Tag Archives: CVD

Dummy’s understanding of Indian Union Budget 2013

The contents of this blog are the views of an ordinary Indian citizen… If the views are far removed from reality, I would love to be corrected by the more erudite…

 The union budget seems to have the following goals in mind…

 

  1. How to reduce imports and increase exports?

  2. How to handle Indians’ thirst for gold without harming the Rupee any further?

  3. How to raise more money for the government without pissing off the people?

  4. How to make sure the budget doesnt win the upcoming election for the opposition?

 

I will proceed to state how I think the above questions have been answered….

 Before I begin, I have to admit that even before we arrive at a verdict of the budget as such, it seems that after a long long time, economics has been given preference before politics… maybe the situation has become so dire that the pecking order had to be changed…. in any case, the change in thinking is something to be welcomed and hope it is the beginning of a trend in Indian history…

 Lets start the dummy’s analysis…

 How to reduce imports and increase exports???

 For a developing country like India, it is very important that as a country we export more than we import…. During the times the Indian story was unfolding, Indian exports were on a seemingly unstoppable growth path (aided by the every increasing global presence of Indian IT companies)… Then came global recessions… The European crisis, followed by austerity in the US, followed by more crisis in the European Union…. all meant that the buyers of Indian exports were either reducing or becoming too poor to continue as buyers… This factor coupled with coalition governments at the helm, often referred to by the now popular term “policy paralysis” only helped to exacerbate the situation… Growth that was a healthy jog started slowing down to a canter…. and finally almost a “slow walk” forcing global rating companies to downgrade us to “junk” (have no clue as to what that means… but only know that its a very bad scenario to be called “junk”, what say you…?)

 This seems to be the case where the budget seems to be filled with direct and indirect methods to reduce imports and increase self sufficiency. Let me state the points that made me think so…

 Increase in duty on mobiles…

 Even if none of us can jump up and state numbers, it has now become a weather beaten story that India is the world’s fastest growing mobile market…(to show off, I’ll state some numbers here…) In 2012, half of the mobile phones sold in the world were sold in India, a country that has gone from having 37 million subscribers in 2001 to over 900 million subscribers in 2011 (a growth of 2432% in a decade’s time1)… I could go on and on but I think I have proved my point…

 The government has increased the excise duty on mobile phones costing more than Rs 2000… Though there is much agitation against this point, I feel that this has been done with very clear objectives in mind… 

  1. This is going to have a direct impact on the huge import of handsets from China as the cost of importing these phones is going to be higher… 

  1. The increase in excise duty is sure to earn the government more money as today man’s essentials have become “food, clothing, shelter and mobile phones”… 

  1. But the most important objective seems to be in getting mobile companies to manufacture more of their phones within India rather than outside India. The budget also mentions many incentives and tax benefits to companies that are investing in machinery and infrastructure in India that may possibly tempt some or many of the mobile companies to increase their manufacturing capacities domestically rather than to depend on imports…

 Increase in duty on set-top boxes…

 The above explanation seems to be justified by the approach towards set-top boxes. In an environment where constant messages stating digitization deadlines flashing on our TVs, a increase in duty on set-top boxes seems like “forcibly creating a market for a totally imported component and then making it difficult to import it thereby forcing domestic production…“ something in the lines of “carrot and stick” comes to mind…

 It also seems to be a clear indication that finally the Indian government is definitely annoyed by increasing imports from China and has finally decided to bully our population into doing something about it… I hope and pray that I get to shout hurrah in my future blogs in this regard….

 Increase in coal duty…

 I got to know there are 2 different policies for normal coal and steam coal imports. That coal import duty was costlier and that steam coal was cheaper before the budget. Now steam coal has become costlier to import on the same lines as coal… I came across the term CVD at many places wherever I read about the budget, still am clueless about it…

 The direct impact of the increase in duty, would mean that with coal becoming costlier, electricity (are you feeling the shocks already???) is to be become costlier in India… A county (in general) and many states in particular (this blog emanates from one of India’s most power deprived states) that are facing an acute shortage in power, this would seem to be very bad news (read somewhere Adani group head bemoaning the increase in costs)…

 However, lets face the simple truth… As population rises, as coal reserves deplete across the world, it is, as sure as we are going to die someday, inevitable that the cost of importing coal is only going to keep on increasing…

 By increasing the duty on coal, the government seems to be forcing Indian power companies to increase their forays into greener and alternative sources of energy. To support this fact, the budget has several incentives for companies/entrepreneurs involved in wind power generation…

 Necessity is the mother of invention… and the budget seems to be making use of the current scenario in pushing us in the direction of cleaner, greener and more power at the same time achieving its intention of creating another dent in the imports segment…

 Without delving into more examples, these statements seem to make a point that there is a clear and uniform pattern across the entire budget to reduce imports… If the developed countries clear their mess and return to becoming buyers of our exports… I hope we can look forward to a healthy balance between exports and imports…

 

How to handle Indians’ thirst for gold without harming the Rupee any further?

 Gold has been at the centre of Indians’ lives and this can be seen in the fact that India imported around 900 tonnes of gold in 2012 for domestic consumption2 and the trend is something that can be assumed to continue with gold being treated as an investment in addition to being an integral component of the grand Indian wedding.

 However, in layman terms, the more the gold a county imports, the cheaper its currency becomes… In other words, the number of rupees to be shelled out to get a dollar will keep increasing as India keeps importing more and more gold”…

 This is something that can give any finance minister (of a country where gold is so important culturally) nightmares of a continuously depreciating currency…

 I, as an ardent admirer of movies like the “The Italian Job”, “The Ocean’s movies”, cant but stand up and applaud the idea that our minister seems to have come up to handle the situation…

 The budget has increased the limits of how much gold can be brought into the country by NRIs/indian tourists… The limit for a male passengers has been increased from Rs 10, 000/- to Rs 50, 000/- and for a female passenger from Rs 20, 000/- to Rs 1, 00, 000/-….

 In simple terms, the budget allows Indians to bring in as much gold as possible (directly proportional to the number of Indian NRIs and Indian tourists abroad) and hope to reduce the amount being brought into the county via imports… This can ensure that there is ever increasing amount of the metal in the market for us to buy and sell and not have an impact on the daily battle between the dollar and the Rupee…

 Sounds filmy… but does seem to be a smart move… I look forward to gold market/bullion reviews over time to see how the plot unfolds…

 

How to raise more money for the government without pissing off the people?

 When I start typing about this topic, I am reminded of a recent article in the Economic Times of how “Gurgaon is both the land of cowherds and crorepatis…”3 I can safely extend this analogy to the country on the whole where there is an ever increasing divide among the haves and the have nots… Though India has witnessed more and more people crossing the barrier to become “haves”, the population expansion on the lower side of the barrier is much more compared to the upper stratum…

 With this backdrop, any move by the government to tax the richer, no matter how right or wrong it is, would be met with much enthusiasm. Having with him, such a fail-safe option, the budget seems to have taken it one step more in further dividing the rich into more classifications in order to make sure that the associated dissent and disappointment is lost in the collective public approval…

 Increase in duty of cigarettes and proposed increase in duty of cigars…

Among the world nations, India can be called the most hypocritic when it comes to cultural values… Sex, skin show and female harassment are celebrated in our movies, but chastised in our values… Alcohol consumption is denounced but is the main source of revenue for many Indian state governments… the paradoxes are aplenty….

However without meandering more, increase in duty of cigarettes is sure to be cheered by people on the assumption that it will reduce cigarette consumption and it is likely many people will consider the government to actually have a noble intention at play… Whether it will reduce smoking in the country is unlikely, it is sure to give a significant increase in revenues… To prove my point, note the following impact… A 20’s pack of Kings cigarettes will cost Rs 150/- instead of Rs 135/-… (I have very few readers, let alone readers who smoke.., but if there was and if the above point disturbed him/her, I will be most surprised…)

 Increase in service tax charged for AC restaurants… Now AC restaurants will be treated at par with AC restaurants that serve liquor…

By specifically stating AC restaurants, the budget wants everyone to understand that this is a “robin hood’s budget”… But having stated that, I do not envisage any reduction, whatsoever, in the social lives of the people who will be impacted by this rule… The upper middle classes and the upper classes, the symbols of India’s growth story may not even notice the impact… If any one disagrees, lets try a simple experiment…. Go to a restaurant for an evening to which you might have gone before the rule sets in… Order the same items as last time (if you are able to remember) and on receiving the bill, see if you can identify the change in the bill value…. (do not save the previous bill and bring it along for the exercise !!!)… If many of you are not able to identify it, I will feel vindicated…

 Increase in duty on SUVs and 100% duty on imported vehicles…

If anyone felt that the previous point was not enough to qualify to be that of Robin Hood, this will surely fit the bill… The rule increasing the excise duty on SUVs (SUVs used as taxis exempted) seems to mirror the millions of bystanders/pedestrians who admire these shiny vehicles on the road… In fact, the finance minister has even stated that this increase is justified by the fact that these vehicles occupy more parking space… I assume that this opinion is intended to resonate with the wistful feelings of those who simply cant afford one…

Once again a section has been carefully chosen that is seemingly impervious to such cost hikes. In a society like India where having costlier and bigger cars is considered a social status, such a hike may not deter many a buyer… “Rather spend a little more and be called a rich man rather than save and become a commoner…” seems to be the assumption made by the government of the India’s rich…

 Just some examples that appealed to me to convince me that the government has tried to generate as much additional revenue without causing too much of a flutter… In my head, I can visualize an animated version in which Robin Hood reads out the budget…

 

How to make sure the budget does’nt win the upcoming election for the opposition?

 Taking into consideration the fact that this could potentially be the last budget presented by the current government, the finance minister is to be lauded for not losing focus of the bigger issues at hand and for having prioritized economic issues over political ones.

 Having said this, there still seem to be points scattered that that somewhat ride over the previous observation… stating here the ones that seemed so to me…

 Bank of the women, by the women and for the women…

 The proposal to set up a bank to focus on helping women entrepreneurs is definitely welcome, but does it need to be run only by women???

 It is not that we want a bank run only by men, but it does pose an indirect question as to whether Indian banks are an unsafe place for women to work???. I hope that there is no controversy in these lines and the idea being benched as a subsequent outcome. In any case, the pitch to attract female voters is for all to see…

 Post the budget presentation, Mr Chidambaram has even stated that he intends to replace “he” with “she” when addressing the common man, i mean the common person thereby sending across strong signals that of the intention to walk the talk.

 The fact that it did manage to make the opposition leader Mrs Sushma Swaraj smile (and also Mrs Sonia Gandhi and Mrs Meira Kumar, basically supporters, opposers and neutrals) can make it a safe assumption that there is as concerted effort to appeal to the Indian female voter population…  

1000 crore Nirbhaya fund for ensuring safety and dignity of women

 I do not think there is a need to explain this point in detail. It seems to be a clear attempt by the government to show people (who are fed up of promises) some concrete action on protecting the safety and dignity of women in India. Its just sad that “Nirbhaya” had to die such a tragic death for something like this to be started… However, on a positive note, hope the fund is used for what it is planned for and hope it helps making India a safer and better place for our women…

 Reviewing of criteria for awarding special status to states

 I have limited knowledge on what this means in terms of actions in the near future, but it did make Mr Nitish Kumar, Chief Minister of Bihar and a member of the opposition NDA, thank the finance minister as many as 7 times !!!. It does look like an effort to reach out to parties at the helm at various states… With no one really knowing how fractured the electoral verdict is going to be in 2014, this seems to be a trump card thrown on the table…

                           

Conclusion…

 As a common man who spent some time reading the budget, the above mentioned points are the way in which the budget has registered in my head.

 And I am aware, that like me, for the many million readers, the budget will be remembered for various different combination of points.

 The collective result of our analysis will surely influence the way results unfold… sensex, markets, ratings and above all elections …

 No matter what the future holds, I think it is high time we get more budgets(and subsequent governance) that focus on the real issues that hold our great country back…

 

Jai Hind