Budget measures - first thoughts

A week to go for the budget, and Pranab da is talking about fiscal consolidation. Consolidation would be the sensible thing to do, as the GFC is far from done and dusted, and vulnerable countries could yet be shaken down. For a national budget so reliant on borrowings as ours, punishment by bond, or currency, vigilantes could be brutal.

Cuts in spending are highly unlikely; subsidy cuts even more so - whether on food, fuel or fertilisers; worse, the fuel subsidy is an unknown, as crude oil prices remain volatile. Budget balancing would have to be achieved by raising revenue, and to be truly responsible this would have to be sustainable, not one-off gains from auctioning spectrum or stake sals in PSUs.

Direct tax rates are unlikely to go up; in fact, personal income tax threshold levels would have to be raised to compensate for inflation. What would seem to be easiest to do is to raise MAT; lobbies that would normally protest against this are now silenced in the wake of Radiagate. The Congress party, in fact, would gain brownie points by showing how tough it is in terms of shrugging off corporate concerns.

This would not, however, raise much by way of revenue. For this, I would look at an increase in excise duties; this would, in any case, be a reversal of cuts made in late 2008, to fight recession. Now, we have the opposite phenomenon - a recovery which is over-heating the economy. It would make sense to raise excise, especially in industries where the common man is not seen to be impacted. The one I can think of, off the top of my head, is cars. Will try to come up with more.

Learning about dance from my son

Paul Taylor's choreography has a truly American energy and freshness, despite the fact that the man is 80, now.

Dancing for a packed audience at Delhi's Siri Fort on February 18th, his company, Paul Taylor 2, slipped and slid, ran in circles of joy, and in one exquisite, transcendent pas de deux, explored small and large, flitting and fixed, fast and slow, with the diminutive Madelyn Ho an angelic, joyful butterfly to the largest male dancer in the corps.

If the tiny Wu epitomised the cliche of Oriental grace, her Latina colleague, Alana Allende, had a boundless, sometimes explosive energy that seemed to come from the Andean jungles to the Delhi stage, with only the briefest stopover in New York city. In contrast, the male dancers, superbly strong and talented, lacked orchestral colour. A renewed vote for the melting pot.

As a sidelight, I asked my 12-year old son what he made of the show, he said, "It was quite boring, but at least I learned that you can tell a story through dance." Considering that this was expressionist dance, not narrative, I think that was an evening well-spent in his cultural education!

Politics above reform

Montek Ahluwalia shrugged off any discussion of corruption in India, "In India, we follow the fashions of the West, with a 10-year lag: there they had Enron and Worldcom; now it is our turn."

Moral equivalence is the shortest cut to moral decay. Aside from that there is the small matter of a (convenient) blurring of the difference between corruption at the senior-most levels of government, and corporate fraud. When those who are supposed to guard us against crime become criminals, we are plunging into the abyss.

In compensation, we have the suave, glib words of a committed technocrat, and I use the term 'committed' in the most pejorative sense of the term.

Montek had the answer to everything, "We know what we have to do: we have to price energy right, by removing subsidies; we have to price water; we have to figure out urbanisation; we need FDI in retail; we have to reform agriculture....However, we have no plan to get from point A to point B. We will take measures when there is a political opportunity to do so."

Which a senior businessman of my acquaintance translated thus, "Hum gaddi nahin chhodengey", meaning that we will reform only when it doesn't rock our barge of political complacency. Barges, of all craft, are most subject to drift. 

India's biggest bust

Real estate: it looks like the drift will never end. In January 2008, BSE's Realty sector index peaked at 13848. Consider for a moment an investor who bought into this index (or the shares it represents) at that price. Add to that figure 30%, to represent the cost of capital, at 8% compounded for 3 years. That's 18000.

Any guesses what that money is worth today?

A little over 2000. 2112, to be exact, as of yesterday's closing. That's 12 paisa in the rupee. That puts India's real estate boom and bust in the same league as the dot-com bust. And that's despite the fact that real estate prices are no lower than they were in 2008. This dichotomy is explained by two things - firstly, the incredible hype around real estate in 2008; secondly, the leverage in this sector. Good times make for bad loans...