Union Budget - Ajit Dayal

The greatest thing about India is the joint family system. The elders are always there to look after the younger members. The strong are always there to help the weak. When a relative - no matter how distant - is out of luck and falls on bad times, the patriarch places a hand on the sunken shoulders of the disappointed young man, pats him on the cheek, and says to the young man, “Fikr na karo, beta, hum hain na.” Reassured by the patriarch the young man gets a new zest of life and is happy to face the world again. We have seen this scene so many times in Bollywood films. And have cried in happiness.

And now we see this “Do not worry, my son, I am there” approach in the budget. This is not an election budget. This is a “joint family” budget. A Hindu Undivided Family (HUF) budget. With “Hindu” not being used in terms of religion but a geographical description of those who lived by the banks of River Indus. Hence, the word Hindu; hence, the country Hindustan.

Any budget, any action by the family patriarch, is an attempt to balance the need of one group against the demands of another. Many of the budgets – and government policies - in the past have been skewed. They have either robbed the rich to pay the poor (nationalisation or penalty rates of taxation) or they have gifted corporate India at the cost of others (cutting tax rates for corporate India, introducing land grab schemes like the SEZ, and not investing in schools and teachers and health for the poor). This budget brings the patriarch-ruled HUF system to the fore. And as the patriarch announces his generosity to one group, the others – in an ideal situation of family harmony - should smile.

But this is the modern India, the one with mobile labour, fractured families, and a country with the new in-your-face arrogance that sees the glass as half empty because you drank their rightful share of the water. Family harmony is what you saw in the old movies while you ate your salty popcorn - now it is the serials that pollute our innocence while we eat our Jain pizzas.

So when the Rs 60,000 crores of loans given to small farmers was declared as a gift and no longer needed to be repaid, there was a spontaneous flow of tears. But – unlike the films in Bollywood - the spontaneous crying from all of us city folks glued on to ticker-tape TV was not in happiness, but more in protest. The BSE-30 Index took a vertical drop and plunged to a new intra-day low. For a minute (and that is the time horizon of most viewers of TV serials these days) it looked like this drop was going to force everyone to change the scale of their graphs to accommodate what could be a circuit down move. A red blooded -10% day. A Freaky Friday.

But then a few minutes later, the Finance Minister announced an across the board reduction in the effective tax rates for the more fortunate. Later at a press conference he indicated that this reduction in tax rates was going to reduce taxes by Rs 4,000 for the lowest slab of tax payers; Rs 24,000 for the next slab; and Rs 44,000 for the third slab. The graph of the BSE-30 Index recovered. The weeping seemed to be in happiness. It was the patriarch’s hand on the shoulder telling the young man that he could go out and shop a bit. Or save more for the future. A -10% blood bath seemed impossible now as the collective cheers of salaried people heaved the Index northwards. We could not hear the farmers’ voices as they probably were not aware what was happening or were too busy trying to find water to drink. In nay case, there was no TV channel interviewing them.

Taking a cue from the Bollywood movies again, the Finance Minister was ready for the next twist and turn in his plot. This time he said that the short term capital gains tax would be increased from 10% to 15%. The 300,000 punters that mis-represent India’s capital markets did not take kindly to that. The knocked the Index down again. I wish the tax had gone to 30%, frankly, to take the punters and their excess liquidity out of the system.

The details of the budget and all the minute tax implications for various companies will be agonisingly scrutinised for the next few months as it winds its way through the Parliamentary process to become a Bill. But that is not material. What is material is that the movements of the Index as the markets absorbed the 3 important items (loan write-off for farmers, changes in the effective rate of personal income tax, and the short term capital gains tax) confirmed that there are two Indias.

There is the Index-watching India that is focused on its wealth and has a voice which can ask questions to a Finance Minister. And then there is the other India – the one which can only commit suicide to be heard.

The reality is that there is an HUF budget required in India every year for the next two decades. There are over 400 million people who need to climb up the economic ladder. Those who have the market cap, need to pay for it. We cannot hide – or fight – that reality. We need a patriarch in the HUF, a generous karta. Finance Minister Chidambaram and his government have recognised their role and may they have much success. And now we need another 19 HUF budgets.

By Ajit Dayal, Director, Quantum Mutual Fund

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