Budget Effect

Hi Guys! It has been quite a while since I spent time on my blog. I was busy with the regular quarter-ending work load. With many companies announcing earnings and fund managers sending in their performance reports, appraisals and valuations are keeping me very busy these days

I went through the Indian Budget and must appreciate the aggressive step taken by the FM. He has gambled by increasing the deficit. The steps that he has announced, subject to implementation, are all positive and is likely to fuel the economy. Only time will certify the quality of this budget. I personally think it is a good budget with a long-term vision.

However there are few areas where I have some concern. My primary concern is to know from where are we going to get the funding to spend on all the listed expenditures. The other area of equal concern is the Interest Rates. The banks will be tempted in retaining the same lending rates or even levy higher rates. This will not help the growth in the anticipated speed and manner. Another unaddressed issue is the control of deficit. How the deficit is going to be gradually covered is still a mystery and needs some explanation and probably a plan from the FM.

When, we, as an individual take a loan, we make sure we can pay before our lifetime and do not want to pass it on to our children. When it comes to governments, there is no such restrain. Every Government leaves behind a legacy of growth and debts. I am yet to see a government that is focused in reducing the deficit. Surely, these are extraordinary times and extraordinary times demand extraordinary steps and solutions. If the Government of India does not have a road map to reduce the deficit, every year will bring about extraordinary situations, in one form or another.

The farmers were Bailed out. This could soon be a regular allocation. No government wants to lose this vote bank. The Rain either betrays or plays havoc with the farmers. So such things are bound to happen on a regular basis especially with Global Warming.

The present fiscal deficit of 6.8% of GDP is very low than what might actually transpire in the end. If we add the state-level deficits the final figure would be more than 10% and I wouldn’t be surprised if it even doubles to 13.6% of GDP, especially with many States subsidizing commodities, issuing sops/gifts and some even busy building Statues.

We the people, should keep alive the debate, if it exists or kick start a debate on how we can achieve a zero percent deficit. We need to stipulate a reasonable time frame for it and start debating on ways and means to eradicate deficit in government spending. Such debates would force the government to come up with a road map for this. After all, we don’t want our children to inherit our borrowings.

Every government announces plans and schemes and allocates Billions of tax-payers money. How far does it reach the intended target is still a worrisome issue? With India boosting its technological expertise in the global arena, why can’t technology be used to monitor the progress, usage and performance of the various schemes and plans announced by successive governments? Money spent on the Indian IT Companies to design and develop a control mechanism is worth it rather than wasting the money in numerous schemes where only a small percentage reaches the intended beneficiary.

The success of the Indian economic turnaround or even the Global economic turnaround, for that matter, from these levels, totally depends on the Global lenders. The lenders probably have more choices now than ever with almost all countries requiring funds to fuel their economy. It is not just the emerging or frontier markets that needs funding. The developed markets needs them as well.

INDIA has been a great growth story and I am sure she will attract lenders to fund her growth.

Disclaimer: All information and views posted by me in the blog are solely my views and opinions and do not necessarily reflect the truth or the real situation. The material and information contained on this post is provided for pleasure reading only. You are requested to consult your Financial Advisers before making any Investment related decisions. I do not recommend or suggest any investment decisions for any of the readers of this blog. I therefore do not accept liability for any loss one might incur, by taking decisions based on my posts.

Indian Budget 2009 - Instant Impression

(These are my Instant reactions after the FM finished his speech)

Given the circumstances, I would say that it was a fair budget. What is not transparent is from where will the funds come from for all those expenditure?

It is not necessary that all policies need to be tabled only along with the Budget. Probably when the workings are over, one can expect certain policies to be introduced, especially with disinvestments.

A typical over-reaction by Investors. Hopefully sanity will prevail soon and they will start realizing that it was a fairly neutral budget.

Every Industry wants sops, every individual wants tax benefits. Has anyone thought from where these will be funded. India Debt is above reasonable levels. Look at the portion of the expenditure the Interests are eating up.

Corporates need to be more understanding instead of just demanding and demanding always. My advice to them is not to compare the Sops and other benefits given by other countries to their respective industries during this global economic slowdown. After all, Indian economic situation is better than many of them in the world. Every economic situation warrants suitable solution and not a one common solution for all.

I shall read the full text later and then express my opinion.

BRIC - Unity in Diversity

Brazil, Russia, India and China concluded their first official summit on Tuesday. Nothing unexpected has come out of the meeting. Their demand for a greater role in the World Economic affairs and United Nations was emphasized again. Though other customary support and implementation issues were deliberated, I would like to place my strong view on these countries PUSH-FOR-A-SAY.

These four countries together are popularly called as BRIC, a phrase coined by the US Investment firms (I think it was Goldman Sachs or Morgan Stanley) around 2 decades ago. They have stood united more since the world economic crisis began, despite the fact that they have nothing in common; except their desire to be recognized as a force by the World Communities.

The World Economic Forum is dominated by US and Europe, whether we like it not. The BRIC seeking more say in the World Forum is like asking to limit the power and influence of the US and Europe in Global Affairs, especially Economic matters.

Let us see where these 4 countries stand as of now:

Trades
• India, China and Brazil are members of the WTO whereas Russia is not a member of WTO.
• Russia and Brazil would benefit largely, if the commodity prices are to go up whereas India and China would prefer a low commodity prices.

Economy
• China stands 4th largest economy with an economy of $3.2 Trillion
• Brazil stands 10th with $1.3 Trillion
• Russia and India are placed at 11th and 12th places with $1.2 Trillion each.

In total they account only $6.9 Trillion or roughly 12% of the Worlds GDP.

Financial Markets
• The Market Cap of all the four countries is around 6% of the MSCI World Index.
• Not enough transparency can be found in the Financial Markets of these 4 countries.

Reserves
• Brazil has around $200 Billion
• India has around $250 Billion
• Russia has around $400 Billion
• China has the largest reserve in the world of $2 Trillion
Put together BRIC reserves (thanks to china) weighs in above 30% of the total world reserves.

Politics
• India and Brazil are democracies whereas Russia and China are not.
• Russia and China are permanent members of the UN Security Council whereas India and Brazil are not.
• Russia and China often play a highly significant role in mediating and resolving Regional problems whereas India and Brazil have different nature of neighborhood problems. Brazil enjoys a very peaceful neighborhood and India has a challenging neighbor in Pakistan.

Military Might
• Russia, China and India have Nuclear Weapons but Brazil does not have one.

Size
• Except China, the rest of the Countries are not that big in size

Let us not forget the basics of how and why the BRIC were put in one league. These four countries were identified as potential markets/economies to invest, for a good return. Almost 2 decades ago the economies of these four countries were emerging fast with a good chance of becoming a developed nation in the future. There was no other string attached to the formation of BRIC. It was easier for the Investment community to refer these 4 Emerging Economies.

Looking at the success of the Investors in BRIC, many Investment houses started focusing on other prospective and potential emerging markets/economies. To measure these markets, MSCI Inc. (formerly Morgan Stanley Capital International) created index to reflect these markets.

These 4 countries still look lucrative but none of them have grown enough to be termed as a developed economy, yet. A feet achieved by Korea without much of a hype. These 4 countries should have atleast a powerful economic prowess to seek a say. Otherwise,
It would be difficult for them to justify their push for a greater influence on the World Economy. Simply being a group of four highly potential emerging markets does not quality them.

Let us look at another scenario. The Gulf Countries control the bulk of the Oil market of the World and also have the Oil Reserves which can continue to hold the future economy. The higher oil prices in late 2007 and early 2008 have left them with a good Currency Reserve as well. Can the Gulf Countries make similar demand?

The Emerging Economies can all form an organization and address Financial and Economic issues plaguing the Emerging Economies. Even this should preferably come under the umbrella of IMF. I am of the view that the number of Groups (G8, G20, BRIC, etc) should all be structured properly and should come under the UN Economic and Social Council.

We must thank the Investment Firm that coined the word BRIC. Had they coined it as CRIB, it would have truly reflected their current situation.

P.S.: Some of the data have been gathered from the net by reading several news and articles.