While I had planned posts on both Wednesday and Thursday of this week, a power outage the first night, and an illness the second kept the laptop out of my hands. This stuff happens in India.
Without further delay, here's the latest news from Delhi.
The biggest story this week has been the release of the 2007 - 2008 Budget, which was unveiled by the Finance Minister, Mr. P. Chidambaram, on Wednesday in a speech to Parliament.
It seems that in trying to satisfy a lot of folks, the Finance Minister P. Chidambaram (head politico in charge of the Indian Government's money, and a chief member of Prime Minister Manmohan Singh's Cabinet) has tried to walk a fine political line, seeming to encourage further foreign direct investment and educational opportunities, but the first in a haphazard method and the later with more money rather than real cultural change in the bureaucracy.
More praise, criticism and analysis of the budget at the following links:
"Inflation was a key concern," Adrian Lim, Investment Manager from Aberdeen Asset Management
Budget Proposals may drag VC Funding by 50% in 2007, Thursday's Economic Times
"It's certainly a long road home," Managing Partner Donald Peck, head of South Asia investing for emerging markets private equity firm Actis, and Director of my firm, Lok Capital.
And an interview with Finance Minister Chidambaram here.
While it's hard to be entirely critical of the Finance Minister, as he has tended towards pro-business positions in personal and corporate income tax rates (if not on dividend taxes), there are some areas where, to me, Mr. Chidambaram seems to have missed the forest for the trees. A few examples:
- Tax benefits for Venture Capital investments will only apply to certain sectors hand-picked by the government (but why should investments in business process outsourcing be treated to better tax rules than software or real-estate? better to create a level playing field and let the investors choose where to place their bets)
- Significant increases in spending on education (a critical area for India as the education system here is widely considered to be a mess), but no new rules to tie those spending increases to better performance (or even just better attendance!) of public school teachers
- Further increases in farmer subsidies (a demand side mechanism) rather than a focus on further spending for rural roads and infrastructure (a supply-side mechanism) which would better enable the best farmers to get their produce to market faster and create agricultural competition
- Tax incentives to encourage hotel developers to build more mid-range hotels (desperately needed throughout the country) but restrictions causing those incentives to apply only to new hotels built in New Delhi and nowhere else. This is a political attempt to force developers to focus their efforts on Delhi at the expense of the rest of the country, simply to ensure that the capitol city is ready for its scheduled hosting of the 2010 Commonwealth Games
- Increases in central bank lending rates of only a half percent this winter while inflation rapidly moves from 5% a year to 7%
Finally, one gets a sense from the speeches and newspaper interviews given by the politicians here that the government is taking credit for India's current economic rock-stardom and darling status among investors. I think former CEO of PG&E in India, Gucharan Das paints a more accurate picture when he says of the economy, "[it] grows at night, when the government sleeps."
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