The second most awaited event of the decade - The Union Budget 2015

When I was publishing the previous post, I realized that the largest democracy of the world is going to witness a very important event of the year – The Union Budget.

In May-2014, the world witnessed a historic event happening in India. After almost 3 decades, Indian people have given a clear mandate to a single party. The budget presented post the mandate was more like an interim budget as it was presented in June and the new government was yet to gain a proper understanding. Now, the budget being presented today (when I started writing this, it was 27-Feb-2014, so tomorrow was right; by the time I published, today is right) is a much anticipated event, not only by the Indian citizens but also by the international economies.

Seriously, everyone has a lot of focus on this budget and has many expectations from it. I feel, whenever there is too much of expectation, there is bound to be disappointment. So, don’t be surprised if the budget doesn’t meet your expectations. You are to be blamed! If you had toned down your expectations, you would be in for pleasant surprises. Failing which, you could be in for a rude shock! Having said that, I would like to summarize what this budget should ideally focus on.

GST: This indeed is important. Coal block auction and allocations of certain proceeds from this to state governments is a good way to win over them. It indeed is a step forward in implementing GST. Although this may actually be unimportant in the larger scheme of things, this one act has very far-reaching consequences that every investor would gain more confidence in the economy.

GAAR: Government has been acting weak on this. They have suddenly woken up about 3 years back and went back to sleep. It is tough on the investors but it is needed. No investor can take the country for granted. They can’t avoid tax deliberately and yet not pay penalties. Therefore, government should give some clarity on this. It may not be important that we do it in this year. However, it should give some commentary on its plan to implement this. This has to be consistently maintained and thus prepare the investors. It should also categorically state that this would not be applicable retrospectively.

Black Money: Some tough stands can be taken on this! But, is it not good to say now that “no action would be taken and a flat 25% or 20% or some such level would be levied”. Also, the government should, for the safety and the interest of the public give strong assurance that the names of the people disclosing and paying the tax wouldn’t be disclosed. This way the government would get some additional tax and it would reduce the black money in the system.

Subsidies: There are too many varieties of subsidies. It is simple that the subsidies are aimed at supporting the poor or the underprivileged. In such a case, improving the Direct Benefit Transfer (DBT) system by strengthening Aadhaar mechanism would be a very good idea. Petrol/ Diesel/ LPG subsidy should be withdrawn. This is the right time, as the current Crude and Natural Gas prices are low. So, government should make announcement in this budget to reduce the subsidy levels.

Improve Savings: Lately the savings percentage has been reducing. This could be a combination of two aspects, trend of greater consumption (reduced savings) and high inflation eating into the savings. To encourage savings, as all developed economies should have higher savings rate, government should tweak the tax structure on the earnings on the savings. As most of the bank savings are short term in nature, if some tax benefits are offered to those placing deposits (retail or corporates, it doesn’t matter) for more than 10 years, it would improve banks asset liability mismatches. This would help the banks to participate more vigorously in supporting the infrastructure growth required for the economic growth.

Capital Investment and Infrastructure: As the economy is struggling and as the private players are waiting to make investments in capacity expansion, government should address this by announcing large investments plans, the bet would be in the infrastructure domain. While this may result in crowding out the private investment, but where is the private investment now? It is already at the lows. We rank low on per capita roads, per capita power consumption, most of our villages still live in the dark without access to electricity. Even though we are the 3rd largest in coal resources, we don’t extract it enough. We have good scope to invest in green energies (Solar, Wind, etc.) as well. There should be incentives to infrastructure players in these critical areas. One way would be to reduce the capital requirements on the bank loans to these sectors.

Export encouragement: As we rank badly on the current account scene, the government should encourage investors and entrepreneurs to enter into export oriented businesses to improve our foreign currency reserves. To this effect, there should be some announcements made.

Reduce import dependence: Increase the import of those products that are available and can be manufactured in India. Put some tax savings scheme for those who invest in gold ETFs or such instruments which would reduce the purchase of physical gold. While this would reduce tax inflow, it would also reduce Foreign Exchange outgo. Striking some balance here would be a good idea. Mobiles are soon becoming a large component in the import basket. Give some tax sops to the Indian electronics manufacturers and increase import duty on import of electronic goods. This would also encourage foreign manufacturers to set up manufacturing facilities in India, thereby generating employment.

Food and Agri Businesses: The Farmer is the most ignored person in almost all the budgets. While the corporate do all the financial engineering to get the benefits of F&A policies, the most important person in this value chain is often left wanting. While MSP and Kisan Credit Cards are good policies, there are just the basics. There is a greater need to improve cold storage/ food supply chain. Government should continue existing and announce some more good policies in this direction.

There is a lot more the budget should focus on, too many things that need fixing. But, most importantly, this budget should show clearly that there is a long-term design to the announcements being made in this 2015 budget.

Psychology - Right the reads

Yes, habits do lead to success or failure!

Psychology is the scientific study of the human mind and its functions, especially those affecting behaviour in a given context. So, I always felt that if I can understand this science, I would know why some people behave in a particular way and how we can influence them.

With this as my motivation, I started reading certain types of Psychology books. While these books are not pure theory on Psychology, they can be termed as books on the application part of it. In this direction, I read the book Thinking, Fast and Slow (Author: Daniel Kahneman, Publisher: Farrar, Straus and Giroux). When I read this book, I realized that it is one of the best books on how we think and act. This book introduced me to the concept that humans have two systems, the one that acts fast (this is what we could call as the ‘gut feel’) and the one that is slow and very effort-intensive (rational part/ reasoning part/ the higher order part). This book gave numerous example about how we tend to act unknowingly. How on certain occasions, we move from System 1 to System 2. When we are driving on a highway with no traffic, we are mostly on System 1 and we don’t find it difficult to converse with the co-passengers. However, when we are going in city traffic, we would use more of System 2 and during those times, we don’t actually pay attention to the co-passengers. We tend to remember certain experiences as more painful and certain other equally painful ones as less painful. Shouldn’t there be some reason for that odd behaviour? Yes, it depends on how the experience ended (less/ more painful). For more details, read the book. While it is a bulky one (pages: 499), it is filled not only with theories but also with examples and stories, making it an easy read.

Subsequently, I read the book Nudge: Improving Decisions about Health, Wealth, and Happiness (Authors: Richard H. Thaler and Cass R. Sunstein, Publisher: Yale University Press) this actually dealt on a similar subject as the above one. It dealt more on how we can influence people’s choices. One amazing example I can recollect now is, how reducing the distance between each white stripe on the road will NUDGE the driver to reduce his vehicle’s speed. This book deals with such simple NUDGES that can be used to influence people’s actions/ choices. The book also cautions that these ideas can be misused!

The most recent read in this filed was The Power of Habit: Why We Do What We Do in Life and Business (Author: Charles Duhigg, Publisher: Random House). This book, I would say, has a different style of narration. It has all elements of a movie, editing, suspense, building up of a thrilling climax, etc. Probably because, the author is a Journalist and not a subject expert, it looks different. This doesn’t mean the previous books are any bad reads! They are equally gripping. This book gives multiple examples of successful and failed people, organizations. It also talks about how a habit forms and how one can break bad or unwanted habits.

I think these three books talk about the same things about a human, the higher order self (System 2) and the lower order self (System 1). We often hear that “the habits are deep rooted”, “bad habits die hard”, etc. It is true, they are deep rooted literally too; they sit in our basal ganglia (the central part of the brain). Call it the System 1 or the basal ganglia it is the core part of our brain. A few million years ago, we (rather the species from which we evolved) had only this part. Gradually, as we started doing more complex things (due to the complex environment that evolved around our), these brains developed cortex, which is where the higher order self (System 2) resides. It has been a truly edifying experience reading these books.

Being aware of these things would not only help us improve our awareness of our involuntary actions and reactions but also help us change such reactions, wherever deemed necessary. The next one I plan to read in this direction is Strangers to Ourselves: Discovering the Adaptive Unconscious (Author: Timothy D. Wilson, Publisher: Harvard University Press).

I am reading these books to develop a deeper understanding of human psychology that would help me be a better banker, engineer, innovator and businessperson. Instead of asking "when would you read these books", I now ask "why would you read these books?"

Have I become a movie buff?

Of late, I have been watching too many movies. Was that 15 in the last 3 months? Something close, if not exactly 15. In reality, my count hasn't ever crossed 5 per year. However, this time it was too high for my standards. What, 60 per year at this rate! I don't think so. Even if I do want to see so many, there should be that many good movies released! On this front (making good movies), I tend to appreciate the movies made by the American's (to some extent the English).
Agreed, some might say my universe (or sample in other words) is too small! I only understand Telugu, Hindi and English. Hence, any movie in Telugu or Hindi is by an Indian. Those made outside and those that I watch are only English movies. Therefore, it is but natural that the Americans or the British made those movies. What is so much to compare? For those who love evaluating various aspects of an argument, here goes another element (apart from language), time span - the movies I watched were made during the last 30 or 40 years. Hey, that was not deduced from my age; one can watch movies made before one's birth!
OK. Why did I conclude that certain people make better movies? I could probably enumerate many technically appropriate reasons, but one thing that beats all is the result - how many of the movies I watched were English (American/ British)? Yes, the strongest reason why I made that conclusion was, two (if not more) out of every three movies I watched are English. I believe this proportion is only going to get more favorable towards the English movies.
Now, let me try to give you some of the technical reasons for my proclivity to the English movies. After all, that is what we would love to discuss and hear!
1. These movies tend to have some uniqueness in their story line or the way the story is narrated.
2. Amazing literature that forms the basis for these movies (Lord of the Rings, Pirates of the Caribbean)
3. The performers don't act, they tend to live in those roles/ characters -- making the movie appear real -- credit also goes to the directors and their commitment to make movies look real.
4. Use of technology that makes the created scenes look real on the screen
5. Budget? Of course, that is what makes it possible to make such huge investments to achieve the quality.
As I have been focusing more and more on the movies, styles of making movies (in India or otherwise), styles of directors and actors, because I have started watching more movies, I would be able to add more details to the list, along with more examples.