WEEKEND LIGHTER: BUDGET 2016-17

WEEKEND LIGHTER: BUDGET 2016-17

(March 5/6, 2016, No. 10/2016)

Feel free to mail your views on this edition of WL to mgwarrier@gmail.com

(Look for Budget 2016-17, Economic Survey 2016, Training for legislators, Ambalapuzha Paalpaayasam...and more)

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Budget with a vision and a mission

M G Warrier

“Reforms, to be credible, must not only result in higher growth but also benefit all sections of society. Government must therefore, pursue a two-fold strategy: of accelerating growth through an appropriate reform agenda and deploying the surpluses generated through growth to augment social welfare.”

Dr C Rangarajan (The Hindu, October 29, 2015)

There is a felt need for a prudent ‘Asset Liability Management’ (ALM) approach in handling government finances. The ‘Take as it comes’ approach to revenue and ‘Pay as you go’ approach to expenditure which is a legacy of the pre-independence governments need a quick re-visit. Though government finances cannot be compared to accounts of banks or companies, if the arrogance of ownership settles down in the mind as a ‘right to do anything, come what may’, we may not need an astrologer to predict doom. Sooner the government looks at its financial planning with a prudent ALM approach, it would be better for the country.

Our approach to the whole exercise of financial planning and budget need to undergo a change, if our resources mobilisation and deployment of scarce resources have to yield the kind of results in terms of economic growth and ensuring distributive justice. Poverty alleviation (now poverty elimination) has been an avowed objective of Government of India’s financial planning since the 1950’s. Planning and budgeting have a significant role in taking the benefits of economic growth to the needy. As history of several nations has shown, economic development alone cannot sustain long term social security for the people. Government gets an opportunity to make corrections in the financial planning exercise every year, if only there is a will to use annual budget as an instrument for the purpose.

While budget proper deals with receipts and expenditure, the annual budget speech is a document one looks forward to, for the government’s approach to various policy measures affecting the economy and the financial sector in particular.

Though Government has not deviated from the traditional path in formulation of Budget 2016-17, this year’s budget has been formulated after sieving through the suggestions and proposals received by the finance ministry from various sources including the opposition in Parliament and over 7000 suggestions posted online by public @mygov.in 

Finance Minister Arun Jaitley in his Budget Speech on February 29, 2016 outlined the nine pillars on the basis of which he hopes to enhance India's economic growth. From focus on agriculture to tax and financial sector reforms, these are the nine pillars that Jaitley spoke of to transform India: 

1) Agriculture and farmer welfare with an aim to double farmers' income in the next five years 

2) Rural sector 

3) Social sector including healthcare 

4) Educational skills and job creation to make India a knowledge based and productive economy 

5) Infrastructure investment to enhance quality of life 

6) Financial sector reforms 

7) Governance reforms and ease of doing business 

8) Prudent management of government finances 

9) Tax reforms to reduce compliance burden 

The Finance Minister concluded his speech with an observation that “…it is said that ‘Champions are made from something they have deep inside of them- a desire, a dream and a vision’. We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor and the vulnerable; we have a dream to see a more prosperous India; and a vision to ‘Transform India’…”

Let us believe him, as the content of Budget 2016/7 has set out an approach road in the right direction for reaching the goal.

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recent responses

March 4, 2016

Give a serious thought

This refers to “PM’s SUGGESTIONS: Keep a week for first timers in Parliament” (repress Journal, March 4, 2016). The Lok Sabha decision to organise a two-day workshop for women legislators on March 6 and 7 is a commendable initiative. Legislatures in states and up to village panchayats which have no formal familiarisation sessions now also should follow this example and arrange periodic off-site conclaves for newcomers and legislators who did not have adequate exposure to public forums before getting elected.

PM’s suggestions also keeps in view the need to professionalise the conduct of legislative business by making it more participative and democratic. Even in states like Kerala which state has about 100 per cent literacy and most of the legislators getting elected have higher level of formal education, in-house behaviour of ministers, MLAs and other people’s representatives as telecast on TV leaves much scope for improvement. In this context, PM’s suggestions are worth a trial. If followed in right spirit, the results will get reflected in improvement in country’s governance.

M G Warrier

Freepress Journal, March 3, 2016

Letters to the editor

Opposition’s forgotten role*

FPJ editorial “Stunned into silence by the Budget”(March 2) crisply brings in one place, the change in direction the budgeting exercise in India has taken, the proactive role the budget can play if there is a national consensus on management of nation’s precious resources and the need for government (including opposition which has, beyond just opposing, a forgotten role of pointing out where the government is going wrong with convincing arguments) to remember the purpose of budget on all 365 days of the year.

This year’s budget speech has in its introductory observation mentioned nine pillars on which the budget is constructed. If these pillars are kept intact as the foundation on which policies will be evolved and if the concluding sentences “…it is said that ‘Champions are made from something they have deep inside of them- a desire, a dream and a vision’. We have a desire to provide socio-economic security to every Indian, especially the farmers, the poor and the vulnerable; we have a dream to see a more prosperous India; and a vision to ‘Transform India’…” are scribbled on the government’s walls to act as guiding light in policy formulation and implementation, PM Modi will be able to achieve the nation’s goal ‘sab ka saath, sab ka vikaas’ reasonably fast.

M G Warrier, Mumbai

*Submitted version

February 28, 2016

RBI’s capital and reserves

This refers to the report “RBI must redeploy its capital in state-owned banks”(The Hindu, February 27). Box 1.6 of the Economic Survey 2016, among other things, make the following averments:

“….RBI is an outlier with an equity share of about 32 per cent, second only to Norway and well above that of the U.S. Federal Reserve Bank and the Bank of England, whose ratios are less than 2 per cent. The conservative European Central Bank (ECB) and some EM central banks have much higher ratios, but even they do not approach the level of the RBI. If the RBI were to move even to the median of the sample (16 per cent), this would free up a substantial amount of capital to be deployed for recapitalizing the PSBs. Of course, there are wider considerations that need to be taken into account…”

Long back, RBI had taken a conscious decision to augment its reserves (Contingency Reserves + Assets Development Reserves) to a level of 12 per cent of the Bank’s balance sheet total. The Bank almost managed to almost touch this level in 2009. The following table indicates the progressive deterioration in the reserves position, since then:

Balances in Contingency Fund (CF) and Asset Development Fund (ADF)(Crore)

June 30	CF	ADF	CF+ADF	As%to total assets
2009	153392	14082	167474	11.9
2010	158561	14632	173192	11.3
2011	170728	15866	186594	10.3
2012	195405	18214	213619	9.7
2013	221652	20761	242413	10.1
2014	221652	20761	242413	9.2
2015	221614	21761	243375	8.4

Source: RBI Annual Reports

RBI’s capital since inception has remained at Rs 5 crore. There is no clarity about the components reckoned for computing the RBI’s capital and capital-like reserves at 32 per cent of balance sheet total. The Survey obviously has depended on the computation of figures by some external agency (the graph given in the Survey is attributed to BIS) instead of quoting from RBI’s Annual Reports.

M G Warrier, Mumbai

III

AMBALAPUZHA PAALPAAYASAM

WHY Paal Payasam is served as PRASADAM
at Ambalappuzha Sri Krishna Temple ,Kerala

The payasam served in the Ambalappuzha Temple is famous among Hindu devotees. This sweet pudding made of rice and milk has an interesting mythological legend behind it. It is believed that Guruvayoorappan reaches here daily at the time of Palpayasa Neivedyam to have it.

According to the legend,
God Krishna once appeared in the form of a sage in the court of the king who ruled the region and challenged him for a game of chess (or chaturanga).
The king being a chess enthusiast himself gladly accepted the invitation.
The prize had to be decided before the game and the king asked the sage to choose his prize in case he won.
The sage told the king that he had a very modest claim and being a man of few material needs, all he wished was a few grains of rice.
The amount of rice itself shall be determined using the chess-board in the following manner. One grain of rice shall be placed in the first square,
two grains in the second square, four in the third square,eight in the fourth square, sixteen in 5th square and so on.
Every square will have double of its predecessor.

Upon hearing the demand, the king was unhappy since the sage requested only a few grains of rice instead of other riches from the kingdom which the king would have been happy to donate.
He requested the sage to add other items to his prize but the sage declined.
So the game of chess started and needless to say the king lost the game.
It was time to pay the sage his agreed-upon prize.
As he started adding grains of rice to the chess board, the king soon realised the true nature of the sage's demands.
By the 20th square, the number had reached one million grains of rice and by the 40th square, it became one million million.
The royal granary soon ran out of grains of rice.

The king realised that even if he provides all the rice in his kingdom and his adjacent kingdoms, he will never be able to fulfill the promised reward.

The number of grains was increasing as a geometric progression and the total amount of rice required to fill a 64-squared chess board is ((2^64) - 1) which is equal to the number 18,446,744,073,709,551,615 translating to trillions of tons of rice.

Upon seeing the dilemma, the sage appeared to the king in his true-form, that of God LORD Krishna.

He told the King that he did not have to pay the debt immediately but could pay him over time. 

The king would serve paal-payasam (made of rice) in the temple freely to the pilgrims every day until the debt was paid off.

This is the story behind the famous Ambalappuzha Paal Payasam. 

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*Copied from a group email received from Balasubramanian K (Rbichennaifriends)