Wednesday, March 2, 2011

Union Budget 2011 - A hit or flop show ?

Everyone spent hell lot of time speculating about budget before Feb 28, 2011. Media gets an easy topic to discuss 24 hours and experts gets the chance to show their speculation skills to the public.

Well, when I talk about whether this year's budget is hit or flop is my perspective and lot of people may agree or disagree to it. Couple of days before the Union Budget I wrote a post with title "If I were Finance Minister - Union Budget 2011" (Click link to see the post, now that was like a dream to me and I thought of writing a revolutionary budget. But reality is different so I will not compare but I said there with what has been announced by Finance Minister on Feb 28.

Disinvestment of PSU - Good for Economy

An aggressive promise from Government. They are going to raise Rs 40,000 Crores in 2011-12 from disinvestment. Keep in mind that this is just a promise, lets see what comes in reality. Looking at the past trend of UPA they have been conservative about such promises so I hope that the number of Rs 40,000 Crores is conservative and actual realization would be way ahead of it. However its a matter of timely execution. A good step to bridge the gap towards Fiscal Deficit.

Foreign Investment in Mutual Funds

Another aggressive step wherein foreign investment has been allowed in mutual funds in India. Of-course this will bring more investment to India but I am skeptical about it. Mutual Funds till date have been relatively considered as stable investments than equity but the way FII plays with equity markets if the same practice is replicated in mutual funds, small investors will loose big time.

Aadhar (UID) Cards

It has been promised that 10 lakhs UID cards shall be issued everyday w.e.f 1st Oct 2011. This system will bring transparency and eliminate the corruption at various levels and bottom of pyramid will get the most benefit out of it.

Well, keeping in mind that Nandan Nilekani is leading this project I have no doubts in mind that it will not happen on time.

Economic Growth
  • The GDP growth is expected to grow at 9% in 2011-12
  • No major steps to control Inflation and seems that it will continue to bite the poor of India

Direct Transfer of Cash Subsidy

Prima facie it looks really a step towards inclusive growth wherein we are talking about transferring benefits to beneficiary directly for Kerosene, LPG & fertilizers and remove all mediators, which on paper will help control corruption as well. But reality is going to be completely different. All hopes on the Task Force which will set up the process for it. I am very very skeptical about it, my only hope is UID if in case task force is able to use that efficiently.

Foreign Direct Investment

Till now the statement is just on paper that discussions are underway to liberlise FDI policy. Pure lolly pop.


My favorite topic and thankfully this was covered  in length. Few key initiatives which I liked :
  • Rashtriya Krishi Vikas Yojana budget increased from Rs 6,755 to Rs 7,860/-
  • Rs 400 crores allocated to Eastern  Region to promote Rice based crops
  • Rs 300 crores allocated to bring 60,000 hectares under Palm Oil plantation
  • Rs 300 crores allocated to promote animal based protein production through live stock development.
  • Credit Flow increased from Rs 3,75,000 crores to Rs 4,75,000 crores in 2011-12
  • 15 more mega food parks approved for 2011-12
  • Private players to be allowed for Storage capacity and warehousing. 

Black Money

Five fold strategy, membership of various international fora of money laundering, DTAA etc were announced but let me tell you that all these are just excuses. It just need WILL to attack this dragon which no one in our politics has. If it happens, the names involved in it will change the history of India and no one who is in power wish to do so.

Bharat Nirmaan

I just copied a statement of our Prime Minister about the scheme to give you an idea of what Bharat Nirmaan is. “Bharat Nirman will be a time-bound business plan for action in rural infrastructure for the next four years. Under Bharat Nirman, action is proposed in the areas of irrigation, road, rural housing, rural water supply, rural electrification and rural telecommunication connectivity. We have set specific targets to be achieved under each of these goals so that there is accountability in the progress of this initiative.”

A significant allocation of funds has been done to this initiative. The budget has been increased to Rs 58,000 Crores for 2011-12 from mere Rs 10,000 Crores for 2010-11.

Government is targeting to provide broadband connectivity to all 250,000 villages in next three years. Thats called inclusive growth.

Please do read more on Bharat Nirmaan at This is the real work which would enable every Indian to be self dependent.


The original name NREGA has been changed to MGNREGA. As expected the salary under MGNREGA has been linked with Consumer Price Index. So more dent to the budget.

Anganwaadi salaries have been doubled for workers and helpers both.

IT Initiatives
  • Some more initiatives will be seen in efficient tax administration although no clear plans unveiled.
  • Rs 300 crores allocated to modernize state stamp and registration in next three years. This will change the history if it happens with real WILL POWER to reform this area.

  • Government seems to have fed up with GST by now. Consensus among states is a major headache to UPA. Many changes, many drafts, many deadlines and it seems that it is still not in a position of actual implementation even in phases. The scope of GST has been narrowed, really dont know what has been excluded or compromised till now.
  • Direct Tax Code (DTC) would be effective from 1st April 2012, a good news. Lot of hassle and complication of taxation would hopefully go away.
  • Income Tax exemption of Individual tax payer increased from Rs 160,000 to Rs 180,000, benefit of Rs 2,000 annually
  • Minimum Alternate Tax (MAT) increased from 18% to 18.5% for companies. Good one, get from the companies who are earning more and pass on the benefits to deserving ones and i.e. Poor India.
  • Additional deduction of Rs 20,000 for investment in long term Infrastructure bonds for Individual tax payers
As a tax payer there is nothing exciting which I got from this budget however looking at the challenge of controlling Fiscal Deficit and a step toward double digit growth, I would rate this budget at 6 out of 10 and purely this is because there are few initiatives on Agriculture front which I liked, some promise about FDI liberlisation and commitment towards bottom of pyramid by increasing budget for Bharat Nirmaan scheme and by linking wages with CPI under MGNREGA.

Monday, February 21, 2011

Sure Success Venture - Online Media Business

We all have experienced multiple eras wherein we have seen immense changes in the way we operate or work. When it comes to revolution, it reminds me of 1991 reforms when entire economy took a U turn and exposed itself to external world. Since then we saw many industries transforming their way to operate. Be it Banking, Insurance, Telecom or IT, we have all seen the change, and change for good.

21st century's first decade witnessed historical change or boom in Online business. Today we are in a situation that we can spend hours and hours on Internet busy with our favorite activities. This decade made people addict to Social Media sites, Blogging, Online Shopping, Chat and even things like online banking.

So who is benefiting from it, of course apart from end user,the one who creates such platforms. Be it Facebook, Yahoo or some other blogger.

One fine day I was amused to read an article in Forbes, that three Indonesian created a Social Media site (something like Facebook), the only difference was that it was made for that country only. Does not make difference, it must be only language or something other known tags on that was specific to the country. Yes and the other small difference was that this site did not focus more on profile views. This work did so well that Yahoo took it over recently and can you imagine what Yahoo paid ? It was somewhere in the range of USD 2.5 million to USD 4 million. I am sure thats a way big money the creators of site ever imagined.

Dependency of common man on Internet has increased drastically and going forward it will continue to show the growth. So whatever we make with dedication and passion will sure shot be a success.

Blogging has grown many fold since it started. People have made this also as a source of income. Apart from this there are n number of sites on online shopping and auctions, one can not imagine how much money thise sites are pocketing.

Google story is the real inspiration for the people who wish to do well in Internet world. Can someone imagine to build an empire out of a search engine, at least till now no one else could do. If you read through the Google story book, only two things comes out clearly is that both the founders of Google has Sheer Passion to excel and they were determined to create something new. In today's world people are obsessed with Facebook and Twitter but believe me, anything new to this kind of social media network is most welcome, it just need to be better and different.

Someone must have given a thought (in Indian context only) to create Matrimonial site originally, so later on other people copied it. Our Grand parents can not imagine that marriages are fixed online but thats the revolution and who brings idea first gets the prize.

I remember very clearly the queue in banks for withdrawal or deposit of cash, today all of us have almost forgotten such things and story does not end here, more than half of banking activities are done online now. And when did you last time withdraw money from bank standing in queue and listen to the old Aunty cashier who never use to talk properly ? I need to remove the dust from ten year old memory.

Yes, I forgot the big change, our Stock markets. Everything is online now. I have heard the stories of old times when there was no Demat account and online transactions. Even I could never imagine how stock markets use to work in old times. Now real time updation helps you take instant decision to act.

I have seen many people working as Travel / Adventure Agent online. And they earn good money out of it. The reach of Internet is so vast that it has become the common platform for receiver and provider of service. So everyone comes here.

The only weakness of this business is that there are no entry barriers, once you make a concept people just copy it. So competition keep growing around you but keep in mind that if you are original idea owner, you will always have an edge over competition. Just see Google, there are search engines but no one is at par with Google.

All just this business need is a new and unique idea and build the empire with passion and zeal.

Saturday, February 12, 2011

If I were Finance Minister - Union Budget 2011

If I were Finance Minister this is what I would have evaluated to bring reforms in Indian Economy. Some of the "Ideal" budget initiatives.

Discard NREGA

In 2009-10 budget, Rs 39,000 crores were allocated under this scheme. The objective of this scheme is to assure minimum wages to everyone for 100 days in a year. It is really good initiative that government has given employment to bottom of pyramid people however the work happening under this scheme does not result in any return to society/government.

Moreover it is not focussed on developing basic infrastructure, Yes in some states basic roads are constructed under this scheme but of no use.

I believe that the funds allocated to NREGA can be diverted towards departments like PWD, Forest Department, IPH, Agriculture etc. It will not only create solid infrastructure but also equivalent opportunities of employment.  However we need to ensure that this money is utilized for its original objective for which we need to bring more transparency and efficiencies in these departments.

Infrastructure Sector Reforms

We all know how bad is Indian Infrastructure. We are in 21st Century and there are plenty of villages which are not connected with Roads, do not have hospitals, Schools and telephones etc. I am among one of those citizens of India who have witnessed such life and the situation today is the same. Nothing has changed for people of those villages, at least since my childhood. We talk about India among top nations in GDP growth but where is Inclusive Growth which UPA  keep chanting ?

If we read Indian economy articles in India, we have a myth that we are compared with China, but fact of the matter is that we are no where as compare to China, be it Infrastructure, be it GDP, be it FDI, you compare anything and we are way behind.

This Sector need reforms in a way that more expenditure allocation is needed and of-course a commitment of Government to ensure that every Citizen has an access to basic needs.

Let FDI come to India without any apprehension

This is big dream. Our Political instability or risk of instability make lot of FDIs hesitant about Indian Economy. Over and above that our systems and compliance add more spice to it. Let this source of Investment be free and keep least possible restrictions on it. Open more sectors to FDI, we have already seen reform of many sectors after we allowed FDI. It not only creates more employment opportunities for young talent but also upgrade their skills to international level. Needless to say that it brings more efficiencies because of increased competition.

Implement GST

GST implementation will remove lot of complexity and inefficiency from current system. Moreover will help marginalizing taxes on goods and services. Transparency in any proposal create lot of confidence in people and I am sure that GST is one of those initiative which will bring more transparency over a period of time.

No matter what it takes to Finance Minister to implement this, talk to States, bring them to a consensus, GST implementation is need for rapidly growing India.

Public Private Partnership (PPP) - A way forward

We have witnessed the result of allowing private sector in past. 1991-92 was the time economic reforms in our country started. Then Finance Minister Mr Manmohan Singh presented the historic budget wherein one could call our Economy as Open Economy unlike pre 1991 era.

Private Investment in Banking Sector forced Public Sector banks like SBI and PNB to change their strategies to survive in new world wherein private sector was big rival. Telecom sector privatization enable even bottom of pyramid Citizen to afford mobile phone. Also private telecom companies provided mobiles in interior villages where BSNL till date is not able to provide land line connections.

Privatization not only made Consumer "The King" but also created immense employment opportunities. Even another benefit of Private Sector is "No Corruption".

Tax Holidays, SEZ, Export Incentives

There are so many sectors which need right taxation policies. To encourage more investment in specific geography/Industry government need to be more encouraging. Lets extend them the help they need in the beginning, benefits will flow to our Country in long run in the form of GDP growth contribution, Tax income to government (After tax holidays), Employment opportunities etc.

Export is very important part for us. It helps us create presence in the world for various products and services. Apart from this, as Exports bring foreign currency to India, it helps improve our Forex reserves.

Infrastructure sector need more focus here because of its log gestation period. Also since this sector always need huge funds to investment, government need to create more institutions/banks to lend such huge funds in shortest possible time.

Agriculture Sector Reforms

The most ignored and more integral part of our economy is Agriculture. Over decade the Agriculture sector share in GDP has shrinked. We really need to encourage this sector if India wish to right history on economic reforms. Strategically also this sector is very important to be self dependent.

The whole system and regulations need reforms. Thank God at least income from agriculture is not taxed. Also there is good amount of subsidy spent in this sector. However the big flaw in system is MSP (Minimum Support Price). The irony is that this minimum support price is too minimum, as a result farmer gets peanuts and middle men involved in trading take huge advantage of it.

Check out MSP of pulses and see the market price, I bet you, it will be an eye opener for you. So where is the money? We need to change the parameters the way we define MSPs. To be honest I have not gone through the current parameters but gap in MSP and market price clearly indicate that this need attention from experts.

When any sector is strategically so important for us, how can we allow hedging etc in such sectors. The reason for significant gap between MSP and market price is not only because of MSP parameters but also factors like hedging and speculations manipulate this in large form.

Education - The backbone of "Bharat Nirmaan"

To erase poverty from its root and channelize the young blood, Education reforms are must. If  youth of India is well educated the chances are more to channelize their energies towards good else unemployment will continue to increase crime and poverty.

Millions of kids do not have access to primary education and many who get it do not get the quality education. Good teachers do not opt for Government Schools because they do not get good salaries there. I have seen many cases wherein Government School teacher gives education to his/her kids in private schools. We cant close our eyes from such burning issues. Education sector needs immediate reforms not only at primary education level but also for higher education because that is the stage which enable students to contribute to Economic growth.

There are so many other areas which need immediate attention from government to address them in a way that concept of Inclusive Growth become the reality.

Our economy is growing so rapidly that Government need to be proactive in addressing potential issues rather than reactive once the damage is done.

Friday, February 11, 2011

Union Budget 2011 - What to expect on Income Tax on Salary

The countdown has begun for Central Government to unveil Union Budget for 2011-12 on 28th February 2011 Monday. Finance Minister Mr Pranab Mukherjee is busy from few months meeting almost all critical stakeholders on their expectations and ideas on budget.

Its such a critical event for Central Government that only figures and facts are not considered while drafting budget but political implications plays a critical role in it.

The facts and figures which would play a major role in deciding Income Tax on Salaries :-

Telecom 3G spectrum auction 

Unlike 2010 budget situation, this year situation for our country from Fiscal deficit point of view is way better, thanks to the execution of Telecom 3G spectrum auction and unexpected revenue of Rs 67,719 Crores  government received. This was much more than what government anticipated in the beginning of the auction. Clearly it has helped government to cut down on Fiscal deficit in big way.

Forex Reserves

Foreign Exchange Reserves has increased by ~5% in Calendar year 2010 (source which add up towards reduction in Fiscal Deficit.

Foreign Direct Investment

India received USD 19,002 million as Foreign Direct Investment (FDI) from April 10 to Nov 10 (source Although this is less than last fiscal year FDI but fairly decent figure to bank upon.

Foreign Institutional Investment (FII)

FII's were the one taking out all money from stock market in 2008-09 recession. They withdrew USD 15,000 million (net of Inflow and outflow) from Indian economy during 2008-09. I personally believe that this was one of the key reason that our stock markets crashed badly.

Now FIIs are back in India and have invested USD 29,048 million in 2009-10 and USD 31,007 million in fiscal year 2010-11 which is still going on. It surely eases up the pressure on Forex reserves and help improve   fiscal deficits significantly.

National Rural Employment Guarantee Act (NREGA)

This scheme has earned lot of points for UPA and they have seen its result in many elections. This scheme was started in year 2006.

Seeing its magnificent success and results, government increased the budget to Rs 27,000 Crores in 2009 and Rs 39,000 Crores in year 2010 (144% increase) and there is high probability that this number will increase further. 

A major change this year in this scheme was that minimum wages have been linked to inflation, hence indexing of minimum wages with inflation will result in more outflow of funds which means increase in budget.

This can be one of the reason that Income Tax on salaries can be secondary over NREGA budget allocation.

Other Factors

Factors like Inflation, GDP growth, PSU Disinvestment, Unique Identity Card (UID), Export/Imports, GST, Indirect Tax collection, Infrastructure development etc will play a key role in deciding which source of Income (for government ) to increase/decrease and which portion of expenditure need leverage.

The Strategic/political situation which would play a major role in deciding Income Tax on Salaries :-

Its Vote Bank Game

No matter what the facts and figures are, upcoming elections always influence the decision to some extent. 2011 will have 5 state assembly election i.e.West Bengal, Kerala, Assam, Tamilnadu and Puducherry. Now the government which is in power in centre would never love to loose in these elections hence will try to spread the benefits in such a manner that every voter is benefited.

So expect some concession in Income Tax on Salaries because of this.

Moreover, UPA will start its preparation for next term in centre right now hence again some benefit to tax payers on this account as well.

I am not going to speculate on how much tax benefits will flow into the pocket of tax payer but clearly some concessions on Income Tax on salaries seems logical.

However we should not forget that few days before Union Budget we will witness Railway Budget. A loss making department will surely eat up big chunk of our Union Budget and Railway Minister Mamta Banerjee will try to introduce as much trains to West Bengal as possible keeping in mind upcoming Assembly elections  in West Bengal.

It would be unfair with Union Budget to say that these are the only factors which enables Finance Minister to make a proposal.

Let's wait and watch what is there inside dark brown Brief Case of Mr Pranab Mukherjee for Income Tax payers.

Thursday, February 10, 2011

Create Investment Portfolio Staggered and Diverse

One go Investment can be fatal whereas staggered investment will grow the portfolio :-

Jumping from 100 Meters hight in one go will surely result in fatality however Jumping 10 steps of 10 meters each will take you to the same destination safe and live. Same is the case when in comes to building investment portfolio.

We never know what is the right time to make an investment in stock market, mutual funds or real estate. Now in such situation, the approach of making investment in one go for entire available funds is not advisable at all. Let the money take time to get into Investment portfolio and invest money over a period of time.

The key benefit from this strategy is that if one entry was at higher rates the other one can be at much lower rates and compensate the loss of earlier decision. It is nothing but adopting the method of SIPs introduced by Mutual Fund AMCs.

Narrowness of Investment Portfolio is dangerous :-

Narrow the boat, more the probability of its sinking in Storm. On the other hand, Broader it is, lesser the probability of its sinking.

Sometime investors get emotionally attached to particular share, mutual fund or some other investment product and divert major share of portfolio towards that product. I call such action as "Suicide". You would agree with me that profit does not come from emotions and Business is too far from emotions. So why a silly decision because of some stupid reasons like "I got good profit from this share", "This mutual fund is lucky for me" etc

Well, I would say that keep emotions away and diversify the portfolio as much as possible. Even within one category, you can further divide into sub categories.

Example of Diversification at first level :-
  1. Equity Share
  2. Mutual Fund
  3. Gold
  4. Real Estate
  5. Fixed Deposit
  6. Bonds
Now these key categories further can be diversified. Share of Equity can further be allocated in to different companies and sectors.

This strategy works well in almost all situations. How much it does well is subject to how fairly the diversification has been done. For instance Auto sector is not doing well and we have some allocation into Equity shares of XYZ auto company. In this case our small portion of equity will under perform but not the entire portfolio. Moreover better performance from other sectors can set-off/minimise the loss from XYZ equity shares.

Even further, for long run, investments like Real Estate and Gold are bound to increase, so even if there is under-performance from one segment of diversified portfolio, the others will help set-off/minimize the losses.


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