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Private and Confidential Source: Insight

Union Budget 2012-2013 March 16, 2012

Budget 2012 -13: Pranab Mukherjee’s risk-aversion turns out a

damp squib

The risk aversion of Finance Minister Pranab Mukherjee has prevailed in Budget

2012 – 13. The flat Budget has come as a disappointment, to say the least. In its

last budget before the election year, the government shied away from making

any structural reforms that could have given a boost to India’s economy. The

disappointed equity markets ended the day in red with the Sensex losing 209.65

points and Nifty losing 62 points.

The Economic Survey 2011-12 of yesterday identified six areas of focus for rapid

economic growth. These are: efficient contracts; minimal intervention in fixing

prices; acquisition of land by government for industrial projects; giving subsidies

directly to users, and a fixed subsidy on diesel. Out of these six areas today’s

Budget only mentioned giving direct subsidy while remaining silent on all the

others.

What’s taking over the sleep of

Pranab Da:

I had to bring the economic

growth back on track.

Secondly, I had focus on

bringing the inflation down,

which has weighed over the

growth of India for over two

years.

Last but not the least; I had to

bring the fiscal consolidation.

We can’t allow fiscal

profligacy.

Mukherjee, as expected could not come out of political gimmicks and ended up with large subsidies to the most

stressed nerves of India currently. Fuel, fertilizers, and food subsidies proposed for FY13 have instead of paving the

way for government to rein in fiscal deficit, would now only do the job of raising the yields on 10-year government

bonds. The threat of the populism show by Pranab, turned into reality today.

Dirty Picture at a glance

9.6% 9.3%

6.7%

8.4% 8.4%

6.9%7.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (BE)

GDP growth rate

3.3%

2.5%

6.0%6.5%

4.8%

5.9%

5.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (BE)

2012-13 (BE)Fiscal Deficit

Private and Confidential

Pranab sets the fiscal projections right, finally!

The fiscal deficit projections for 2012 – 13 have been conservative and

this has restored some of the credibility of Finance Minister. The

government has missed its fiscal deficit target by a great margin. Fiscal

deficit for 2011 – 12 stood at 5.9 per cent against the target of 4.6 per

cent set in Budget 2011 – 12. The failure at the disinvestment front and

the burgeoning populist subsidies spoiled the fiscal deficit calculations of

the central government.

For 2012 – 13 the finance minister has projected fiscal deficit at 5.1 per

cent of GDP. The fiscal deficit is the difference between the expenditures

and revenues of the government. A higher fiscal deficit projection for

2012 – 13 means that the borrowings of the government are bound to go

up. Net market borrowing required to finance the deficit has been

estimated at Rs 4.79 lakh crore in 2012-13. The yield on 10-year

government bonds was already up to 8.9 per cent after the Finance

Minister’s Budget speech

“For the better part of the past two

years, we had to battle near

double digit headline inflation. Our

monetary and fiscal policy

response during this period was

geared towards taming domestic

inflationary pressures.

A tight monetary policy impacted

investment and consumption

growth.”

-- Pranab Mukherjee

Key take-aways from the budget

The effective Revenue Deficit for 2012-13 has been estimated at 1.8 per cent of GDP. Revenue deficit is the excess

of revenue expenditures over revenue receipts.

Current Account Deficit: India in dark with overseas

The Current Account Deficit for 2011 – 12 stood at 3.6 per cent of GDP. The reduced capital inflows because of

decline in foreign institutional investments and foreign direct investments during the second and third quarters of

2011-12 financial year put severe pressure on the current account situation and consequently on the exchange

rate of rupee

GDP: Pranab Da aims to come back on path of higher growth trajectory

The Gross Domestic Product (GDP) for 2011 – 12 has been estimated at 6.9 per cent, much below the projections

in Budget 2011 – 12. The Budget has projected GDP growth of 7.6 per cent for 2012 – 13.

However, in the mirror of the real factsheet, this dream of Pranab da seems to be far from reality. But, dear

finance minister, there is a silver lining for you to make-up for the losses in this budget. The inflationary pressures

have started coming down, and fortunately in the comfort zone of RBI. This now makes the room for monetary

easing in a gradual manner.

“Taking a bird’s eye view of the entire economy and keeping in mind the difficult global environment, I expect

India’s GDP growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent”.


Pranab tweaks the 60-year old I-Tax Act. DTC not on cards yet!

Budget 2012 – 13 has raised the tax exemption limit to Rs 2 lakhs from the current Rs 1.8 lakhs. Income between Rs

2 lakhs and Rs 5 lakhs will be taxed at 10 per cent; between Rs 5 lakhs and Rs 10 lakhs will be taxed at 20 % ; and

above Rs 10 lakhs will be taxed at 30 per cent. The higher exemption limit will have an adverse impact on the

revenues of the government. On the positive side it may increase the savings rate in the economy.

The corporate tax rate has been kept unchanged at 30 per cent giving great relief to the corporate sector. The

government has restrained itself from increasing the tax burden of the companies for financing its wasteful

expenditure on subsidies.

Subsidies: FM could bite the bullets, but he didn’t!

The Union Budget 2012 – 13 has proposed to keep central subsidies under 2 per cent of GDP. The Finance Minister

said that fuel subsidies will be trimmed. The Budget didn’t detail how the subsidies will be brought down. The fuel

subsidies are bound to exceed Rs 150,000 crore while those on urea will be exceeding Rs 100,000 crore.

The Budget has proposed direct transfer of subsidy on food and fuel to beneficiaries as a way to bring down the

subsidy bill. Finance Minister Pranab Mukherjee conceded that the subsidies were having an adverse impact on the

financial health of the country. However he still didn’t shy away from committing full subsidy support for the food

security, the pet project of UPA chairperson Sonia Gandhi.

“Fiscal consolidation calls for efforts both to raise the tax-GDP ratio and to lower the expenditure. In this context, we need

to take a close look at the growth of our revenue expenditure, particularly on subsidies.”

Revenues and Expenditures: Optimistic targets not backed by desired plan, again!

Direct tax collection fell short by Rs 32000 crore in financial year 2011 – 12. The slower than expected GDP growth

rate was the main reason for this. The Budget projects gross tax receipts of Rs 10,77,612 crore for 2012 – 13. Non-

tax Revenue Receipts are estimated at 1, 64,614 crore. Total expenditure for 2012-13 has been budgeted at

14,90,925 crore. Plan expenditure for 2012-13 at Rs 5,21,025 crore is 18 per cent higher than for fiscal year 2011-

12. Non-plan expenditure has been estimated at 9,69,900 crore. It will be a challenge for the government to check

the growth in non-plan expenditure.Rs 3,65,216 crore is estimated to be transferred to States including direct

transfers to States and district level implementing agencies.

The Central Government debt has been estimated at 45.5 per cent of GDP in 2012-13 as compared to Thirteenth

Finance Commission target of 50.5 per cent.

Indirect Taxes

The Budget proposes to tax all services except the seventeen on the negative list. Service tax has also been raised

from 10 per cent to 12 per cent. The government expects to generate additional revenues of Rs 18,660 crore from

this hike in service taxes.


What impact would budget have on sectors!

Mukherjee leaves Stock Markets, high and dry!

Coming to the D-Street, the hopes of brokers have largely been crushed by

the so called populist budget, as Mukherjee again shied away from

significant reduction in Securities Transaction Tax (STT). Shrinking trade

volumes needed complete roll-back of STT. However as against this, FM

announced the reduction in STT by 20 per cent, bringing it down to 0.1 per

cent from 0.125 per cent earlier. Moreover such reduction in STT would be

applied to only delivery transactions. That’s like making a start for better

future with a new hangover!

Interestingly, Pranab Sir announced simplification of the initial public

offering (IPO) process even as no reforms were announced to boost

investments in the economy.

“Simplifying the process of issuing

Initial Public Offers (IPOs),

lowering their costs and helping

companies reach more retail

investors in small towns. To

achieve this, in addition to the

existing IPO process, I propose to

make it mandatory for companies

to issue IPOs of Rs 10 crore and

above in electronic form through

nationwide broker network of

stock exchanges.”

--Pranab Mukherjee

Mutual Funds: No Surprise gifts yet!

Mutual funds are generally seen as the backbone for financial strength of any economy. Particularly in India, the

industry, still at a nascent stage, was looking forward to encouraging reforms in the budget. Last year, Pranab

Mukherjee allowed foreign investment in the Mutual fund sector, bringing new zeal in the industry, with the

experts calling it a ‘growth oriented step’.

Besides reforms like online mutual fund transactions, dematerialization of mutual funds, KYC system etc were

also taken in last year’s budget, which also bolstered the industry sentiment in the Indian capital market.

However, Pranab made hardly any effort to set the ball rolling further. Instead, an unvoluntary reform was taken

for the industry, by not introducing DTC in the budget. Had DTC been introduced, then Mutual funds could face

some structural changes like; ELSS would have become ineligible for deduction under the Income tax Act. Similar

to ELSS, several other investment tools would get reduced from basket of section 80C of Income tax Act.

Aviation: Still in troubled skies!

Major budgetary support was expected to be announced for the beleaguered airline Industry which is reeling

under huge losses. The airline industry was looking at relaxation in the investment norms and was desperate for

the policy favoring Foreign Direct Investment (FDI) in the sector. Pranab Mukherjee, though, didn’t oblige and

said that the FDI in still under consideration.


FMCG: Smoking imported cigarettes gets cheaper!

The sector might get some short-term cheers with the reduction in custom duties in cigarettes, but no efforts on

exchange management front and fiscal deficit para are likely to offset those smoking cheers in long run. There

could have been efforts to reduce the interest costs, that are hampering these FMCG majors like ITC and HUL.

FDI in Retail: High on promises, low on reality!

The FDI in retail could have been a game changer for the industry, but Pranab, saying it again, could not come out

of the political gimmicks. It was desired from Pranab to replicate some portion of Dinesh Trivedi, but his populism

could not allow him even this time.

Going slow in disinvestments, FM could think about retail investors!

The embarrassment of previous budget weighed over Pranab Sir this time. The government failed to mop up even

half of disinvestment target in current fiscal. Making the mistake bigger, FM has now reduced the targets to Rs

30,000 crore, instead of raising them. As Assocham rightly said, the target could be as high as Rs 70,000 crore

which could have helped increase the participation of retail investors in the markets.

Mixed bag for banks

Pranab Sir probably tried to make some directional changes for banking sector by announcing reforms for power

sector which are high on NPAs. Also, the capital infusion in public sector banks came at the right time as even

most of the banks are riding much slow in capital adequacy limit coupled with falling asset quality.

High deficits are expected to haunt banking stocks as it puts pressure on inflation directly and interest rates

indirectly. Sadly, once again Pranab’s risk aversion overshadow’s his economic acumen.

Pranab’s power booster plan; A win-win for the power industry

The Budget 2012-13 brings lots of developments on the power sector front with Finance Minister outlining series

of proposals. Firstly, the External Commercial Borrowings (ECB) proposed to be allowed to part finance Rupee

debt of existing power projects. Also, the basic duty on certain fuels for power generation was fully exempted and

also proposed for full exemption from basic customs duty and a concessional CVD of 1 per cent to steam coal till

31st March, 2014.

Besides this, the government proposed that fuel supply agreements with power plants by Coal India Limited,

having long-term PPAs with DISCOMs and getting commissioned on or before

March 31, 2015.

Last but not the least, the FM proposed full exemption from basic customs duty to coal mining project imports.


Infrastructure gets some support from Budget

Lack of world class infrastructure is the biggest drag on India’s economic growth. The Budget 2012 – 13 has tried

to address this situation, though inadequately.

Budget 2012 – 13 has forecasted that investments in infrastructure during the twelfth five year (2012 – 17) plan

period will be Rs 50 lakh crore. Half of this is expected to come from private sector investments. The government

launched the first Infrastructure Debt fund of Rs 8000 crore earlier this month for giving financial support to the

infrastructure sector.

The amount of tax-free infrastructure bonds that public sector undertakings can raise has been doubled to Rs

60,000 crore from the existing Rs 30000 crore. The budget has also allowed foreign institutional investors to

invest in long term infrastructure bonds.

Power companies have been allowed to tap external commercial borrowings for rolling over (refinancing) their

rupee debt. Another positive announcement for the sector is that thermal power companies have been given two

year exemption from customs duty on their imports of coal. This is a right move, given the shortage of coal in the

country because of tripping of output.

India’s infrastructure situation can only be improved by giving a boost to public - private partnership (PPP) and

eliminating the delays in clearance of projects because of bureaucratic red-tape. The Budget and Finance Minister

chose to remain silent on this.


Industry reactions

“With the reduction in the Securities Transaction Tax and introduction of tax sops, the Union

Budget 2012-2013 has been positive for the capital markets. Thumbs up to Rajiv Gandhi Equity

Saving Scheme, that has come as a boon to the retail investors.”

--said Kamal Poddar, Managing Director, Choice International

“FM has delivered a realistic budget. The estimation of 5.1 per cent fiscal deficit in

next fiscal and 5.9 per cent in the current one is something close to reality and India

would have to face it. Besides, the yields on 10-year government bonds could go to

more than 8.5 per cent. I don’t think we were expecting a lot of major rockets out

of the budget”.

-- said Uday Kotak, Executive Vice-chairman and Managing Director, Kotak

Mahindra Bank.

“FY13 fiscal deficit target is high, but it is practical too and not fictional. It is believable

and credible”

--said Chanda Kochhar, MD & CEO, ICICI Bank.

“It is possible to contain the fiscal deficit in the next year at 5.1 per cent. The

revenue projects are modest, they are not unrealistic. I think it should be possible to

achieve the 5.1 per cent of GDP as fiscal deficit”.

--said C Rangarajan, Chairman, PMEAC.

“From an IT sector prospective, there is nothing specific that is either a strong negative

or positive. Some of the key areas of concern for the industry, like skills development

have not received any major focus”.

--said Partha Iyengar, VP- Distinguished Analyst, Regional- Research Director, Gartner


Indian Economic Survey 2011-12: Ambitions, achievements, lost opportunities and hopes of

future

The Indian Economic Survey of 2011-12 has estimated GDP growth rate of 6.9 per cent for the Indian economy

during the fiscal year 2011 – 12. It has forecasted GDP growth rate of 7.6 per cent for 2012 – 13 and 8.6 per cent

for 2013 – 14.

At 6.9 per cent, it will be the slowest pace of growth for the Indian economy since 2008 – the year marred by the

global financial crisis. The Economic survey noted that the International Monetary Fund has projected a 7 per

cent growth rate for the Indian economy in the medium term. This will make India the second fastest growing

economy in the world after China.

The Economic Survey has estimated fiscal deficit for 2011-12 at 4.8 per cent of Gross Domestic Product. This is

still below the 4.6 per cent fiscal deficit target set in Budget 2011 – 12. The Survey, however notes that fiscal

deficit has come down considerably from 6.5 per cent of GDP in 2009-10. The Economic Survey informs that the

states have performed better than expected on the fiscal deficit front. This is likely to keep in check the

combined deficit of the state and centre for 2011 – 12. The Economic Survey goes on to add that the fiscal

consolidation process will be prolonged because of failure in achieving of fiscal deficit targets due to endogenous

and exogenous factors.

The Survey concedes that the projected growth rate of 16 per cent envisaged in Budget 2011 – 12 will not be

achieved because of slowdown in the GDP growth rate. It attributes the slowdown partly to the contractionary

monetary stance of the central bank, which affected the growth rate of the economy in the short term, the

Economic Survey noted.

The Economic Survey has reiterated the importance of allowing FDI in multi-brand retail in giving a long term

boost to the Indian economy. It advocates direct cash transfer of fuel and other subsidies. It also cautions that

escalation of the Iranian situation may spoil the fiscal deficit calculations by increasing the subsidy bill of the

government.


Some choked nerves found in the survey.....

Inflation

Headline WPI inflation remained persistently high and relatively sticky at

around 9 per cent during 2011. The economic survey estimates that wholesale

price inflation will come down between 6.5 per and 7 per cent by March 2012.

It attributes the moderation in inflation to lower global food prices, global

economic slowdown and the contractionary monetary policy that is being

pursued for the last two years by the central bank.

The Economic survey notes that India’s wholesale price inflation was in line

with the trend in other Emerging and Developing Economies (EDEs). Average

consumer price inflation in EDEs during 2011 was 7.2 per cent while that for

Advanced Economies (AEs) it was 2.7 per cent.

"In India, the slowdown in GDP

growth witnessed over the last

two quarters is likely to extend

into the coming fiscal year

because of the weakness in

investment,"

--Organisation for Economic

Cooperation and Development

(OECD)

Supply side bottlenecks have long been a bane for India’s inflation situation. The country cannot achieve the ultimate

economic objectives of high economic growth and low price inflation without drastic supply side reforms.

The Survey proposes to control inflation in the medium through supply side measures and fiscal consolidation

through rationalization of subsidies.

Ballooning fiscal deficit- An issue in the sky

India’s fiscal deficit concerns have already taken the sleep of finance minister, Pranab Mukherjee. The deficit which

dropped to 4.8 per cent in 2010-11 from 6.5 per cent in 2009-10, is now again heading to the troubled level and the

worries are not mild this time. Government’s ballooning fiscal deficit has even become the centre of attraction for

rating agencies who have already warned India of ‘unwanted consequences’ in the future, if not corrected in time.

The matter has been taking heat from rising subsidies bills, unchecked leakages in the system, reckless spending on

social programmes, and in general, policy paralysis. Central government’s expenditure on social services and rural

development has increased from 13.38 per cent of total central government expenditure in 2006-7 to 18.47 per

cent in 2011-12.

International Trade

India’s exports during the first half of the financial year grew by 40.5 per cent while its imports grew by 30.9 per cent.

Total value of the exports during the April- January period stood at USD 23.5 billion while total value of imports stood

at USD 29.4 billion.

The Economic Survey notes that 2011-12 was a tough year for International trade with the fall in global world trade

being steeper than the decline in real Gross Domestic Product (GDP). India’s exports felt the heat of this slowdown

in international trade.


Agriculture and Food

The Economic Survey 2011-12 estimates a growth rate of 3.28 per

cent against the target of 4 per cent for the agriculture sector during

the current five year plan period which will end on March 31st,

2012. The twelfth five year plan (2012 – 17) has set a target growth

rate of 4 per cent for the Agricultural sector.

The Economic survey notes that without incremental productivity

gains and technology diffusion across regions, achieving this higher

growth may not be feasible. This will have serious implications for

the macroeconomic stability given the rising demand of the 1.2

billion people for food.

The Economic Survey predicts a growth rate of 2.5 per cent for the

Agricultural sector in the fiscal year 2011-12.

Manufacturing

Manufacturing sector has fallen from 9 per cent in April-December

2010 to 3.9 per cent in April-December 2011. Considered as a major

source of growth, the negative trend in the manufacturing sector

has been mainly a result of global economic slowdown and rising

interest & input costs.

PE: Provisional Estimate

QE: Quick Estimate

AE: Advance Estimate

5.1%

4.2%

5.8%

0.1%

1.0%

7.0%

2.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

(PE)

20

10

-11

(QE)

20

11

-12

(AE)

Rate of Growth of GDP at Factor Cost at 2004-2005 Prices

Agriculture, forestry & fishin

The Indian government needs to act fast and stop being lazy in policymaking. Need of the hours is a manufacturing

policy that spurs the sector by getting rid of infrastructural bottlenecks and facilitating growth in the manufacturing

sector of the Indian economy.

The Economic survey notes that industrial growth in the long run has lagged behind the growth in GDP. Long-term

average annual growth of industries comprising mining, manufacturing, and electricity, during the post-reform

period between 1991-2 and 2011-12, averaged 6.7 per cent as against GDP growth of 6.9 per cent.

If the construction industry is included then this number will rise to 7 per cent. Manufacturing remained the most

dominant sector accounting for 14 per cent to 15 per cent of the total industrial output during the post-reform

period. The Economic Survey points out that this number is modest when compared to that of China (above 40 per

cent) and some of the East Asian countries (above 30 per cent).


Ban on mining pulls the sector from posting growth

Dwelling with issue of illegal mining, which resulted in ban of mining

activities in many parts of the country, pushed mining sector to contract

at -2.2 per cent in FY12, as per Economic Survey 2011-12. The sector’s

performance was further affected by the ban and issues related to

environmental concerns and land and acquisition matter.

Mining sector has been posting a decline in its growth since FY 10 when

it was recorded growing at 6.3 per cent. It dipped to 5 per cent in the

succeeding fiscal and finally decelerated further at -2.2 per cent in

2011-12.

The sector currently is in need of urgent revamping and as the current

methods would lead to further environmental disasters.

Human Development

India continues to perform dismally on the human development front.

In 2011 it was placed at 134th rank in the Human Development Index

(HDI) of countries of the world. The Economic Survey says that

performance on this front can only be improved through a more

equitable distribution of development benefits and opportunities,

better living environment and empowerment of the poor and

marginalized.

PE: Provisional Estimate

QE: Quick Estimate

32.8%

34.7%

35.7%

38.1%

34.3%

36.6%

35.1%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

Ratio of Investment to GDP (at current market prices)

Balance of Payments

The current account deficit for the first half of 2011 – 12 stands at USD 32.84 billion. The Economic survey notes

that higher current account deficit can be attributed to declining capital inflows. Foreign Institutional Investment

during the first half of 2011-12 came down to USD 1.346 billion from USD 23.796 billion in the corresponding

period of the previous financial year.

Foreign Direct Investments during the first half of 2011-12, however, increased to USD 12.31 billion from USD

7.040 billion in the corresponding period of the previous year.

The Economic Survey notes that a further deterioration in the current account deficit situation will put further

pressure on the value of rupee. The rupee touched its lowest ever value of Rs 54.23 per US dollar on December

15th, 2011.


Thumbs Up in the survey…

Services

The Economic Survey projects that the services sector is likely to grow by 9.4 % in 2011-12 and its share in GDP will

go up to 59 per cent.

The Survey says that the services sector has been a major and vital force steadily driving growth in the Indian

economy for more than a decade.

Energy, Infrastructure and Communications

The Economic Survey says that total investments in infrastructure during 2011-12 are expected to exceed 8 per cent

of GDP. The private sector is expected to be contributing nearly 36 per cent of this investment.

During the April- December 2011 period, power sector output grew by 9.3 per cent; coal sector output declined by

2.7 per cent; finished steel industry output grew by 5.7 per cent of the output; fertilizer industry output declined by

0.5 per cent; cement industry output grew by 5.1 per cent; crude oil output grew by 1.9 per cent; refinery output

grew by 4.1 per cent while natural gas output declined by 8.8 per cent.

Foreign exchange reserves shows increasing trend in FY12

World’s six largest foreign exchange reserves holder, India continues to be one of the largest holders of foreign

exchange reserves. A comparative picture of foreign exchange reserves in the revised estimates for the current fiscal

2011-12, the reserves have shown an increasing trend and reached USD 6.7 billion from USD 304.8 billion at end

March 2011 to USD 311.5 billion at end September 2011. Out of this total increase, USD 5.7 billion was on Balance of

Payment (BoP) basis and the balance USD 1.0 billion was on account of valuation effect.

Financial Markets and Intermediation

The Economic Survey notes that the funding constraints in International Financial Markets could raise the cost of

financing for banks and Indian companies. Indian companies are already paying very high interest rates on their

commercial borrowings. Crowding out of private investments is happening because of increased borrowing by the

government. The Economic Survey makes a case for further globalization, consolidation, deregulation and

diversification of the Indian financial system. Bank credit till December 16th 2011 grew year – on –year by 8.2 per

cent to Rs 3942083 crore. Rs 82905 crore of this went to food credit while 4184077 crore went into non-food credit.

Demand deposits till December 16th 2011 decreased year – on – year by 12.7 per cent to Rs 559,935 crore. Time

deposits during this period increased by 12 per cent to 5112657 crore. Investments by banks in government

securities during the year till December 16th 2011 increased year-on-year by 11.9 per cent to 1675247 crore.


Manmohan Singh 1991-92: ‘Miraculous as a finance minister’

Manmohan Singh made history in 1991-92 by doing something that the

entire nation has, till now, enjoyed growth with both hands. In a single

master budget, he changed the entire picture of policy making process in

India. Identifying the concepts of fiscal stabilization and making the

structural changes that introduced Indian economy with the world, he

did nothing less than a miracle. Manmohan Singh, the then finance

minister of India, simply changed the rules of the game that India is now

enjoying as the ‘third largest economy of Asia’. Starting from economic

administration, currency issues, licensing, export-import policies, or

simply the boldness, he opened them all.

.

With liberalized norms, the doors were opened for foreign investments first by Manmohan Singh and the foreign

investment limit in high-priority industries was raised to 51 per cent. Moreover, he altered the interest rate system

so such that they were left with greater flexibility and liberty to commercial banks to tweak on their own as per

need.

Singh’s 1991-92 avatar was a master peace of imagination abilities, and for decades now, no one has been able to

match up to his level of political profile.

Time changed, position changed and so did Country’s fate. Manmohan Singh took oath as the Prime Minister in

2004 and his success story as the country’s FM fell prey to the political gimmicks.

Prime Minister Manmohan Singh 2004-2012: An unending term of ‘leadership crisis’

Manmohan Singh, now going to complete his second term as the prime minister of India, is the only minister in

history, who has completed over 7 years at this post. However, with time his credibility has also got depleted.

Singh, who was seen as ‘Man of reforms’ then, is now seen as a roadblock to the reforms. His poor policy

management body has done nothing but to throw the country in a mess, creating head-ache for the reformists. A

minister, if tries to make some reforms is discarded from the cabinet, just to stay with the chair for whole term.

Manmohan Singh, alone can’t be responsible for the political crisis in India now, but his poor leadership skills have

partially contributed to it.

India is now growing at 6.9 per cent, the slowest in three years. None of the

fundamentals are in shape including fiscal deficit, inflation, balance of

payments, exchange rate, and what not. Singh has struggled so far to bring

reforms in the economy ranging from FDI in retail, land acquisition bill,

Goods and Services Tax (GST), and some more.

The current situation of Indian politics shows India has been landing into a

state of ‘political crisis’ rising from ‘leadership crisis’.


RBI opts to test FM’s credibility again!

The waning confidence of RBI in the central government’s reform process was again visible in the Mid-quarter

monetary policy review on March 15. Reserve Bank of India (RBI) kept the repo rate and reverse-repo rates

unchanged at 8.5 per cent and 7.5 per cent under the Liquidity Adjustment facility (LAF). Repo rate is the rate at

which RBI lends to commercial banks, while reverse repo rate is that at which banks lend it back to RBI.

Now with the WPI inflation for February dipping below 7 per cent, RBI has ample space to reverse the interest

rates. Even RBI has already blown the whistle by slashing the CRR by 125 basis points in two tranches which also

aimed at injecting Rs 80,000 crore in to the system. However, it seems like RBI has lost confidence in government

as it planned to wait for the Union Budget to see whether government makes necessary spending cuts or not. RBI

wants it to correct the supply-bottlenecks that have distressed the inflation and has also triggered fiscal deficit.

Prospects ahead—Really shaky!

The prospects, no doubt, are related to how the global economies perform during the year ahead. The financial

crisis in Europe, and certain exogenous shocks like the Japanese nuclear disaster, have resulted in a sharp global

economic slowdown during 2011-12. However it can’t be denied that current slowdown in India has partial roots in

domestic causes. After 15 years of robust growth and nearly a decade of over 30 per cent investment rate, it

seems like that the growth engine is finally losing its steam.

Yesterday, the Rail minister has said in very bold terms that “Railways are going through very difficult phase and

to avert another crisis in the sector, we would have to bite the bullets”. The same holds true with Indian economy

too.

“Vigilance will nevertheless be required and steps need to be taken to quickly deal with any unexpected

developments and global shocks such as increases in the price of crude oil”.


Trivedi’s Maiden Rail Budget : A nice blend of smart politics

and good economics….

The youngest child of a Gujarati family and the Rail Minister, Dinesh

Trivedi, did a fairly well job with his debut budget on March 14. This

time, after so many years, industry saw a budget that was aimed at the

welfare of 14 lakh people of India rather than a few ministers. Right

from the start, and till the end, he stressed over hundred times on

‘Safety Concerns’ in the Indian Railways. He proposed, for the first time

in Indian history, to set up an independent Railway Safety Authority to

parallel the international standards of safety.

Taking the theme of safety to next level, he introduced the need for

modernization of Indian railways and proposed setting up of expert

group under Sam Pitroda. The group plans to spend Rs 5.6 lakh crore in

the modernization of Indian Railways in the next five years.

I also have a clearer perspective of what

railways mean to the common man and

how the railways have been a true

catalyst of integration. Just as we cannot

imagine India without Himalayas.

We cannot imagine India without the holy

river Ganga. Similarly we cannot imagine

India without Indian Railways.

The Railways are the symbol and

substance of India’s unity. Railways have

their wheels on earth, not in the sky or just

urban streets. If we do not strengthen

Indian Railways, we weaken our country.

--Dinesh Trivedi,

Union Railway Minister

Amidst such big-ticket plans, the rail minister didn’t miss the silver lining in expectation of gold. Taking a bold step

and daring to go against the wishes of his party chief Mamata Banerjee, he raised the passenger fares for the first

time in last ten years, aiming to help the government to rein in ballooning fiscal deficit. He also showed his

eagerness to ‘bite every possible bullet’ in order to bring down the operating ratio from 95 per cent now to 84.9 per

cent in 2012-13 and 74 per cent by 2017. The operating ratio shows the amount spend to earn every single rupee.

However what made him better Rail worker from few of his predecessors was the smart economics he tried to mix

with politics. He planned to go slower in expansion for the upcoming fiscal year, paving way for the government to

control deficits, inflation as well as give some room to RBI to start reversing the monetary policy.

Moreover, he understood the need to revive the creaky infrastructure of India and hence chalked out an investment

plan of USD 1 trillion in the infrastructure sector with half the investment or Rs 25 lakh crore expected from private

sector, and remaining Rs 25 lakh crore being planned by the government from

its own resources. He desired Rs 14 lakh crore investment from the government in the next ten years to take the Indian

Railways ahead of the time.


Trivedi’s debut strokes, mastered the experience!

Dinesh Trivedi gets bolder by announcing rail fare hike after 9 years!

Bringing an end to the era of stagnant fares and going against the “Mamata-way”,

Dinesh Trivedi, in his first rail budget, took a bold step of hiking the passenger

fares after nine long years.

Stressing that there is “no steep increase in fares”, Trivedi announced the hike in

passenger fares ranging from Rs 2 paise to 30 paise depending upon on the class

and distance travelled. Earlier, the rates were last revised in 2002-2003.

Ensuring smiles to over 1 lakh people in next fiscal!

Indian Railways plans to recruit over 1 lakh people in 2012, Dinesh Trivedi said

while presenting his maiden Rail Budget speech.

Trivedi said that the recruitment would not only generate employment in the

nation, but will also help railways to clear its backlog of vacancies. The

recruitment will cover the vacancies in the schedule cast, schedule tribes and

critically challenged person segment as well, he added.

“In today’s world, safety is

driven by improved technology.

Hence safety standards cannot

be achieved without

modernization, as safety and

modernization are two sides of

the same coin. At the same time,

modernization cannot take

place without financial

resources and

professionalization of

manpower.

There is also an emergent need

to connect the remote and

backward areas through socially

desirable rail connectivity

schemes to foster growth”.

--said Dinesh Trivedi,

Union Railway Minister

Promises new lines of 725 Km in underdeveloped areas

In a bid to extend reach in the underdeveloped and underprivileged areas, Dinesh Trivedi in his rail budget speech, said

that 725 km new lines will be constructed.

Disappointed with the plenty of projects lying pending with the Railways, he promised completing 45 new projects

covering 700 km new lines in the fiscal year 2013.

Rail Budget 2012 – 13 emphasises the importance of PPP

Rail Budget 2012 – 13 has announced the set up of Indian Railway Station Development Corporation for redeveloping

stations through public private partnership (PPP) mode. The railway minister also announced that a Logistics

Corporation will be set up through PPP for development and management of existing railway goods sheds and multi-

modal logistics park.

The Budget announced that private investments will be encouraged in wagon leasing, sidings, private freight terminals,

container train operations and rail connectivity projects. The huge investment plans that the Railways have set for

themselves cannot be achieved without effective participation from the private sector.


Ambitious plans and the Minister…

After missing the surplus target ,Rail Budget 2012 – 13 sets surplus target of

Rs 10476 crore

The Rail Budget 2012 – 13 has set an ambitious surplus target of Rs 10476

crore for the next financial year. The Rail Budget 2012 – 13 has set gross tariff

receipt target of Rs 132552 crore. This is a year-on-year increase of 27.6 per

cent over revenues of 2011-12.

The Rail Budget estimates that dividend payments of Rs 6676 crore will be

made during the year. The surplus is expected to be further depleted by the

repayment of a loan of Rs 3000 crore that was taken in 2011-12.

What experts have to say--

“The capital funding plan of

Trivedi showed that the

minister tried to settle short

term losses with long term

gains”.

“The minister tried not to

throw all the desired reforms

in one shot, rather adopted the

policy of generational

reforms”.

Trivedi aims to reduce operating ratio to 74% by terminal year of 12th Five Year Plan

Union Railway Minister Dinesh Trivedi said that he aims to bring down the operating ratio to 74 per cent by the

terminal year of 12th five year plan.

“I propose to bring down operating ratio from 95 to 84.9 per cent in 2012-13 and lower it to 74 per cent by terminal

year of 12th plan,” Trivedi said.

“Be Ready to bite the bullets to modernize railways”

Kick-starting the bold reforms, Dinesh Trivedi said that “Be ready to bite the bullets to modernize railways”. The

statement of Trivedi reflected that despite of increase in fares, revenue crunch won’t be solved and modernization

of railways would require efforts of freedom fight.

Smart shift into generational reforms

Dinesh Trivedi’s rail budget is betting high on generational reforms in the sector rather than incremental annual

changes. Trivedi acted very smartly considering the ongoing tensions in the fiscal section of India. Currently, India

faces shortage of funds and along with that, it also faces high inflation.

Riding on the challenge to drive the growth without overburdening the financials of India, Trivedi planned to

increase the budgetary support by just Rs 4,000 crore in upcoming fiscal as compared to previous fiscal. However,

he demanded that Rs 14 lakh crore would be required in Indian Railways in the next ten years.


In the right corner….

Railways passing through difficult phase, standing at a cructial juncture: Dinesh Trivedi

Under precarious financial position and creaky infrastructure, Indian Railways is passing through difficult phase, said

Railway Minister Dinesh Trivedi in its maiden Railway Budget.

In its maiden budget for 2012-13, the minister has breached the customary of ‘no hike in fare price’ by raising the

fare prices after 8 years. The department has also given an indication that fares may further increase in the future,

depending on the rise of fuel prices.

However, the railways posted a growth of 10 per cent in revenue between April 1, 2011 and February 29, 2012, said

the data released last week.

Railways Budget 2012-13: Railways partner with state govt to start new projects

Anchoring a significant role in social development of the country by providing rail connectivity to the remote,

backward, and tribal regions and generating employment opportunity to the local peoples, railways has signed

Memorandum of Understanding (MoU) with several state government.

The Railway Minister Dinesh Trivedi, in its maiden budget, today, has urged State Governments to come forward for

sharing cost of new line, gauge conversion and doubling projects which are considered important by them for

development of the state. As of now, 31 projects covering a length of more than 5000 km in 10 states are being

executed with contribution from state governments.

Railway ministry in partnership with Government of Chhattisgarh and user industries in the region has proposed to

develop three rail corridors in the northern part of the state for movement of passengers and freight, with the

active participation of all stakeholders.

Railways budget 2012: Budget bonanza for metropolitans

Railway Minister Dinesh Trivedi, in its maiden budget, has proved the spectators wrong by announcing a lot of plans

for metropolitan cities, other than Kolkata. There was speculation in the political arena that Trivedi will follow the

footprints of his boss Mamata Banerjee, but surprised everyone with his innovative plan, especially for Mumbai.

Extending the Kolkata Metro project started by Banerjee, the ministry has initiated some new projects to bring

more areas in the link of metro. Mr. Trivedi in his statement also added, “Works announced by Mamata Banerjee in

previous two budgets, are progressing satisfactorily.”


A quick comparison of Trivedi’s debut budget with Mamata didi’s trash

“I am ready to

bite the bullets”

“We have tried to

meet”

Emphasis on strengthening Safety, Safety and Safety.

Setting up an independent Railway Safety Authority to

match Indian Railways with International Standards.

Proposal to invest USD 1 trillion in improving

infrastructure, with an equal participation from

private sector.

Shifting the focus on safety, consolidation,

decongestion, and Modernization.

Bringing the operating ratio down from 95 per cent

now to 84.9 per cent in 2012-13 and 74 per cent by

2017.

Opting for generational reforms rather than keeping

the railways in status quo mode.

Allocation of Rs 4,410 crore in capacity augmentation.

Keeping the budgetary support lower at Rs 24,000 for

FY13, as against the need for Rs 45,000 crore.

Boosting the bilateral trade by enhancing the

connectivity with neighbouring countries.

Broad based IT reforms including GPS facility, SMS for

e-tickets, up-gradation of 929 stations.

Increased number of ‘Green Initiatives’ to comply with

environmental standards.

Recruitment to over 1 lakh people in FY13.

Focus remained on West Bengal, and the budget

was seen more as an election manifesto.

Fairs remained unchanged, despite the fact that

Indian railways continue to lose on operating

profits.

Mamata failed to announce any provisions for then

going projects.

No efforts to bring the financial stress down.

Unreal targets missed the reality as planned capital

outlay remained on papers only.

Mamata failed to improve safety and hygiene

factors in the travel life of millions of Indians.

Mamata announced Rs 1,700 crore (Rs 17 billion)

less as dividend, in an attempt to show improved

operating ratio.

Dedicated Freight Corridor Project remained a

dream in Mamata’s budget.


Will Rail Budget 2012-2013 be Trivedi’s swan song?

Bad politics beat good economics; Mamata Banerjee asks Dinesh Trivedi to either resign or roll back rail fare

hike

Bearing the brunt of going against the wishes of his party chief Mamata Banerjee, the Railway Minister

Dinesh Trivedi has been asked to either roll back the hike in the rail fares or resign from his post.

The party chief of Trinamool Congress (TMC), Mamata Banerjee, disapproved of Trivedi’s bold decision of

hiking the passenger fares, irrespective of how nominal it is. Banerjee has always prevented such raise in a

bid to protect common’s interest and avoid putting additional burden on them.

Reacting to the adverse situation, Trivedi said, “I have done my duty... now I leave it to God.”

Trivedi, in his budget speech today, proposed to rationalise the fares to cause minimal impact on the

common man and to keep the burden within tolerance limits in general. He announced hike in passenger

fares ranging from Rs 2 paise per km to 30 paise per km depending upon on the class and distance travelled.

In contrast to the TMC’s reaction, the hike has been welcomed by Prime Minister as well as by majority of the

country as it is the only way out to pull Indian railways out of the financial crisis.


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