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The Nutgraf : India’s biggest distraction


I won’t waste your time. 

In exactly one hour, every major corporate, government agency and mediahouse in India is gearing up for one thing. Most of you know what it is. Some of you don’t. So I caved and decided to talk about it as well. 

Oh also, a few other things, including—good news from corporate earnings, more details about OYO’s retreat, and a book recommendation.

Let’s dive in. 

The Union Budget doesn’t matter…mostly

Wait. I’ll explain. 

But first, some context. Especially for those of you who aren’t from India. 

Every year, on 1 February, the Union government of India unveils its budget for the next fiscal year. The Finance Minister of India, in Parliament, unveils the allocation of spending, subsidies, and tax rates for the subsequent year. 

You’d think this exercise would be boring, but much like late-night TV news, five-day Test cricket or finding an Uber in Bengaluru at 10 AM—India has found ways to turn the mundane into an exciting, unpredictable affair. Even the members of Parliament get in on the action. Poetry is recited. There are pre-budget rituals. To preserve secrecy, several officials are quarantined, with cell phones taken away—often for weeks. 

Even the manner the Budget arrives in Parliament is used for signalling purposes. Previously, it used to be a brown briefcase. Now it’s in a traditional four-fold red cloth ledger or a “bahi-khata”—ostensibly for auspicious reasons. 

Then the budget is presented in Parliament. 

And India’s media and corporations completely lose their collective minds. Unending, relentless coverage for the entire day. Sometimes for the next few days. Just like the budget, they prepare for this day for weeks, sometimes months. 

Every year, this annual festival repeats itself. This year, with India’s economy at its lowest in decades and poised on the edge of stagflation, while protests sweep across the nation and an election in Delhi looms next week, the anticipation has kicked into another gear.

It’s all about to go down in an hour. 

And here I am, telling you, that for the large part, if you are concerned about India’s economy and are looking for a solution…

…the Budget doesn’t really matter. 

Here’s why. 

First, the Budget is not what you think it is

Fundamentally, the Budget is two things: 

  • It’s an account of the government’s finances over the last year.
  • It’s a projection of its expenditure and income for the next year based on some assumptions.

Very few people focus on the first. Instead, a lot of attention is given to the second. 

You’d think that this makes sense—it’s better to focus on the future than the past. That may be true, but this future focus, paired with the media attention, incentivises governments toward greater showmanship. Future projections are almost always rosy. Big schemes are announced, which sometimes don’t get implemented. Ambitious, unrealistic targets are set. Which sucks away all the oxygen in the room. 

This pushes the account of the government’s finances—the actual performance against last year’s projections—into the background. In most cases, people don’t even notice it. 

Most memorably, this happened last year, which we wrote about in excruciating detail. 

Second, tomorrow’s numbers don’t mean anything. Nor do yesterday’s

Let’s take what happened last year’s budget as an example.

The best way to look at this is through the projections made by the Economic Survey, which is usually released one day before the Budget. As the Economic Times reported,

The GDP growth projection made in Economic Survey 2018-19 was wide off the mark, as the expansion is estimated at only 5 per cent during the current fiscal as against 7 per cent projected earlier.

It is for the second consecutive time that NSO’s GDP estimate is significantly lower than the projection made in the survey prepared by the finance ministry.

As per the National Statistical Office (NSO), economic growth is estimated to touch an 11-year low of 5 per cent during 2019-20, mainly due to slowdown in the agriculture and manufacturing sectors.

You might argue that the point of setting an ambitious target is precisely that… to be ambitious. And that it’s okay if one misses it. 


What if I told you that the thing being modified is not projected GDP but older GDP? In other words, to project a future growth, the past growth is being rewritten. Not just last year, but even two years back. 

That’s exactly what this year’s Economic Survey, which was released yesterday, did

GDP numbers for the last fiscal saw sharp correction in their first revised estimates released on Friday. Data from National Statistics Office pegged GDP growth for financial year 2018-19 at 6.1 percent, revised downwards from the earlier estimates of 6.8 percent. 

GDP figures for financial year 2017-18 were also revised downwards to 7 percent from 7.17 percent reported in January 2019 after their first revision.

As economist and writer Vivek Kaul memorably wrote on Twitter, 

Dr YV Reddy, the former RBI Governor, when he was RBI Governor used to say, “everywhere around the world, the future is uncertain; in India, even the past is uncertain.”

The revision of GDP data today proved just that.

Of course, one can argue that the entire GDP number itself is notional and its measurement means nothing and is open to interpretation. 

But the central point remains—either this number is significant, and there are real consequences to missing them. The corollary of this is—if there are no consequences, then logically, the number does not matter at all in the first place. 

Third, the Budget does not give you the true picture of what’s going on

There are things outside the Budget. Always have been. But of late, this has been…getting out of hand, and worryingly, it’s becoming more and more significant because it masks the true story. 

Nowhere is this truer than the fiscal deficit. 

The fiscal deficit is the difference between what the government spends versus what it earns. To do this, it has to borrow money. The fiscal deficit represents this number, as a percent of the GDP. 

This is an important number, because it indicates the government’s credit worthiness and the extent of its borrowings. The more it borrows, the less is left for everyone else, and a lot of global ratings agencies look at this number to decide the health of India’s economy. There are good reasons not to let this number get out of hand. And to be honest about where we really are.

The targeted fiscal deficit last year was 3.3%. 

However, of late, with a slowdown in revenues, the government has been…getting creative with how it measures and reports this number. 

Vivek Kaul, in his brilliant piece for Newslaundry, explains this in his searing best.

It needs to be mentioned here that this increase in government expenditure doesn’t fully show in the fiscal deficit of the central government and the fiscal deficits of the state governments, because a lot of government expenditure in recent years has been off-budget borrowing. If we were to add the fiscal deficit of the central government, the fiscal deficits of the state governments, the off-budget borrowings of the government, and the borrowings by the public sector (like loss-making companies getting bank loans simply because they are owned by the government), the public sector borrowing requirement — as its called — comes to close to 9 percent of the GDP. The central government’s budgeted fiscal deficit for 2019-20 is expected to be at 3.3 percent of the GDP.

This is nothing but a joke that the central government is playing on itself.


Fourth, some things that can move the needle aren’t in the Budget

For example, the collections from the Goods and Services Tax (GST). 

It’s no secret that revenues are down. As Andy Mukherjee, columnist for Bloomberg wrote in his piece titledTruth be told, Modi’s budget won’t solve India’s economic crisis’:

The 2017 goods and services tax has flopped, pushing New Delhi to incur more liabilities outside the budget, for instance by dipping into people’s post-office savings for food subsidies. Without accepting that the GST needs an overhaul, a fair share won’t reach India’s states and into the hands of people who can spend it.

But fixing the GST isn’t something that can be done in the budget. It will require a buy-in from states that are being starved of resources. With many of India’s state governments virulently opposed to what they see as Home Minister Amit Shah’s agenda of turning India into a Hindu nation, it’s unclear if a coordinated effort to stabilize the rudderless economy is politically feasible.

There are other reasons why the Budget doesn’t matter much. Remember, it is just a plan, and governments can choose to disregard plans, or make up new ones during the year. Like how the government announced an off-budget cut in corporate taxes last year. 

Despite this, the Budget is a day where three things happen every year, like clockwork. Irrespective of government, or the state of the economy, or what the Budget actually says. 

a. Business newspapers go overboard

b. CEOs of companies, taking an opportunity for some free, uncritical, media coverage, spam reporters with their quotes.. It’s literally the only time of the year when journalists avoid CEOs and their PR agencies, instead of the other way around.

Like clockwork, all these statements are overwhelmingly positive, sufficiently vague, and perfectly ingratiating to the establishment. Irrespective of what’s in the Budget. Here’s a challenge: Find me a prominent CEO’s quote that’s critical of the Budget today, and I’ll happily feature you in next week’s edition of The Nutgraf. This has nothing to do with this government. Find me one from the last decade. I’ll wait.

c. Third, here’s a prediction. No, not about the Budget – I’ll leave that to the economists, but about the reactions to it. 

Here are some useful phrases that reactions to the Budget will cover:

“…successfully walked the tightrope between…”

“…struck the right balance…”

“…bold and optimistic moves to spur growth…”

“…steps towards a cashless economy…”

And, of course…

“…target of a five trillion dollar economy by 2024…”

Good news. Two companies made a lot of money

There’s some good news, though. 

Some companies are actually reporting their best numbers. In this economy. Which is encouraging. And both of them beat Bloomberg’s analysts. 

First, there’s Indigo Airlines

InterGlobe Aviation Ltd, which runs India’s largest airline by market share, has more than doubled its profit in the fiscal third quarter buoyed by higher revenue, lower expenses and higher yields.

Consolidated net profit at IndiGo, one of the biggest customers worldwide for Airbus, surged 168% to ₹496 crore in the three months to 31 December from ₹185.17 crore a year earlier. The figure widely surpassed the ₹267.7 crore consensus estimate of 14 analysts surveyed by Bloomberg.

Then, there’s HDFC Bank

HDFC Bank Ltd on Saturday reported a 32.77% rise in its net profit for the third quarter buoyed by higher net interest income and other income.

The private sector lender posted a net profit ₹7416.48 crore for the three months ended 31 December compared to ₹5585.85 crore in the year-ago period. Profit was higher than ₹7015.7 crore estimated by a Bloomberg poll of 19 analysts.

This is good news. Of course, Indigo’s success can be partly attributed to low fuel prices and placing comedians on no-fly lists. And HDFC Bank is, well, HDFC Bank. 

But still…good news is good news. And I’ll take it. We have reasons to be optimistic.

OYO’s global retreat continues

OYO’s scaling back in India in a big way, as we wrote earlier

Last week, it continued its global retreat. 

It’s scaling back in the United States

Also, in the United Kingdom

Now it has a new worry

A source at Oyo told CNBC-TV18 that 60-70 percent of the bookings that Chinese travellers made for the Chinese New Year holidays in countries such as Japan have been cancelled.

Oyo’s China business is expected to see property contribution margin for 2020 at $460 million, though losses are expected to reach $716 million, according to a recent valuation report of the company.

However, China business is expected to post profits of $384 million in 2022 and $1.65 billion by 2024.

“This is usually a big period for Oyo, but close to 70 percent of the bookings have fallen through, and many of these travellers are now moving to Japan,” the person cited above said.

Several employees have also not been coming to work at the corporate offices in the country with the government extending the holidays and because of health scare, the source added.

It’s not a good time to be OYO. 

What We Are…Reading

Robert Kuok: A Memoir

This week’s book recommendation comes from Ka Kay, my colleague who reports from Malaysia. This is what Goodreads has to say: 

Robert Kuok is one of the most highly respected businessmen in Asia. But this legendary Overseas Chinese entrepreneur, commodities trader, hotelier and property mogul has maintained a low profile and seldom shed light in public on his business empire or personal life. That is, until now. In these memoirs, the 94-year-old Kuok tells the remarkable story of how, starting in British Colonial Malaya, he built a multi-industry, multinational business group.

Turns out, Ka Kay picked up the book after she wrote about Robert Kuok’s grandson for a story about family offices in Southeast Asia. 

Oh, also, Kuok is Malaysia’s richest man, so his memoir must be interesting.