The Big Bee - Simple Equation

The Big Bee

Harish Rao - Monday, July 06, 2009 10:46 PM

So this was the Big B.

Having to do an assignment non-stop till 7.00 pm, I got my first view of the budget at 8.00 pm on B Day.

My first impression : The only Big B - Big Government. Anything named after Nehru, his daughter and her son was to get an increase of atleast 50% ! And in the present government, that just about covers everything from Roads to Tribal Archery competitions. I would be surprised if the fiscal deficit as % of GDP does not reach double figures by the time the next election is due.

The Finance Minister did well to abolish FBT, something his predecessor was in total denial about. Also, by removing the surcharge and upping the exemption limits, he has put in a little more into the middle class pocket.

That he did not fiddle with taxes on investments (STT, Dividend Distribution Tax and Capital Gains Tax) is also good news. Anyway, a new Direct Tax code is on its way, which should make interesting reading. GST should be operational from April 1, 2010, which is again good news.

NPS would remain EET, which is a letdown. It does not bring about parity with EPF and PPF as well as ELSS.

I am extremely uncomfortable with Big G having to handle so much of our Big M. Maybe that's why the Big S had a bad hair day and decided to swoon down to 14K.

But hey, Industry honchos have to sit and give it a ranking. Narayan Murthy gave it a 7, and everyone else in the panel said a relieved ‘Ditto'. Media pundits have to hype this as an event and Anchors have to sport a new wardrobe. I saw an eerie similarity in poses between Budget anchors and T20 captains. Everyone tried to look like Angelina Jolie in Tomb Raider. But I suspect Rakhi Sawant would have taken a fancy to a couple of them.

Bottom line : Rest easy, this Big Bee has no sting.

 

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7 Comment

From Anup Naik

July 6, 2009 11:35 PM
Dear Harish, Nice reading your thoughts.. 1 doubt though.. Now that the FBT on esops will go, the profits in the hands of an employee with attract tac as IT on perquisites right? if that is so only the emloyers are real benficiaries of this..

From Harish Rao

July 7, 2009 8:15 AM

Anup : You are right. Employees will have to pay tax on the perquisite value (difference between Fair Market Value and Exercise price).

From Sandeep

July 10, 2009 11:00 PM
Hi Harish Though I do follow all ur blogs quite religiously, I have not had the opportunity to comment. Let me ask u one thing for my info. Ppl are talking about 6.8% of GDP as the deficit. Don't u think this is wrong info - ppl are looking at. First of all my understanding is that GDP is some kind of notional figure - the only measurable statistic is how much is govt exceeding the expenditure over the revenue. My back of envelope calcs say - it is aroung 45-50% (whopping) i.e. out of every 1 re govt spends , 50 paise is borrowed money. And where is 1 Re going. That is 85 paise is in salaries of employees - ditto is the case with each and evey state govt - perhaps with the exception of Gujarat. What do u think ?

From Arun

July 14, 2009 1:53 PM
Dear Harish, Raising the exemption limit by ten thousand is only in the 10% slab. This only gives an addtional Rs 1000 annually. Also there have been no increases in 80C limits or that of section 24.

From Harish Rao

July 14, 2009 6:50 PM
@ Arun : Personally I think Taxation in India is just fine. Also, Risk takers are adequately rewarded (no Long Term tax on Equities or Dividend tax). The Left has been clamouring for re-introduction of Long Term Capital Gains Tax, which would have been a huge dampner. @ Sandeep : Saw Yeshwant Sinha commenting on the budget (no doubt biased). But he was rightly talking about having to resort to deficit financing aka printing money.

From sandeep

July 14, 2009 7:03 PM
dear Harish So does that means that Rupee would get devalued more in coming days/months or years. I heard Pranab Da saying govt financing would not strain the interest rate regime - which as such is higher. Considering that Fed is keeping rate as 0.25 %, Indian Govt is borrowing at 8% , Also tax receipts in April pointed to a very big gap, my understanding is that inspite of all the noises made by politicians and SBI chairman, there is no way this deficit is not going to drive rates up. The only macro economic step would therefore be to devalue currency. Manmohan Pa had resorted to this step to get out of immediate crisis in 1991, the same is looming large now. My query was should we hold Dollars now. Also Seventh pay commission is now due on 01 Jan 2016. :) (i.e. just 6.5 years from now)

From Harish Rao

July 17, 2009 5:55 AM
Sandeep : Whatever Dada and Paaji may wish, we should technically be having a weaker currency. I see only capital market flows holding up the currency. And what about inflation? We are in for a double stinker - lousy WPI and CPI data in the future.

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