The week gone by was eventful in more than one way. The markets continued to lose ground and did so on three of the five trading days. It gained on the first and last day of the week. The BSESENSEX lost 2.34% or 555 points while the NIFTY lost 2.51% or 181 points. The railway budget was announced and there was no passenger or freight hike. The February series expired with losses of over 6% and the economic survey was presented on Friday. This sets the mood for the Union Budget to be presented on the last day of the month which this year happens to be a leap year. The day 29th of February incidentally happens to be the birth anniversary of the Late Prime Minister Morarjee Desai.
The futures expired on a negative note and very clearly February series was one where the bears had an upper hand right through. The net loss at the end of the month was 451.85 points or 6.09% with the series closing at 6,970.6 points. Volatility was high and is likely to remain so even in the current month. Global markets saw the Dow Jones gain 1.51% or 248 points to close at 16,639.97 points.
The Railway budget plans to kick-start the economy by new projects worth about 1.5 lac crs. This would provide employment, help in creating new badly needed infrastructure and at the same time provide boost to the core sector steel and cement. The funding would come from LIC which is always in need of long term borrowers as the corporation is always flush with funds. One more advantage of this arrangement would be that the banking system would not be under a liquidity constraint as the railways borrow. This would be a win-win situation for all concerned.
The economic survey was presented on Friday and it talks of GDP growth of 7% plus. There are innovative suggestions where the present exempt-exempt-exempt nature of PPF is to be taxed at withdrawal. While the suggestion is interesting, doing anything earth shattering when the economy is struggling is unthinkable. Similarly the changes that are being talked about in the treatment and computation of long term capital gains tax is unlikely to happen in the current year.
With a comfortable inflow on account of higher excise duty on diesel and petrol, the FM has the opportunity to pump expenditure on infrastructure and bring investments to the forefront. Such expenditure would have the propensity to have a multiplier effect and make a big change to the current doom prevailing in our economy. The success of the Jan DhanYojana and the use of the same with Aadhar and mobile popularly known as ‘JAM’ is making leakages a thing of the past. Direct benefit transfer of LPG subsidy along with MNREGA is now to be extended to fertiliser subsidy as well. These benefits are manifold and have inherent advantages and not just prevention of leakages. The banking system has balances in these accounts and they have become profitable as a whole for the banking system.
A unique settlement was reached between Vijay Mallya and Diageo where Mallya agreed to step down and would receive an amount equivalent of Rs 500 crs over five years. Mr Mallya was the chairman of United Spirits and being declared a wilful defaulter was hurting the interests of the liquor maker. Questions are being raised about the deal on two counts. Diageo and United Spirits wanted Mallya to be out from the board on issues of corporate governance. Now having done a deal would the money be made good by Diageo to United Spirits? Secondly the bankers or lenders who have to receive money from Mallya are making attempts to get this severance package amount towards part settlement. This case which is clearly the first of its kind would be interesting to follow.
Very clearly the FM has very little choice with an economy which is struggling and has had two successive weak monsoons. The only saving grace has been the bonanza on account of falling crude prices. The FM has to hope that the monsoon would be much better if not normal and pump the economy as finances are in a much better situation. With GST likely to be passed in the latter half of the session, I believe the one word to describe the coming budget would be GROWTH.
Let’s hope that the budget presented by the FM on Monday takes the nation forward.
