Much Ado About Nothing

A Vote on Account, is essentially a mini-budget preceding the general elections. These are supposedly provisions made for expenses in order to ensure running of the government over the short period of time that elapses between the end of the financial year and the assuming of office by a duly elected government. The honourable Finance Minister has however seized this opportunity and tried to kill two birds in a shot. 

While on one hand he has created a mirage of benefitting the masses to gain vote appeal on the other, if put through, this Vote on Account will ensure that the incoming Finance Minister (whoever it is) will have a herculean task at hand of managing the mess in which finances will be thereafter. Such a Vote on Account brings to the fore the self belief of the incumbent government that it has very little hope of coming back to power. Obviously, if it is believed so, the Finance Minister would have taken some care to ensure that coffers aren’t really left empty or strained out in a manner beyond ones capacity to refill them within a normalised time frame.

But what is even more important is the fact that the interim budget read out with so much of confidence by the Finance Minister is unlikely to yield as much as it promises it would. Apart from the social spending that has been earmarked there is nothing of consequence for the economy that can really propel growth in future.

The document is rather fully loaded in favour of carrying forward the ambitious projects of the UPA II. The non-plan expenditure for 2014-15 is estimated to be around Rs 1207892 crore.  Of which, expenditure on subsidies for food, fertiliser and fuel is estimated to be around Rs 246,397 crore. Rs 65000 crore has been provided for fuel subsidy.  The real twist comes in here. FY14 saw the absorption of the rollover of Rs 45000 crore from the fourth quarter of 2012-13. Rs 35000 crore from the fourth quarter of this year will hence be rolled over into the next year. This clearly shows the ingenuity of the Finance Ministry in balancing its books by resorting to accounting jugglery. 

A bigger hole in the pocket will come from Rs 115000 crore allocated for food subsidy. I have been a sharp critic of this unreasonable legislation which seeks to provide free food without effort. Such a huge subsidy for this purpose will only kill the Government’s Balance Sheet going forward. 

Interest subvention allowed on education loans and the ‘one rank one pension’ scheme announced for the armed forces and yes, the infusion of capital in public sector banks are among the very few provisions worth being talked about. In all these cases, the intention is big and noble but the amount earmarked is really of little consequence. Rs 500 crore for the armed forces and Rs 11200 crore for banks is just too little in the overall scheme of things.

On more important matters like the failure to pass some very important bills from the economic and business perspective, the FM had only a pathetic apology to put forward. It would be much better if efforts had been made throughout the year or rather years in which the present government remained in power to get critical bills like the GST and the DTC passed. 

Meanwhile, the budget story gets murkier when one looks at it from the industry point of view. The biggest and most important factor that has created an impact on the economy is the slowdown that the industry has been facing. Manufacturing particularly is in a very bad shape. But provisions to pull it out of that rut are nowhere to be seen. 

To stimulate growth in the capital goods and consumer non-durables, excise duty has been reduced from 12 per cent to 10 per cent. This provision will be in force for the period up to 30 June 2014.  A review of this is sought to be done at the time of the regular budget to follow. This reduction in duty is truly inconsequential. It would not lead to any big reduction in the prices of goods covered under these provisions and hence not really help in spurring demand. 

The same applies to the relief granted to the automobile industry in terms of excise reduction. The real predicament of the Auto industry lies in the higher interest rates that are currently prevailing. With a bulk of the sale coming through the mortgage route, there is a clear case for the coming down of interest rates if demand for automobiles has to come up. The bringing down of excise can in no way act as a demand stimulant for the industry. The FM seems to have either lost sight of this fact or has conveniently decided to ignore it. 

All said the interim budget looks like a clear hogwash to say the least. The period from now until the conclusion of the general elections will hence be a period interspersed by pain and relief in an imbalanced measure with the speculators making the best out of all opportunities that arise out of volatile sentiments of the public and the anticipated election results. The economy would have to learn to live with it and get past this phase only to hope for better days ahead. 

However, all is not lost and there exist some hidden treasures in our market. In this issue our research team has dug out some companies which are turning corners. The four companies shortlisted by our research team are Century Textiles, SKS Micro Finance, Crompton Greaves and Hindustan Construction. These companies are poised to deliver good returns as they have demonstrated a good and strong performance in the nine months up to December 2013. The whole year performance of these companies looks promising as well.

Our second major story this fortnight is the total result analysis of companies for the December quarter of 2013. The performance of various sectors aggregating out of this has been analysed by our research team. Though nothing much was expected to come out of this quarter’s performance, it pays to keep a tab on what has happened and what can be expected going ahead. These apart, there are our regular recommendation columns and features which sum up the issue for our readers. 

Let me conclude by putting forth a clear caveat for our readers and investors. The road ahead looks bumpy but the future is certainly bright. The fundamentals of the economy still remain sound but are seeking direction. That direction will come from a strong government and a decisive leadership. The days aren’t too far away. Persistence and patience are the key words as of now.