A brainstorm on the macro framework in Union Budget

Indians have been dished out almost every kind of budget possible till date- the populist, the inflationary, the reformist, the growth oriented, the politically savvy and the market friendly. Arun Jaitley’s first full budget for FY16 was one that was not privy to getting contained into any of these formats. There was a definite vision that the FM and/or the PM and/or the NDA seemed to be finely tuned in to; the delivery of the budget seemed to suggest to me that the exercise was but one more step ahead towards a broader framework. This, to my mind is a big plus, though there were SO many things I wished he would have done differently. 6.5 out of 10 (and that too because I am feeling generous) for a budget I don’t know how to classify. Here’s why:

I have always maintained that the first thing to watch out for in a budget is whether the growth rate is realistic. That forms the backbone of budget analysis. Now, the 8.1% growth estimate on the GDP at market prices (at about Rs.106 lakh crores for FY16) seems to be a bit on the optimistic side. The moment we assume very high growth rates, we are assuming a robust tax income for the GOI. The Achilles heel of EVERY budget is that tax revenues are subject to realization of growth rates but expenses like subsidies and salaries take off like clockwork. Should we fumble on growth, the deficit widens maddeningly, or infrastructure spending takes a hit, propelling us into the well known higher interest rates and/or higher inflation or lower growth whirlpool.

The Finance Commission seemed to already have set pace towards a conservative fiscal deficit target. The Commission had given a target of 3.6%, which seemed to be restrictively oriented towards containing expenditure even when the underlying inflation numbers were so very benign. Apart from the Finance Commission, the rating agencies also seemed to be rather hawk toned about fiscal prudence targets. Now that itself is problematic, since a lower fiscal deficit target implies lesser spending and hence lesser growth. The Budget delivered by the Modi Sarkar does not go all the way upto the 3.6% target but does set for itself a 3.9% fiscal deficit target; the extra fiscal room of 0.3% that it gets will be completely used in terms of infrastructure spending. As I have been arguing earlier too, it is the quality rather than the quantity of the deficit that will matter. It is disappointing to my mind that of the 3.9% fiscal deficit target, 2.8% will get created on the revenue or operational side, leaving very very less room to spend on critical infrastructure.

The FM mentioned that he was spending Rs.70,000 crores more on infrastructure than the last fiscal. He also mentioned in the same breath that this definitely would not be enough. Even as he was talking, my mind went back to the basic GDP equation: GDP = C+ I+ G+ NX. This equation helps us to understand that the chief drivers of expenditures in an economic system are the consumers, the businesses, the Government and the foreign agents. Now, the very idea of a Governmental spending program is that you create growth and multipliers by emphasizing the G part of the story. But, the Jaitley budget seemed to be oriented towards a situation, where the Government would act not as the creator, but the enabler of growth. So, while G would not be spectacular, it would create frameworks for C and I to grow robustly.

Towards this end, a particular statement of the FM seems relevant. He mentioned that a controlled spending program of the GOI would propel us towards fiscal discipline, which would go a long way in keeping the inflation part of the story rock steady in this fiscal and this, if anything could prompt the RBI to cut rates to propel private investments. So, if he is pushing in Rs.70,000 crores over and above last year on infrastructure, he hopes that the rest will come in from the private sector or from PPPs, spurred by a cut in the interest rates.

However, there are FOUR issues here that trouble me. First, does a lower fiscal deficit always translate into lower inflation? In the past 5 years, India seems to have rather imported her inflation from oil and climate change and food and trade. I am NOT arguing that there is no case for fiscal prudence; but to assume that this necessarily will create a low inflation climate in India seems to my mind, a bit premature. Second is even more dicey. Will the RBI cut rates if inflation remains steady? Or will it choose a more medium term cautious stance by looking at climate uncertainties and oil corrections? Dicier (if there is such a word), does the reduction in policy rates pass through into a reduction in lending rates, given the issues with the monetary transmission mechanism? And the trillion dollar question, if at all we get a lower interest rate climate, is the industry going to quickly ramp up on its investments? If the IIP data is anything to go by, we are not really looking at a uber-excited industry. There are other nuts and bolts that will have to be tightened before the industry will invest more. Till such a time that we do not get clarity on land acquisition issues, environmental clearance issues, dispute settlement bodies for stalled projects, its highly unlikely that the industry will react massively to an interest rate cut. It has been assumed in the budget calculations that these links work, they work robustly and hence, even if the Governmental spending program takes a back seat, the monetary policy will work as a driver of growth for India. But, its been a while since we’ve seen robust monetary transmissions in India and hence I felt, that the budget was excessively positive on private sector participation prospects. This is where the FM loses yet one more point.

Another interesting (or perhaps plain spooky) aspect of the budget was the number of times he mentioned that he had less fiscal room since he was sharing so much more tax revenue with the states. But, is he? Now funnily, of the total revenue that the Center earns, around 62% gets shared with the states. This is in the form of taxes, grants and special grants. This year, of the total revenue he earns, he is going to be sharing about 64% with the states, which is only 2% higher as compared to last year. However, inside the 64%, he will have to share more in the format of taxes and lesser in the format of subjective grants. Now, if one only looks at the tax share, we get a feeling that the states are being 42% share in taxes this year as compared to 32% last year, which is one HUGE jump. But, actually, he will compensate higher tax share with a lower grants share and so, that way the fiscal room has not been compromised too much. Despite this, the underlying tone of bettered center state fiscal management was very much a part of the budget talk and I felt that the idea was that whatever is the shortfall in the infrastructure spending from the Center could be made good via much higher spending by the states (though how is an issue, given that their fiscal room has increased only on paper and in reality they are as fund strapped as before!)

The Economic Survey of India (ESI) released yesterday spoke about the vision of the GOI being one of “creative incrementalism”, and I think that set the tone for today’s budget in a macro sense. That growth will have to be created incrementally is a given, but perhaps the FM is trying to creatively get other sectors inclusively into the loop, rather than be the chief growth driver himself.

Despite all the above points, I think that there are definite points that are coming through as stylized initiatives of the NDA. The references to JAM (Jandhan, Aadhar and Mobiles) as a way of targeting the subsidies better, the increased focus on women or the girl child, huge mentions of Swachh Bharat as not only a sanitation scheme but a bigger health program, the emphasis on affordable housing for the people, jobs for youth, insurance for all, higher benefits for old age security all seemed to be moves in the correct direction. There has been concentrated effort on a few of these flagship schemes and the budget did its bit to re-iterate that commitment financially.

So, was this populist? No, definitely not. Was this growth oriented? Umm, in a limited way. Was this politically motivated? Naah, no. From a macro policy perspective, its a budget that really delivers a mixed bag. Hopito ergo sum. I hope, therefore, I am.




The Finance Commission recommendations: The Good, the Bad and the seriously Ugly

The 14th Finance Commission has been in the news for having increased the share of the states in the tax pool of the Government. It also has given some other recommendations that will impact the numbers in the upcoming Union Budget rather sharply. While some of these are really quite robust, the others leave a lot to be desired.

Recommendation: Rather than 32% of the taxes that were devolved on the states till date, let us in the future, share 42% with them

Reasons: The sharing of revenues with the states is only done from the “tax pool”, whereas it is the share of surcharges and cesses (outside the sharable tax pool) that has increased phenomenally over the years. These add-on revenues are not shared with the states and so, the state share remains largely static. The share of these surcharges and cesses has nearly doubled from 7.5% in 2001-02 to 13.1% in 2013-14. Add to it the Swacch Bharat cess that will possibly levied at 0.5% (hopefully additively), and you see how the states remain outside the network of the enhanced central revenues. So, the idea is that we could increase the share in the taxable pool itself so that the states can partake in the growth story at a more de-centralized level.

Pros/ cons of the move: Obvious advantage is that the states get a much better hold over their finances and hence, fiscal consolidation as a philosophy gets going at a de-centralized level. On the minus side (and that’s a pretty big minus here people), we are looking at a jump from 32% sharing to 42% sharing, and that may well put the fiscal consolidation at the Center under severe pressure and that too at a time when the Moody’s and Fitches of the globe have already given us a thumbs down that fiscal health may be around 3 years away. This move makes sure it goes about 5 years away. That current rating of Baa3 on India by Moody’s is lowest investment grading, albeit with “stable” outlook. This huge stride that we are taking puts the Center’s tax resources on the defensive by about Rs.1.78 lakh crore. Now, the Finance Commission also talks about adhering to a fiscal deficit target of 3.6% for FY16 post sharing more with the states. This means that the Center will now be under significant pressure to curtail its expenditure program at a time when the Modi Sarkar really needs to get going on infrastructure development.

My take: The move is too “taxing”, pun intended. Either devolve more, or focus on fiscal consolidation. This “burning the candle at both ends” approach is too severe; kudos to Abhijit Sen’s dissent note that this jump could have been gradual from 32% to 39%.

Recommendation: Let the transfers to the states be more formula driven rather than through grants-in-aid

Reasons: Look at the numbers currently and you see that the total share of all resources given to the states stands at 60%; these include tax transfers as well as grants. If we freeze the total share at about 60% (there seems to be a 63% figure floating about for this year), then it makes more sense to drive it through a formula based transfer rather than through a more discretionary grants route.

Pros/ cons: When the tax pool is to be shared according to the formula, there is no ambiguity in the amount of funds that will be transferred to different states. This is absolutely in keeping with the spirit of fiscal federalism and is an absolute plus. On the minus side, well, there doesn’t seem to be much!

My take: Well done, Finance Commission!

Recommendation: Replace the FRBM with a Debt Ceiling and Fiscal Responsibility legislation

Reasons: Ummmm…can’t really figure out this one

Pros/ cons: Hmmmm….

My take: As you can see, I have chosen to do away with the reason behind the move and thinking about the pros and cons since… there seems to be no rhetoric at all regarding this! Now, I don’t know if this is seriously an Obama influence on us that we want a debt ceiling act for India; to my mind, the FRBM could also work fine, if we chose to respect the targets it sets. So, let me as usual, reflect a bit on the history of the Act. After a lot of debate and discussions, the FRBM Act was put into force in 2004. What did it really do? There are the following few aspects of it which are crucial:

  1. The Government would be required to create reports that gave GDP projections, current account balance forecasts etc. which would give us a picture of the overall macroeconomic framework of India for the medium term.
  2. In keeping with this framework, it asked the Government to set a rolling target for fiscal measures for the next three years, so that we would have a roadmap of fiscal consolidation rather than a snapshot view
  3. It asked the Government to recommend policies that would help fiscal balances in the current year.
  4. The Act spoke about reducing the fiscal deficit of the country to 3% and containing the revenue deficit at zero.

So, why does the FRBM not work? Why is it called as “toothless”? The real Achilles heel of the FRBM is the lack of a penalty structure, should the Government not stick to the targets specified under the budget. All that the Act requires is that a quarterly check on revenues and expenses be done by the FM and presented to the Parliament and deviations from the forecasts be approved by the Parliament. However, there is no structure for levying a penalty for the said deviations.

What is the Debt Ceiling Act? The Debt Ceiling Act (of the US) is an act that limits the Government spending in the current year by quoting a ceiling on the overall debt taken by the Government so far. The gross Government debt to GDP ratio for the USA stands at about 106% whereas the same for India stands at 66%. If we put in a debt ceiling of say 70%, then it would imply that this year, the borrowings would have to be curtailed at 4% of GDP. If the borrowings were to be more than that, then it would take Parliamentary approvals. So, deviation would require a Parliamentary approval. Where have we heard that before? The FRBM, right! So, this debt ceiling business can be done using the present framework of the FRBM too. The FRBM Act could be amended to also require the Government to quote debt ceilings as a part of the rolling targets for the next three years.

So, my final take!: The Commission is not seeing the woods for the trees! There is NO need to change the structure. Let us not waste time in invoking Article 292 and penning down another act. Just pen the penalty and you are done!

Recommendation: Push Fiscal Deficit for FY16 to 3.6% of GDP

Reason: Now that the economy has stabilized a bit, its time to get back to fiscal consolidation. The Commission believes that a 3.6% fiscal deficit target for this year will pave way for a 3% target for FY17, which is the original vision of the FRBM.

Pros/ cons: On the pro side, what this means is that India becomes fiscally conscious, in keeping with the global expectation. Hopefully, this will put pressure on the Government to curb the revenue expenditure more and the quality of the deficit will stand bettered. Also, if at all the oil correction pushes the oil prices to a $65 zone in FY16, there is a possibility that the inflation figures will also stand corrected upwards. Ensuring the deficit at 3.6% makes sure that at least there will be no add-on to the inflation issue from a monetization perspective.

But let me talk about the cons. Frankly, I am a bit stumped at the Commission suggesting such a controlled fiscal environment in the face of a 0% WPI-led inflation. Even if oil corrects through the year, it is largely expected that it will stay in the $65 range, which is still a 45% reduction over the prices that were prevailing last year. Given the high weights in the WPI that oil would carries, I really am of the opinion that the inflation could move maximally in the 3-4% zone but no more than that. What happens to CPI? Well, since the current reduction in the prices has anyway not been passed over to the consumer, she more or less enjoys status quo or a very small increase in her bills, if the prices were to correct. So, clearly, I think inflation as indicated by any of the indicators will continue to be soft in the next year. Isn’t that ideal recipe for carrying out big bang expenditures on infrastructure and social infrastructure? 3.6% seems to be overly cautious at a time when growth is essential. Come on, the 7.4% growth under the new series is a smoke screen and that talk of we having already overtaken China fools no one. This recommendation carries a hint that we are growing rather robustly and so let us get everything back on track using cautious procedures. But, it ignores the fact that capacities have to be created and higher capital expenses are crucial.

My take: Scaredy cat behaviour, this. Let us focus on getting the revenue deficit to zero in the next three years. Let us look at the quality of the fiscal deficit, not its size. If 4.5% fiscal deficit is what it takes to grow robustly and create infrastructure to end all future supply shocks, I am all for it.

I am compelled (do forgive me for ending a fiscal commission discussion on such a literary and poetic note, but its too perfect not to be quoted!) to visit David Baird from Fiesta of Happiness…

“Yes no yes no yes no?
Red blue?
Yes red, no blue?
No red, yes no?
In out, up down?
Do don’t, can can’t?
Choices sit on the shelf life
New shoes in a shoe shop.

If the in crowd are squeezing into a must-have shoe
And the one pair left are too tiny for you
Don’t feel compelled into choosing them
If you’re really a size 9, buy that size.

While everyone else
Hobbles round with sore feet
Your choices should feel comfortable
Or they aren’t your choices at all.
Why limp when you can sprint?”

Forbidden lands and the Indian Budget: Part II


LAA 1894: Benchmark Act used to acquire land for “public purposes”. The phrase “public purpose” stood undefined.

SEZ Act 2005: Allowed SEZs to be set up by the Government or by the private sector or through PPPs. Government started acquiring land using the LAA for SEZs claiming that its a “public purpose.” Farmers lobby upset. No act for rehab and resettlement. No provisions for returning the land if the SEZ does not materialize.

LARR 2013: LAA changed to Land Acquisition, Rehabilitation and Resettlement (LARR). LARR brings in amendments that require consent of 80% of the land owners, if the acquisition is done by a private party and 70% , if the acquisition is by PPP. Also mandates Social Impact Assessment (SIA) before the land acquisition is done.

Land Ordinance 2014: Dilutes the SIA compliance for projects such as industrial corridors, rural infrastructure, affordable housing and “infrastructure and social infrastructure” projects. This last category includes sectors ranging from urban public transport to hospitals. Also, provides exemption to the consent clause for the Section 10A projects, as listed above.

Now, armed with that chronology, let me present the main arguments.

Firstly, did the UPA II do a good thing by revising the LAA? Undeniably yes, the leftists and the not-for-profit organizations and farmers associations would argue. After all, giving no thought to SIA is tantamount to legal landgrab, ain’t it? Further, there are impressive statistics to support the LARR. It seems that the amendment was discussed for something like 12 hours by more than 60 MPs in the Parliament over 7 long years before the changes were made. The LARR was only passed after amendments as suggested by Mr. Jaitley himself were made to the structure. So it does look like a very good deal on paper.

But, the LARR was undeniably, bad, would argue the trickle down experts. Force SIA on projects, and you have the project time and hence, costs, sky-rocketing. One estimate for power plants is that forcing SIA and Rehab and Resettlement (R&R) would increase only the social cost of a 1000 MW powerplant from Rs. 150 crores to Rs. 450 crore, rendering it completely unviable. And we are thinking of creating around 50,000 MW in the next 5 years. As the projects get delayed, growth suffers in its wake, harming not only the prospects of the developers, but more importantly harming the multiplier story and the poor much more sharply.

Intellectual India was yet to come to a conclusion to this economic conundrum, in which you don’t carry out SIA and the poor suffer, so you carry it out and then they suffer some more, when Election India happened. Largely out of angst, frustration and in a mood to kick out lethargy, the Modi Sarkar happened to us. Now, fast action is the hallmark of all Modi moves. So, in December 2014, an ordinance was passed that made further changes to the UPA version of the acquisition provisions. The Ordinance dilutes the acquisition and SIA provisions significantly, due to which it is seen to be an “industry friendly” move. However, is it?

This reminds me of the June 2014 event of Green lobby vs. Modi Sarkar. Again the issue was that under the 2006 notification issued under the Environment Protection Act, 1986, all construction projects from buildings to bridges, had to do a mandatory Environment Impact Assessment. This was seen to be anti-industry and hence, the NDA Government passed an amendment in June last year, which would make this assessment only mandatory for bigger construction projects, with built up areas of more than 20,000 sq.m.

I remember feeling distinctly uncomfortable when that had happened, just as I became extremely restless when the land ordinance was passed. I went back rather strongly (and I hope Mr. Modi, wrongly) to the infamous argument made by WB Vice President Larry Summers “The costs of pollution are likely to be non-linear as the initial increments of pollution probably have a very low cost.” I also mentally visited John Kenneth Galbraith’s argument that short run growth brings about “private opulence and public squalor”, that brings about systematic imbalances into the society in the long run. Also, did a quick trip to the World Commission on Environment and Development (WCED) which had spoken about “de-emphasizing” growth as one of the core philosophies of “development.” And of course, I would have to visit Dr. Amartya Sen, with his thoughts on expanding not growth, but rather choices and opportunities that ensure growth. Last, but not the least, I also gave a silent hug to Margaret Mitchell who made Scarlett O’Hara say famously “I’ll think about that tomorrow.”

We may feel today that social or environmental impact assessments affect the ease of business. But what will happen if you have country wide protests once the companies start what media popularly calls a “land grab”? We may feel today that environmental assessments are a hindrance to industrialization. But what will happen if the pollution levels necessitate a drastic increase in taxation levels of the polluting firms in the future?

I am not saying that growth can be ignored. I am also not saying that policy environment should not be bettered. I am just saying that a country like India need not always use the “grow dirty and clean up later” option.

And to add to the story more philosophically, rather than the fact that the SIA and land acquisition provisions were diluted, I was subtly more disturbed by the fact that they were diluted through an Ordinance.

An ordinance, as you may recall, is a legislation that is enacted by the power of the President, and has to be later ratified by the Parliament so that it becomes a formal Act. Agreed that we need to fast track certain projects. Agreed that it is land which has been a thorn in the side. But, the budget is presented in the month of February anyway. Couldn’t we have waited for 2 months till February? Given the delicate nature of the whole controversy, these amendments definitely should have been presented to the Parliament for a full discussion that such a topic merits. The fact that the houses were not allowed to debate on this will itself create an issue for the passage of the Ordinance into a formal Act.

I think that the hurry with which the changes were done and the method used to drive the same were in bad taste. Its too Krugmanistically Keynesian, if you know what I mean. For the growth policies of India, I have infinite preference for Jeffrey Sachs “We need to defend the interests of those we’ve never met and those we never will….”

A Tree Walk, Carl Linnaeus, Mythology and…Economics!

For me, Monday blues begin on Saturday night itself. I was groaning internally with the thought of another gruelling week ahead and wondering how I could ever get the energy for a full week ahead in just one Sunday when…I heard about the tree walk organized by Virasat Pune and decided on the spur of the minute that I would go and see what its all about. It was one of those delightful unplanned things, which mercifully do happen at times. I went off early morning to the Hirwai track, where the rendezvous was about to begin, where we were introduced to Prof. S. D. Mahajan, who would be our expert guide on the walk.

S. D. Mahajan? THE S. D. Mahajan? The nippy cold air and the name were enough to awaken me rather sharply. Oh gosh, I had no clue that Prof. Mahajan would himself show us around! I mean, I know about this guy! He has been active in the field for decades now and is Pune’s very own botanist and biologist, whose work for forests, trees and urban tree covers has inspired generations..and sure enough, as we started the walk, it was easy enough to see how his enthusiasm infectiously spread through a motley crowd of around 15-17 nature enthusiasts who had gathered there.

Prof S D Mahajan on our tree walk

Prof S D Mahajan on our tree walk

We walked through the Hirwai track on the NFAI road, which must hardly have been a kilometre long. But each of those trees, leaves and flowers had a fable to tell us, because we had the master storyteller and the interpreter in our midst. It was with great love and yet, with scientific rigour that Prof. Mahajan and his son Parag Mahajan, led us through the trees that were ready to talk to us.

Continuity of life…

We saw alstonias (saptaparnis) and mahogany trees of a couple of varieties. On seeing the second mahogany variety, which to my untrained eye looked nothing like the first, I ventured asking Prof. Mahajan “Sir, how do you know this is a mahogany…is it from the leaf or the structure of the tree…” With a delighted chuckle, he said “Well, now that I have been studying trees for decades, I can identify a tad better than you, obviously! But to give you a scientific answer, to really identify trees, we need to look at the flowers and fruits, which form the reproductive structure of the trees. Leaves, barks, structures are important for identification, but the reproductive system maintains its characteristics more robustly than any other system of the trees because it is responsible for life continuity.. ”

That’s perfect…a small part of me actually patted God on his back for having been impeccable to the last detail…hmm…life continuity has to be the most robust part of any system..nice, eh?

Distinctive species at Hirwai

The very distinctive Karmal tree leaf

The very distinctive Karmal tree leaf

The Rohitak tree

The Rohitak tree

Exotic can be problematic!

And then, there were beautiful karmals, rohitaks, kunti trees and bamboos. There were also the very common eucalyptus trees on the track, which as we all know, absorb so much water from the soil that it leaves very less water for the other varieties to grow on. “But that is not the only menace,” informed Parag Mahajan. “It is dangerous to import exotic varieties and plant them so very commonly into other eco habitats. The eucalyptus is actually native to Australia and so when the leaves of the eucalyptus fall on the ground, the local microbes that are found in the Australian soil decompose them rapidly. However, these microbe colonies are simply not found in India and hence, eucalyptus leaves take enormously long time to decompose in our soil. They stay in the soil longer; if you burn it, it affects the quality of air. And, the most interesting part of the story is that the medical usefulness of eucalyptus in relieving colds is not even scientifically verified. Planting exotic varieties can really impinge on the local eco-system in more ways than one.”

I suddenly went back in my mind to my classes, where I had vehemently been arguing just the week before that juxtaposing the Keynesian solution of the US Depression onto a supply shock driven Indian economy would be a recipe for disaster. Stagflation modelling on eucalyptus…heehee…control yourself, woman, is what my mind was telling me..

But I am teetering…as usual…so lets get back to the walk…

There was another interesting anecdote that Prof. Mahajan shared on the commonly found “Su-babhul” tree. This bears whitish yellow flowers and has thorns and is commonly seen on almost any street of Pune. Now, this is again an African origin tree and it was initially imported because farmers thought that the thorny structure would help in fencing and in preventing soil erosion. It was originally called as “Ku-babhul”; the “ku” prefix is used to describe the not very good for you things of life. The thorns and the fact that it was no a good fodder and contained an ingredient called mimosa that was bitter, helped it to earn the name ku-babhul, but farmers started using it enthusiastically for fencing their farmlands and plantations of the tree were created from where farmers could buy it. When the erstwhile PM Mrs. Indira Gandhi visited Maharashtra, the farmers associations took her on a visit to these plantations and explained why these trees were in so much vogue and as legend has it, it was Mrs. Gandhi who said that if it is such as excellent tree, then it ought to be named “Su-babhul”!

Please permit me to formally dither here…it is too much not to. Politicians do seem to have a penchant for changing names. Oh, how I wish we had the guts to call a Ku-Babhul a Ku-Babhul. Because changing names did us no good, did it. How I wish we had the guts to call ourselves a closed economy and NOT a GATT founder member. And how I wish we had the guts to call Garibi Hatao as a Garibi and despondency and dependency Badhao….ok, sorry, I get back..

The name stuck and the tree too stuck, but it creates its own issues as it grows aggressively and blocks growth of the indigenous varieties of trees. Whilst thinning forests these days, care is taken to see that such varieties are thinned out first, while retaining the indigenous bio-diversity in them.

I also got to see the Karanja tree with the fruit shaped like the Maharashtrian sweetmeat Karanji! Karanja plantations are done for bio-fuels and have been generally seen to yield more at lesser environmental damage as compared to Jatropha, which is the exotic foreign bio-fuel variety.

The fruit of the Karanja which carries the non-edible oilseeds

The fruit of the Karanja which carries the non-edible oilseeds

Medicines galore..

And then, there were so many medicinal varieties that we saw. There was a young Adulsa tree, folks; the Adulsa syrup which is traditionally our defence against the nasty common cold, is an extract of this tree. The flowers look like a lion that has his jaws open and hence the name “Sinhamukhi” is also used for this tree.

Check out Prof. Mahajan talking about how the stamens of the Adulsa flower look like the lions teeth (People, an initial tiny part of this is in Marathi)


And for the first time in my life, and this was truly exciting for me, I saw a “Murud-sheng” growing on a tree!!! A murud-sheng is a twisted, tightly coiled fruit, that is the traditional herb used in Maharashtra against tummy ache for small kids. There is a popular thought stream in botany- the doctrine of signature. This doctrine tells us that when nature creates a tree or a fruit, it bears a signature that helps humans to understand for what this plant will help us! Great example is that of the walnut. Looks uncannily like the brain and is useful…for brain development! Similarly, the murud-sheng looks uncannily like the intestines coiled the wrong way or a hernia ailment. And it really is used for either digestion ailments and also has been known to help along in treating hernias.

Adulsa with its bright red flowers

Adulsa with its bright red flowers


The Murud-sheng with its doctrine of signature for the intestinal ailment

The Murud-sheng with its doctrine of signature for the intestinal ailment

Super-interesting trees and crazy connections

Did you know that the altha, which is the red colour used on the hands of the bride or during Bharatanatyam recitals, is a tree product? Now, we saw this altha (Bartondi is the local name) tree, as I like to call it, on the track, which is characterized by a superb crocodile bark…see this…

The crocodile bark of the altha tree

The crocodile bark of the altha tree

Now, the way the leaves and roots of this tree interact with the soil, a composition is created in the soil which is just about perfect for the growth of the sandalwood trees! So, in a way, this tree serves as the host tree for the sandalwood tree. In a forest, the presence of the crocodile bark implies that you are close to finding your sandalwood!

And there was this HUGELY interesting fact that I learnt about the Arjuna trees. If you remember your mythology right, it is the Arjun Vriksha that Krishna had felled when he was tied up by his mother. Now these are really huge and enormously tall trees with a very light whitish colored bark. To identify, just scratch the surface of the white bark and the inside layer looks green! Scratch some more and it looks red! The tree on the track was not fully mature and so we did not see the red colour but you can see the green inner bark in this photo below. Since the trunk is green and has chloroplasts, this is one tree whose trunk can photosynthesize!

The photosynthesizing trunk of the Arjun tree

The photosynthesizing trunk of the Arjun tree

Kunti named her son Arjun because he was the fairest amongst her sons and someone she aspired to be the tallest amongst all warriors! Prof. Mahajan quipped that had Kunti seen the Saag tree in full blossom with its unusually tall and huge canopy, perhaps she would have named her third son “Saag”!

Further folks, is some SUPER interesting stuff. Arjun…translates into Argentinum. Silver. See? With symbol Ag. Talk of multidisciplinary stuff, people…mythology and botany and plant anatomy and Latin taxonomy as given by Carl Linnaeus? How much more can you want to set the mind free?

And here is the master on the Arjun tree…


We saw many many other varieties: The monkey biscuit tree, African sausage, Vaval, Singapore Cherry, Kadamba, Vaval, Putranjeeva, the original Ashok tree (not the one we think is Ashok!)..the list is endless.

An unusually stimulating morning, this. With so many ideas and heady concoctions in my head, I spent a highly enjoyable and contended and just…happy day today. Monday, I am ready for you.

Forbidden lands and the Indian Budget: Part I

As the day of reckoning comes closer (despite the RBI Guv graciously saying that he’ll not sit in judgement of the budget), there are those usual signs of madness. The markets have dipped a bit (the lull before the storm) and are swaying to every comment, letter, comma and breaths between two words as uttered from North Block. Industrialists have started on their annual Haj pilgrimage to the corridors of Delhi, hoping that just the very miracle that they wanted could happen on the budget. The media is doing its bit, educating the already educated about what the fiscal deficit means and how it is so very different from the revenue deficit; the poor, uninitiated Muggles (the types who have never held the magical ET in their hands), god bless them, are anyways only worried about whether LPG will become more expensive or not. And then, the ringmasters of this circus. The analyst firms. Even in the most mundane of circumstances, no one can quite figure out what the buggers are trying to say. “The markets, which are factoring in the 50 bps cut in SLR can now leverage the competence of the new Government team, says Chief Analyst, TAC. 100 bps is equal to 1 percentage point”. (Oh, and by the way, TAC is Technical Advisory Committee…didn’t you know? How uncouth of you!) The only damn thing one can understand is that 25 bps = 0.25% and we already know that….so what the hell was that thing about leveraging the competence…grrrrr!

I, however, maybe by force of habit, enjoy the hoopla, the discussions, the gossip that happens during these times. I enjoy the heightened sensitivity of the paan- eating mantris to angrez words like fiscal discipline, the wish-I-was-the-FM look on erstwhile FMs; but mostly, I enjoy trying to predict what the direction of the policy could be. A quick…(or maybe not that quick) take on a few issues.

Firstly, this is the first full scale budget of Modi Sarkar and hence crucial in terms of setting a direction and a pace into the next 3-4 years. So it HAS to be a well thought of exercise. The GFCF as a percentage of GDP has fallen rather drastically from around 37% to 31% in the past 5 years and while it seems that this trend has bottomed out, it goes without saying that we will take at least a couple of years to get the investment levels back. A direct proof lies in the fact that the actual bank holding of eligible Government securities lies in much excess of the erst-while SLR limit of 22%, indicating that the credit to the private sector is not really ticking. Now, in these 2-3 years, the growth will have to be led by the Government spending more, and that too, on infrastructure. With inflation under control, there is more fiscal room too and hence it seems that a fiscal deficit of around 4.5% (yes, you read that right. I have never quite understood the point in having penalizingly low fiscal deficits; they are after all growth harbingers. I would much rather that the quality of the deficit be controlled. In fact, even a 5% fiscal deficit could be tolerated in FY16, provided we manage its quality) combined with a revenue account deficit of less than 1.5% should augur well.

A large, and I mean, COLOSSAL, chunk of this fiscal deficit has to be dedicated towards critical infrastructure spending. Union Budget FY15 spoke about infrastructure thrusts such as building smart cities (an outlay of Rs.7000 crores was earmarked for this), industrial corridors, irrigation and solar power. Now, for this entire infrastructure, we need basically…land. My argument is that the interim exercise for FY15 was a lot easier because it spoke about the kind of vision that the Modi sarkar had in mind for an industrial India. Union Budget FY16 will be a tough cookie because now the FM will have to really lay down on paper the nuts and bolts of the vision. And the first crucial issue that has to be addressed is land.

Questa terra è mia….

Land. Reddish brown or yellowish in color, black in money and white on paper, the greyest of all assets, causing blues in the mind. Do we really have the land to create those smart cities and corridors? And do we have a smooth process of acquiring it?

Consider the data. CMIE data suggests that around 100-odd infrastructure projects, worth around Rs.4,50,000 crore are pending clearances owing to land acquisition issues. Of these, about 30% are Government projects but a larger chunk is either in private hands or is a PPP format.

The initial to the point of being primitive act that governed acquisition of land till 2013 was the Land Acquisition Act (LAA), 1894. This Act was basically created so that the Government could acquire huge tracts of land for “public purposes”. The basic problem was that the Act forgets, errr, how clumsy of me, sorry, omits mentioning what exactly constitutes a “public purpose”. Now, in its spirit, what it obviously meant was that when land was required for schemes such as building roads, bridges or irrigation or water management systems, the same could be acquired from the land owners by the Government quickly. However, in not mandating an impact assessment and by not so much as looking into the closely related issue of the welfare of the displaced persons, the Act rendered itself extremely partial to the interests of the Government or whatever could be allowed under the scope of “public purpose.” So, the idea was that the LAA would speak of only land acquisition; for protecting the interests of displaced people, you would have to read yet another act. Now, you know that it wouldn’t take very vibrant imagination to prove that a particular project was oh-so-vital for public welfare. Under the aegis of this Act then, the land owners were subjected to the mercy of the State Governments that could pretty much source land from them arbitrarily.

In recent times, the provisions of the act really came under close public scrutiny when the SEZ controversy began in India in 2005, after the SEZ Act was passed. The SEZ Act, which suggested that an SEZ could be set up by a private party, or a public body, or through PPP, remained wonderfully silent on how the land was to be acquired for the purpose of the SEZ. Obviously, the SEZ act is a Central act and land is a state subject and so it could not possibly give a commentary on how the land for the project was to be sourced. Now, there were several PPPs that were set up with a State Government entity as the sourcing partner, in which the land would be sourced by the Government for the SEZ, a “public purpose” (Surely you are not challenging that! How very Marxist of you!) and would be developed by the private parties into an SEZ. The root of the controversy was the definition of what really constitutes a public purpose and absolutely alienated farmers, who lost land for this public purpose after which, in some cases, the project was shelved. This implied that agricultural land, at times, the only asset of the farming families, was acquired for a project that never took off. Of course, it is not that only agricultural land was sourced. In fact, the Commerce Ministry made sure to shout from rooftops that hardly 1% of the land sourced was agricultural. In the meanwhile, the monsoons failed and the food inflation episode started in India. Now, this sign of heartlessness from the rain gods prompted the pro-farm activists to stake a claim that reduction in the area under agriculture has prompted the food prices to go up in the country.

You can see how mad it gets.

In the last leg of the UPA Government and probably as a last ditch attempt to gain acceptability amongst the farming community, the Land Acquisition Act was….revised! The revisions, again in the spirit, now attempted to shift the balance of power from the Government to the land owners. The Act firstly defined which projects could be labelled as those useful for “public purposes” and further mandated a “Social Impact Assessment (SIA)” as well as linked the results of the assessment to the resettlement and rehabilitation of the displaced people. Is this a good or a bad move? Now this is where things start becoming interesting….

In the next blog (in  couple of days time): Did the UPA II do a good thing by revising the LAA? And why has the Modi Government re-revised the Act, and that too through an Ordinance, for heaven’s sake? What is the implication of this Ordinance for the Budget?