Sucheta Dalal :Aam aadmi's expectations from the FM
Sucheta Dalal

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Aam aadmi's expectations from the FM  

Feb 27, 2006

Four weeks before the Budget, the chief of a European bank’s investment operations was confidently telling the big moneymen of Mumbai that the Sensex was ‘‘certain’’ to touch 10,500 before the Budget. It was almost as if he had a crystal ball with a guarantee for accurate prediction, or he knew something that other investors didn’t.


That is a good possibility these days when a small group of highly influential traders, especially Foreign Institutional Investors rate the Finance Minister’s performance on Budget Day by the sheer money power that goes into buying or hammering stocks. Their actions speak louder than the corporate bigwigs who gather at TV studios to pronounce instant judgements and assign marks to the FM.


But if one were to look beyond this influential group, the ‘aam aadmi’ has a different set of concerns, frustrations and demands. This does not include the small investor community (still below two crore) which has been a big beneficiary over the last few years in the name of parity with foreigners or to match taxation policies of other developing economies.


With the Sensex at 10,200, traders and investors are sitting on massive notional wealth and paying very little tax. Yet, a clutch of research reports by top brokerage houses seem completely confident that the good times will continue to roll. They expect the FM not to raise direct taxes and to offer more exemptions to debt funds (reduce capital gains and dividend distribution tax) and mutual funds. It will be interesting to see if this segment remains on the FM’s priority list.


Pankaj Agarwal, a Delhi-based Chartered Accountant points out that there is always very little for ordinary persons. He asks why the FM has time only to meet industry associations before and after the budget, and not ordinary persons. If he did, Agarwal would have asked him why people should pay income tax at all. People have to increasingly make their own arrangements for health, security and pension, while their tax money goes to fund the bureaucracy.


He also wonders how the FM is quick to borrow concepts such as Fringe Benefit Tax and Value-Added Tax from the developed world, but won’t borrow the Social Security concept to provide a safety net to honest tax payers who have a substantial chunk of their income lopped off by the FM and then continue to fork out substantial chunks for municipal and state levies and duties.


Ordinary people, who Agarwal stands for, are tired of the government gouging more taxes from honest taxpayers instead of cracking down on corruption in the tax collection machinery and to improve realisation from lucrative cash generating professions and businesses such as doctors, lawyers, restaurants and jewellers. They also expect this to happen without offering carrots to dishonest persons in the form of amnesty schemes.


If one were to paint the broadest picture of what tax payers as well as corporate India wants from the budget, one will probably see a subtle shift in mindset. The biggest item on the wish list of the aam aadmi as well as the power elite is infrastructure development and policy initiatives that will empower people by facilitating the growth of private enterprise in the small and tiny sectors. They no longer want mindless subsidies that rarely reach the genuinely needy due to tortuous procedures that are designed for misappropriation.


They want the government to focus on providing basic infrastructure such as power, electricity, roads, health, education, irrigation and construction through policy initiatives and incentives for private investment in these sectors. Secondly, people want policy changes that will encourage rural development in many ways.


After MNCs discovered a new market in rural India to hawk personal care products in sachets with low unit costs, it is the turn of bankers to spot this market. Yet, the government is stuck in a 20th Century mindset and has rolled out the National Rural Employment Guarantee scheme promises a short respite to one member of a family from long bouts of unemployment and abject poverty.


This involves a discretionary process that is begging to be abused by corrupt officials and politicians. On the contrary, India’s most aggressive private banks are confident that rural India is their big business opportunity.


A few policy initiatives that make it attractive to invest in setting up food processing industries or encouraging construction will go a long way in catalysing change and transforming rural India more rapidly and permanently than the government’s employment schemes that make merry with tax-payers money.


Aditya Puri, Managing Director of HDFC Bank says, “It takes only a few thousand rupees to change the life of a (rural) family”. Both ICICI Bank and HDFC Bank have put in place models that make it safe for them to finance tractors, bicycles, motorcycles or even basic farm equipment such as water pumps for farmer; and to finance small rural businesses, through the intermediation of self-help groups.


This will raise income levels and kick of a range of commercial activities to meet new needs and aspirations in the form of cinemas, restaurants, grocery stores, clothes and personal care products. Industry is looking to the FM to incentivise state governments to push rural reforms and facilitate what banks call “integrated rural lending” and introduce policy initiatives that will transform the commodity cycle.


ICICI Bank’s CEO K.V. Kamath speaks of ‘derisking’ the farmer by helping him time the market to improve realisation. Bankers, commodity traders and farmers are all looking the FM to help clear changes that will change the warehousing process and convert ‘warehousing receipts’ into an easily tradable instrument.


Finally, people want infrastructure development schemes such as the “Bharat Nirman” and “National Urban Renwal Mission” to be sensibly structured, shielded from corrupt policy makers and to move from mere articulation to action.


-- Sucheta Dalal