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After Modinomics, Modicare

FM Arun Jaitley announced what could be termed as Modi’s version of Obamacare, Modicare. A wide-reaching government-funded health insurance that will cover the most disenfranchised part of the Indian population. If implemented right, the move will help several such families in reaching out the healthcare facilities, the cost of which has sunk them into poverty over and over again.  

 

Rs 48,318 crore

What is it? The amount of slippage in fiscal deficit target for current financial year ending March 2018.

Why is it important? This pushed fiscal deficit to 3.5% of GDP as compared to budgeted level of 3.2%. Low Goods and Services Tax (GST) revenue and deferment of telecom spectrum auction are cited as reasons for shortfall in revenue, leading to higher fiscal deficit. Market borrowings, to fund the deficit, will increase by Rs 129,636 crore (or 37%) in current fiscal.

Tell me more: A worrying trend is government resorting to drawing down of cash balance to the tune of Rs 39,379 crore to fund the deficit. Had this not been resorted, the deficit would have been higher than 3.5%.

  

Rs 5 lakh

What is it? The amount of health coverage a poor family would receive under the proposed National Health Protection Plan. Government aims to cover 10 crore families under this.

Why is it important? If implemented, this would effectively bypass the state-run health facilities to meet the healthcare needs of the public, especially in tertiary and secondary care. Arun Jaitley did not provide any money for this scheme, touted as largest government funded health care programme, in the budget. Further details will be announced in six months’ time.

Tell me more: A similar scheme (Rashtriya Swasthya Bima Yojana) covers upto Rs 30,000 per family, and it has 3.58 crore families enrolled till September last year. Non-life insurance coverage is very low in India at 0.7% of population.

 

10%

What is it? The long-term capital gains (LTCG) tax imposed on transfer of listed shares, after holding it for a year or more.

Why is it important? This measure will help the government mobilise additional tax revenue of Rs 20,000 crore, the highest among new tax measures. Capital gain upto Rs 1 lakh will continue to be exempt, and any gains made till January 31st will not be calculated under LTCG. BSE Sensex initially shed close to 500 points after this announcement, but recovered most of the losses.

Tell me more: Total amount of exempted capital gains from listed shares were Rs 3,76,000 crore as per Income Tax returns filed last year, claimed Arun Jaitley. Additional cess on direct tax payers will net Rs 11,000 crore – the second highest revenue increase measure.

 

17

What is it? The number of assembly constituencies under Alwar and Ajmer Lok Sabha seats, which was won by Congress candidates on Thursday.

Why is it important? BJP, the ruling party in Rajasthan, did not lead in any of the 17 constituencies, as Congress vote share increased by 25 and 11 percentage points in Alwar and Ajmer Lok Sabha bypolls. If the same trend repeats in the assembly elections to be held later this year, Congress will sweep Rajasthan. Congress also won the Mandalgarh assembly seat by a margin of 13,000 votes.

Tell me more: Congress won only 21 out of 200 assembly seats in Rajasthan state elections, and in 2014 Lok Sabha elections, it lost all the seats.

 

34 years

What is it? The number of years since IG Metall, an European trade union with 3.9 million members, went on strike.

Why is it important? Workers belonging to IG Metall walked out of factories as part of one-day ‘warning strikes’. They are demanding a 8% pay hike over 27 months, and reduced work hours combined with full pay for workers who have to take care of kids or sick relations or elders for two years. In addition, they want an assurance that workers returning after two years will be assured of full-time role.

Tell me more: Germany reported fastest economic growth (2%) in six years and very low unemployment. Employers are offering 6.8% wage hike, and rejected the idea of full pay for part-time work for two years.

 

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The ‘Tower’ing Burden Of Telecom

 

Vodafone and Idea are trying to save costs by shedding their tower businesses. Retail inflation has hit a 7-month-high, dimming hopes of a rate cut. The government may be scrambling to meet the fiscal deficit target. Italy, the football nation, failed to qualify for the FIFA world cup, the second time since 1958 edition. And, in tech world, chipmaker Qualcomm rejected Broadcom’s takeover bid.

 

3.58%

What is it? The rate at which retail inflation, as measured by the Consumer Price Index, rose in October from the same period a year ago.

Why is it important? This is the fastest pace in seven months, dimming hopes of an interest rate cut on December 6, when the central bank’s next monetary policy review is scheduled. This was driven by an increase in food prices—combined food inflation was 1.9% in October, against 1.25% in September, while vegetable prices increased from 3.92% to 7.47%–and fuel inflation of 6.36% last month as against 5.56% in September.

Tell me more: Retail inflation in June was the lowest (at 1.46%) since India started publishing these datasets in January 2012 and has been steadily climbing since then. Last month, it was higher in the urban areas (3.81%) than the rural ones (3.36%).

 

12

What is it? The number of state-run companies from which the government is reportedly seeking dividend amounts of 30% to 100% of their 2016-17 and 2017-18 net profit.

Why is it important? This indicates the government is scrambling to make up for the shortfall in tax revenue to meet its fiscal deficit target of 3.2% of GDP (gross domestic product) for 2017-18. It raises questions on how these public-sector firms would be able to shoulder the twin responsibility of handing out dividend payouts to the government as well as stepping up investments in an economic environment where the private sector remains hesitant.

Tell me more: India’s fiscal deficit stood at Rs 499,000 crore at the end of September, which translates to 91% of its full-year target.

 

Rs 7,850 crore

What is it? The total amount for which Vodafone India (Rs 3,850 crore) and Idea Cellular (Rs 4,000 crore) are looking to sell their standalone towers businesses to ATC Telecom Infrastructure.

Why is it important? This would help these telecom firms reduce their debt levels, which are currently straining under a five-year borrowing spree to acquire spectrum and a fierce price war introduced by Reliance Jio in a highly competitive market since 2016. Idea and Vodafone have a cumulative debt of Rs 108,000 crore. This sale is likely to generate property revenue of Rs 2,100 crore and around Rs 800 crore in gross margin for ATC in the first year.

Tell me more: Idea and Vodafone had announced a $23 billion-merger (excluding the latter’s 42% stake in Indus Towers) in March to create the world’s second largest and India’s largest telecom firm by subscribers, which the competition regulator approved about four months ago.

 

0

What is it?  The number of goals scored by Italy in the two legs of its elimination tie against Sweden to decide who will go to the 2018 FIFA World Cup in Russia.

Why is it important? Italy’s 1-0 loss on aggregate to Sweden means this high-profile footballing nation failed to qualify for the football World Cup for the first time since it missed the 1958 edition. Italy, along with Germany has the second-highest number of World Cup tournament participations (18), after Brazil (20).

Tell me more: Italy also has won four World Cup titles, the last one coming in 2006. Here, too, it is at par with Germany and ranked second only to Brazil, which has five titles.

 

78%

What is it?  The percentage of shares of chipmaker Qualcomm that are held by institutions, as of June 2017, according to Nasdaq.

Why is it important? Yesterday, Qualcomm formally rejected an unsolicited $103 billion acquisition bid from Broadcom, in what would have been the largest merger in the technology space. This shifts the attention to institutional shareholders as Broadcom CEO Hock Tan, while announcing the bid last week, said he was open to exploring more aggressive options to acquire Qualcomm.

Tell me more: The 78% institutional shareholding in Qualcomm is fragmented and spread across 1,512 shareholders. Blackrock and Vanguard have the largest holdings, of 7.2% and 7%, respectively.

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Understanding budget series: So what really does fiscal deficit mean? Part 1

(This is the first of the five-part series that will explain the numbers in the Budget)

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Budget is akin to ‘Rob Peter to pay Paul’. Government collects money from one set of people (tax payers) and gives out the money to another set of people (expenditure on various government schemes). Government has long stopped printing its own money to spend. If they resume, prices would spiral as more money notes will chase few things to buy. So, governments collect taxes from individuals and companies, and then spends the money on different things like defence expenditure, paying salaries/ pensions to employees, interest payments on past borrowings etc.,

When sum of taxes and non-taxes (like dividends from government-run companies) is not enough to meet the sum of all expenditure, the difference or deficit is called as ‘fiscal deficit‘. This year (that is twelve months ending March 2017), the deficit is estimated at 3.5% of GDP or Rs 533,904 crore.

To contextualize this number, lets compare the fiscal deficit with total expenditure of Rs 1,978,060 crore. This means government borrowed more than one rupee for every four rupees it spent.

Next question is how did the government bridge the deficit? Where else, the government borrowed from public, though not directly.

Having fiscal deficit is not necessarily a bad thing, if spent wisely on building infrastructure to enable faster movement of goods and people, or in helping more people into schools and colleges. But that’s not what is happening. A large part of borrowing is primarily to meet today’s expenditure like paying salaries for government employees or interest payments. So how much of borrowing or fiscal deficit is used to meet today’s expenses is captured by ‘revenue deficit‘.

Revenue deficit for current financial year is estimated at 2.3% or Rs 354,015 crore. In other words, two-thirds of borrowings is to meet today’s expenses. If the trend continues, country will slowly and surely get caught in debt spiral.

So what is the ideal situation?
1. Revenue deficit has to be reduced to zero. This is like earning Rs 10,000, but spending Rs 12,000 on monthly basis.
2. Whatever is borrowed to meet the fiscal deficit should create assets that should generate future streams of benefits.

What we are doing now is to burden the next generation to finance our fiscal profligacy.

(Part 2 will look at how much we pay our government employees). 

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