Moneycontrol Pro Weekender | A compliment from Mr Chidambaram

Dear Reader,

We had the Union Budget pouring out of our ears all week. Perhaps, the most interesting reaction came from ex-finance minister P Chidambaram, who said it was “the most capitalist Budget ever”. That was a huge compliment to Nirmala Sitharaman. It is, after all, the strong growth brought about by capitalism and private enterprise that has led to millions being rescued from desperate poverty both in India and China.

We would have thought that the tag for the most capitalist Budget would best fit last year’s speech, when Sitharaman announced a bold programme of privatisation and sale of public assets. This year’s speech was tepid by comparison.

But is this year’s Budget really that different from the ones presided over by Chidambaram when he was FM? To get an idea of that, we compared this year’s Budget with that of 2012-13, when Chidambaram was FM.

Well, guess what, the allocation to health, agriculture, MSMEs, housing, and drinking water and sanitation, as a proportion of the total Budget, was lower in 2012-13 than that budgeted in 2022-23. That doesn’t look very capitalist.

On the other hand, the outlay on education, women & child development and rural development was higher, as a percentage of total expenditure, in 2012-13.

But what really distinguishes the 2022-23 budget from that of 10 years ago is this statistic: in 2012-13, subsidies were 18.2 percent of total expenditure -- in 2022-23, they are 9 percent. It is this reduction in subsidies that has allowed the government to spend far more on sorely needed physical infrastructure. As we all know, the success of the East Asian nations has been due to achieving an investment/GDP ratio of over 40 percent over a sustained period of time — China’s investment rate has been over 40 percent since 2003. Its savings rate has been even higher.

That is why this government’s policy of trying to kickstart investment demand through public spending on infrastructure is the right one. That would create jobs, which in turn would lead to more spending. But it’s investment demand that leads to sustainable, non-inflationary growth. No country ever consumed itself into greatness.

As for capitalism, this is what Karl Marx, writing in the 19^th century, had to say about it: “The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together.” A hundred and fifty years later, that comment is even more apposite.  ​

But Chidambaram knows this very well, and his comment is mere political rhetoric.

This week, our writers and guest writers analysed the Budget and its implications on various sectors and stocks threadbare. Listed below are a select few of those stories:

With Budget done and dusted, all eyes on MPC meet

Why the bond market is upset over the Budget

Budget 2022 will soon be forgotten by the market

Infrastructure and Engineering: prime billing in Budget 2022, companies in sectors to benefit

Conservative Budget, but overall capex growth moderate

India Inc’s effective tax rate drops to a low of 22.5 percent

Has the pandemic led to the government changing its spending priorities?

Is the government making the same mistake as the UPA did after the global financial crisis?

Tech Mantra: The most digital Budget ever

Interview: Bank of America’s Amish Shah on why India’s valuation premium appears justified

Crypto Conversation: The tax treatment of crypto and other digital assets

We also wanted the Budget to bring down customs duties for a more open economy and go in for a major overhaul on the lines of the US budget, both of which suggestions, of course, had zero chance of success.

But enough of the Budget. The December quarter earnings season is in full swing. This week, we did deep dives into the results of a host of companies. These include: Marico, Laurus Labs, NTPC, Pidilite, L&T, Dr Reddy’s, Tech Mahindra, Sona BLW, Navin Fluorine, Indian Hotels, Adani Ports, HDFC, Titan, Zee Entertainment, Dalmia Bharat, Cadila, Tata Consumer and ITC here and here.  Among financials, we analysed IndusInd Bank and Kotak Mahindra Bank. We also looked at the Vedant Fashions IPO.

We had our regular stories on Crypto Learn, Algo Rhythm, Personal Finance and The Eastern Window. This week’s Start-up Street did an intensive analysis of the lessons for budding entrepreneurs from reality show Shark Tank India.

The corporate results so far have been more or less as expected, which is important because earnings growth has to counter the chill headwinds of higher interest rates and lower liquidity in the offing. Thankfully, Omicron is on the way out, as seen from our Herd Immunity Tracker.

But oil prices are on fire and the choices facing the US Fed are as challenging as any since the 1970s. Indeed, this FT article (free to read for MC Pro subscribers) says the Fed is already too late to remove the punchbowl. The world’s largest wealth fund is warning that ‘permanent’ inflation will hit returns. The Bank of England has raised its policy rate again, with several members pushing for a 50-basis point increase. ECB’s Christian Lagarde has done a U-turn, saying it’s sensible not to rule out a rate hike this year.

Back home, too, the PMI data show strong inflationary pressures. Our Economic Recovery Tracker shows flagging consumption, although employment has improved. Automakers have started the year on a soft note. The Monetary Policy Committee will have to weigh the effects of the massive borrowing programme when it meets next week.

These uncertainties have resulted in wild swings in the markets, seen from the punishment meted out to Meta, as investors desperately search for direction amid a slew of rising risks.

Perhaps this light-hearted little piece could help take your mind off these risks during the weekend.

Cheers,

Manas Chakravarty