction in perceived credit risk. 
• The move will also improve the sentiment in the equity markets.
• These reforms implemented to date will advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and fostering strong and sustainable growth and improve its global competitiveness. The rating agency Moody's believes.
• Some investors termed it a surprise given that India recently surrendered its status as the world’s fastest-growing major economy amid sweeping policy changes. 
• The upgrade could prove to be a big win for the ruling party, which is facing increasing attacks about the economic slowdown before key elections in Modi’s home state next month and a national vote early 2019. There are several challenges for the economy, particularly a high debt burden and delayed labor and land acquisition reforms and little room for fiscal complacency, especially ahead of 2019 elections.

In Dec 2016 India's request for ratings upgrade was bluntly turned down by Moody's citing high debt burden, its low debt affordability and resolution of banking sector's bad loan problems. Moody's also stated that a ratings upgrade for India was some years away, depending on the progress on reforms. Between Dec 2016 and today (Nov 2017) ground situation has actually worsened but some reforms are under implementation and results are yet to be seen. Why Moody's hurriedly announced ratings upgrade is unknown. Today, India is facing plethora of problems due to reckless adventures by Modi impacting and destroying informal sector and agriculture sector which together contributes 45% of GDP and 80% of jobs. Improvement in economy prior to 2019 general elections is unlikely due to lack of fiscal space. Direct benefits of this ratings upgrade are confined to corporates and businesses immediately and trickle down benefits would reach common man after a while, in insignificant proportions.

Wealth accumulation reflects one’s character

• Tax havens are shadowy and sleazy little countries and principalities such as the Cayman Islands, Lichtenstein and Monaco.
• Low taxation countries like Switzerland, Singapore and Dubai assure secretive rich people of their privacy. 
• A tax haven exists to cheat sovereign states of their lawful incomes. 
• It is estimated that corporate tax avoidance costs governments $500bn a year while personal tax avoidance costs $200bn a year. This means that between $20-30 trillion of business transactions in various jurisdictions are sheltered from taxations. 
• Moody’s estimated that in 2016, giant American technology companies such as Google, Microsoft and Apple were hoarding about $1.84 trillion cash in offshore havens. Clearly, they are avoiding taxes by bending the rules of the tax system. This is tax avoidance, which is not illegal for they are operating within the letter, but perhaps not the spirit of the law. 
• Tax evasion is just plain concealment of income and is a crime in all countries. 
• In 1980's, shaken up by many of its MBA graduates found wanting in ethical and moral values, the Harvard Business School made a course on “Leadership and Corporate Accountability” a core requirement. 
• Doing the ethics course is one thing but it is something else to be able to resolve the moral dilemmas of  “HBS’s ethical view of capitalism that derives its transformational view of money, in which the ability to accumulate wealth is a reflection of one’s character.”
• Market forces can be a potent driver for positive social change.
• The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
• Tax avoidance is as reprehensible as tax evasion. 
• Mauritius and Singapore are our two biggest sources of FDI.

Honesty is incompatible with amassing a large fortune - Mahatma Gandhi

Read the above Article

Moody's rejects ratings upgrade lobby by Modi

• India's current rating by Moody's stands at Baa3, the lowest investment grade, a notch above junk status.
• US-based agency, Moody's, declined to budge citing concerns over the country's debt levels and fragile banks.
• Winning a better credit rating on India's sovereign debt would have been a much-needed endorsement of Prime Minister Narendra Modi's economic stewardship, helping to attract foreign investment and accelerate growth.
• Moody's said India's debt situation was not as rosy as the government maintained and its banks were a cause for concern.
• India has been the world's fastest growing major economy over the past two years, but that rapid expansion has done little to broaden the government's revenue base.
• At nearly 21% of gross domestic product (GDP), India's revenues are lower than the 27.1% median for Baa-rated countries. India is rated at Baa3 by Moody's, the agency's lowest notch for debt considered investment grade. A higher rating would signify to bond investors that India was more creditworthy and help to lower its borrowing costs.
• India's debt-to-GDP ratio has dropped to 66.7% from 79.5% in 2004-05, interest payments absorb more than a fifth of government revenues.
• The ministry attempting to impress that the government's resolve to contain the fiscal deficit at 3.5 per cent of GDP in the current financial year didn't impress the agency.
• Diron had told local media that a ratings upgrade for India was some years away, depending on the progress on reforms.
• Diron said that, not only was India's debt burden high relative to other countries with the same credit rating, but its debt affordability was also low. She added that a resolution to the banking sector's bad loan problems was "unlikely" in the near-term.
• Moody's on November 16 affirmed its Baa3 issuer rating for India, while maintaining a positive outlook, saying the government's efforts had not yet achieved conditions that would support an upgrade.

My View:

Trying to influence for better ratings, whether deserving or not, is not uncommon but definitely is beneficial to the nation. Attempting to influence rating agencies without taking any pragmatic corrective steps and getting deeply involved in petty politics is unbecoming of leader of the nation. Ask a farmer and he will tell you, fields tilling, irrigating, seeding, cultivating, applying fertilizers and harvesting in a sequential manner over a certain time only will result in good harvest. Nothing can be achieved overnight. In a country with 125 crore people, diverse cultures and saddled with illiteracy, poverty, belief systems and spread over 600,000 villages development is a slow process. In the process inflicting injuries on the lowest strata is immoral and must be avoided. Above all principles of democracy and constitutional obligations should never be given go by.