"Whatsoever is contrary
to nature is contrary to reason, and whatsoever is contrary to reason is
absurd."
—Baruch Spinoza (Dutch,
1632-1677)
Word for the day
Transient (adj)
Not lasting, enduring, or
permanent; transitory.
Malice towards none
The constitutional right to
a dignified life should include right to a dignified funeral also.
First random thought this morning
The government has successfully created a mountain out of mole,
yet again.
Everyone knows that these agitations and sloganeering is an
integral part of JNU culture. Nothing new. Nothing harmful. Most of these
students grow up to become respectable professionals, senior bureaucrats, and
administrators.
Not much evidence of any material number of JNU alumni turning out
to be secessionists.
What markets really want from FM
Once there was this person who lived his life in complete
dissoluteness. He loved to eat out, smoke, drink, often enjoyed late night
parties and spent profusely. All was going on well, till the day his heart gave
him first shock. The life suddenly changed. The sight of death triggered the transformation.
Morning walk, yoga, healthy meals, early to bed and timely medicine were his
life now.
Somewhat similar is the situation of many Indian corporates and
banks today. The profligate capex funded by indulgent borrowing by the
businesses in past 15years has severely damaged their balance sheets. Unable to
bear it, most have conveniently passed the pain over to lenders.
The promoters are naturally worried that a close scrutiny by
Supreme Court and RBI may set the course right by holding them accountable for
their accesses.
The markets which have cherished every bit of their profligacy in
the past are also naturally worried.
The government is seeking to structurally reverse the persistently
negative interest rate on financial savings which in past decade have
discouraged household savings, the very backbone of our economic growth. The
tax incentive on savings has also become a totally ineffective tool in the
current inflationary scenario. A reform here – to fix the savings rate at CPI
plus one percent would make many businesses unviable.
The family businesses which have long thrived on subsidized
capital from banks and financial institutions shall have to dilute their
equity, should they be forced to borrow at competitive terms. Do they really
want it? Similar is the case with labor reforms, tax reforms, etc.
Not many businesses seem to be welcoming lower tax rate with
rationalized exemption regime.
Zero tax on long term capital gains on listed equities is another
bone of contention. The mere hint of withdrawal of this exemption has made
markets jittery. But to develop a vibrant debt market an encouraging start ups,
brining parity in taxation of debt instruments, unlisted equity and listed
equity might become necessary.
Last evening I heard some bankers and economists at a seminar. The
common running idea in all formal presentations was how to revive investments
without compromising fiscal discipline. But none, yes none, suggested higher
taxation on businesses or the rich.
Many wanted tax sops to encourage private sector investment and
higher protection to the globally uncompetitive industries facing challenges
from cheaper imports. But no one explained that how businesses will be
motivated to invest in new projects when the economy wide capacity utilization
is at cycle lows and export demand is clouded!
I will share my thoughts on what FM should ideally be doing under
the circumstances next week.
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