Wednesday, May 30, 2012

If I were Sonia Gandhi

If I were Sonia Gandhi…                                           (1)
By then adverse set of circumstances, being a foreigner, Smt. Sonia Gandhi has acquired a unique position in the country that no other Prime Minister got starting right from Pt. Jawahar Lal Nehru.  Her position became like that of an Entrepreneur who owns his enterprise but employs others to run the same and give him the desired results. In doing himself one becomes involved in the activity and has to defend his action even if it is wrong.  An entrepreneur can easily sack his CEO if he has committed a mistake or not produced results as per his desire.  The present Prime Minister is replaceable, without falling of the Govt., unlike other Prime Ministers who themselves were Leaders of the Ruling party and could be removed only if their Government failed on the floor of the House.

As I come from business background, I would treat the Nation as an 'Entity' that shall rightly be called ‘India Incorporated’. Every citizen of the country – rich or poor, of any caste or creed, of any religion, male or female, educated or uneducated, new-born or old, is its share-holder.  All assets of the country belong to ‘India Incorporated’.  The CEO, in present case Smt. Sonia Gandhi, is like the Entrepreneur of India Incorporated.  The Dharma of the Entrepreneur is to be faithful to the Enterprise and develop it to the best of his/her capability.  After the expiry of his term – by loss of faith of the share-holders (in election), he is supposed to hand over the Enterprise to his successor in a safe, sound and better condition than what it was when he got it. 

With such background, I am starting a series of articles that will list what I shall do if I were Mrs. Sonia Gandhi.  All friends are requested to post their wish-list – like house, job guarantee, retirement benefit, etc. that they expect from their Enterprise through their CEO.  It will be my endeavor to work out a solid business plan to fulfill all wishes of India’s share-holders to the extent logical and justifiable in my series of postings.  The business plan shall be finalized after taking into consideration suggestion of all members.

Needless to say, my first target shall be to make India a Tax and Debt Free Nation – a role model for the entire world!


Wednesday, May 16, 2012

Communication Services


Our concept is that God has bestowed our country (India) with so much resources that all our national expenses can be met from revenue from them. The present Government policy is ‘Tax centric’ and ‘Debt centric’; the income from national resources is shabbily termed as ‘Non-tax Revenue*’.  This policy need to be transformed.  India can be the first country in the world which can be a Tax and Debt free. Nation – a role model for the entire world.

We are making a systematic study of income potential from  various ministries to prove this fact conclusively.  The first study we made was aboutinistry of Communication Ministry.  Prima facie, it appears that minimum ten percent of National Expenses cab be met by Communication Ministry every year.  The calculation as per Budget document for the current F.Y. are as follows:



National Revenue


Rupees in Crores




Actual
.B.E.
Rev.BE
BE



2010-11
2011-12
2011-12
2012-13








1
Tax Revenue
793072
932440
901664
1077611
2
Debt receipt
367162
392816
546644
513590
3
Non-tax revenue
218602
125435
124737
164614
4
Total
1378836
1450691
1573045
1755815
5
Less: Loan Repayment
147793
104927
123929
124302
6
Less: Interest Pmt
234022
267986
275618
319759
7
Total Payment
381815
372913
399547
444061
8
Net funds for National Expenditure
997021
1077778
1173498
1311754
9
From Communication
120547
29648
16551
58217
10
Per cent of Total
12.09
2.75
1.41
4.44
11
10% of Total Revenue
99702
107777
117349
131175
12
Surplus/shortfal
20844
-78129
-100799
-72958


From the above calculations it transpires that Communication Ministry contributed 12.09% of total National expenses in the FY 2010-11, excluding the cost of interest on National debt which shall be discussed separately.  In that year you got sale proceeds from auction of 3G for about Rs. 80,000 Crore. In the year ended 31.3.2012 the earnings fell down to just Rs. 16,551 crore contributing only 1.41% of National Expenses.  In the current income from Communication Services is estimated at Rs. 58,217 crore which will be 4.44% of National expenses.  Perhaps the increased estimate is based on possible income from re-auction of 2G licenses. 

According to the figures coming out this estimate is grossly under-estimate of potential income from sale of 2G.  As per TRAI, it should fetch Rs. 7 lac crore for 10 years, i.e. Rs. 70,000 crore per annum.  On mercantile accounting principle the income of Rs. 7 lac, or whatever, should be apportioned on yearly basis.  Thus the Ministry stands to gain a substantial income from sale of 2G alone. Adding income from other services of Ministry, we can assume that you can contribute something in the range of Rs. 1.40 lac crores to the national exchequer every year.  This will be about ten percent of National Expenses, excluding the interest on sovereign debt.


We shall convey our study about other Ministries from time to time. We have no doubt that country’s expenses can be met from the income from National assets every year and there is no need to levy any kind of taxes and borrow any money.


As per Budget proposal for the F.Y. 2012-13
Communication Services

                                                                                                            Rupees in     Crores Rupees
6.06. Communication
Major Head
Actual 2010-2011
Budget 2011-2012
Revised 2011-2012
Budget 2012-2013






6.06.01. Other Communication Services
1275
120547.63
29648.33
16550.83
58217.33

6.06. Receipts under 'Other Communication Services' mainly relate to the licence fees from telecom operators, receipts on account of spectrum usage charges and auction of Broadband Wireless Access (BWA) spectrum currently in use by Central PSUs; receipts from spectrum held in excess of 6.2 MHz and receipts from auction of spectrum available with Government including spectrum to be vacated by 122 licences, in view of the order of Hon'ble Supreme Court. 


Department of Telecom collects recurring licence fees from various telecom operators licensed by it. It also collects one time Entry fees from new operators. The main service categories include Cellular Mobile Service, Basic Service, Unified Access Service, V-SAT Services, International and National Long Distance Services, Infrastructure Providers, Internet Services, Public Mobile Radio Trunk Service and Captive Mobile Radio Trunk Service. 


Barring a few services, the Licence Fee is collected based on percentage share of the operators Adjusted Gross Revenue (AGR) and includes a component of Universal Access Levy. The AGR in turn is influenced by factors like tariff, customer base, competition, etc. The collection from licence fee depends on the rate of licence fee, tariff and growth of the telecom service sector in the country. 


Spectrum charges are levied by the Department on the Service Providers, for usage of spectrum and are calculated either as a percentage of their Adjusted Gross Revenue depending upon the quantum of spectrum assigned for their network (for CMTS, Basic, UAS and Commercial VSAT Service Providers) or at flat rates or on the basis of formulae (for others). 


To be continued...

Tuesday, May 8, 2012

The Demon of Sovereign Debt


Govt. Sinking the country (India) into Debt Trap

The country owed about Rs. 44.25 lac Crores at the end of March 2012 and it will 
grow to about Rs. 48.15 lac crores at the end of current FU 2012-13.



2010-2011
2011-2012
2011-2012
2012-2013


Actuals @
Budget
Revised
Budget



Estimates
Estimates
Estimates

4. Short term borrowings
7759
15000
116084
9000

5. External Assistance (Net)
23556
14500
10311
10148

6. Securities issued against Small Savings
11233
24182
-10302
1198

7. State Provident Fund (Net)
12514
10000
10000
12000

8. Other Receipts (Net)
-13315
-13866
-15862
2245

      Total
367162
392816
546644
513590

Less Repayment
147793
104927
123929
124302

Debt increase
219369
287889
422715
389288

Add: Debt B/F last year
3495452
3714821
4002710
4425425

Total Sovereign Debt
3714821
4002710
4425425
4814713

Total outstanding Sovereign Debt in 2004-05:was Rs. 19,94,422 crore, The UPA Govt. continued to borrow and it went up to  Rs. 34,95,452 crore in 2009-10. That means they borrowed further Rs. 15.01 lac crores in five years, at an average of over Rs 3.00 lac crores per year. UPA II has continued with its borrowing spree – a political decision, and have further added (after repayment) Rs.2.19 lac Cr in 2010-11, Rs. 4.22 lac cr in 2011-12 and will add Rs. 3.89  lac crore in the current year 2012-13.  Thus on 31st March 2013 the country will owe about Rs. 48.15 lac Crores.  Significantly, the Hon’ble Finance Manager takes big pride by claiming that this colossal amount is only 45.31% of GDP whereas the 13th Finance Commission has approved a target of 50.5%.

Fiscal deficit
S. No.
F.Y.
Fiscal Deficit of Central Govt. % of GDP
1
2004-05
4.0
2
2005-06
3.3
3
2006-07
2.5
4
2007-08
6.0
5
2008-09
6.5
6
2009-10
4.9
7
2010-11
5.9
8
2011-12
5.1
9
2012-13 (Projected)


The Personal Income tax and Service tax that Government recovers from all of us
 is insufficient to pay Interest on borrowings! 
                                                                                           Rs. Crore

Actual
.B.E.
Rev.BE
BE

2010-11
2011-12
2011-12
2012-13
Personal Tax
146587
172026
171879
195786
Service Tax
71016
82000
95000
124000
Total
217603
254026
266879
319786
Interest Payment
234022
267986
275618
319759
Short fall
16419
13960
8739
-27

Instead of managing enormous national assets properly, efficiently and honestly,
 Government is taking the easy course of raising Taxes and Borrowings. 

Times of India 26.4.2012
‘S&P cuts India outlook to negative…
Our Finance Minister says “No need for panic. The situation may be difficult, 
but we will be surely able to overcome.  Pranab Mukherjee.

Really No Need to panic Mr. Mukherjee; simply because the loans that you are raising and sinking the country into a irretrievable Debt trap will not be paid by you; they will be paid by our future generation.  You continue borrowing in which you have expertise.  And continue to dole out huge national assets to Big Business for pittance! 

Sovereign debt sustainability a political issue: Duvvuri Subbarao (Governor RBI)

"Sovereign debt sustainability is not like price stability. It is a political issue. How much debt the government raises and how they raise that debt, are a political issue…

The Reserve Bank of India has proposed a cap on the debt to GDP ratio as a high debt component in the economy complicates monetary policy.
"Government borrowing is not bad per se, but excessive borrowing is. There is therefore a need to cap total public debt as a proportion of GDP" said governor D Subbarao delivering a keynote address at a central bank's research conference.

" Like with the other two legs of the new trilemma, even in the case of sovereign debt, there is an inflexion point beyond which fiscal deficits militate against growth." he said.
India's public debt to its GDP is currently estimated to be 65%, second highest among emerging markets only after Hungary's. India's fiscal deficit has risen the fastest among emerging market economies.

All our political parties, at the Centre, in States, Municipal Corporations and in local bodies, have made borrowing a State Policy.  Debt is a demon which you can create any time and of any size but once created you can not put it back in the bottle. Look into the accounts – called Budgets, of any Government body at any level, you will find Debt as a significant source of ‘Revenue Receipt’ – easy way to raise money.  Initially the debt provides funds but soon the interest on it becomes so much that borrowing becomes a necessity to pay Interest on it.  Own income falls short to pay even the interest what to say of Repayment. Didi Mamta is now forced to ask for three years moratorium to pay the interest  - not the repayment. 

Bogey of GDP: Governments mislead the common man by relating the humongous loan burden on them by relating it to GDP.

GDP is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports.   Obviously, GDP is much larger than the Government Revenue. Hence the ratio of Sovereign debt to GDP appears to be a smaller ratio. In fact, the ratio of Debt should be related to Gross Revenue.  It will then be 59.35%., in other words more than half the money for expenditure comes from debt – every year.

GDP is not the amount that is available to the Government for meeting its loan liability or any other expenditure. The money for payment of interest on debt and for repayment will come from Revenue Receipts. The gross Revenue Receipt of the country is estimated at Rs. 9.35 lacs comprising of Rs. 7.71 lacs as Tax Revenue and Rs. 1.64 lacs as Non-tax Revenue (Non-tax Revenue is the income from national Assets and Rights and the Real Income of the country). The interest outgo on sovereign debt is estimated at Rs. 3.89 lacs for the FY 2012-13.  that leaves a balance of only Rs. 5.46 lacs for expenditure.  The Revenue and Plan Expenditure is planned at Rs. 14.90 lacs. Therefore, the country will have to necessarily take further loan of Rs. 5.55 lac crores to meet the gap between Income and Expenditure.  Thus we are now necessarily in deep Debt Trap.

The country will never be able to come out of this vicious circle unless the Real income of the country is increased.  The need is to bring the income from the Real assets of the country into exchequer and not doling it out to big business for pittance.   The country will regain its lost status of  ‘Golden Bird’ when our Rulers start bringing into the exchequer fair value of National assets – doling it out to Big Business for pittance has sunk the country into a ‘Debt Trap’.  

At the Center borrowed funds would accumulate to a level of over Rs. 48.15 lac crores at the end of current FY 2012-13.  The interest outgo on this colossal amount would be Rs. 3.89 lac crores. So I and you have to pay more taxes to fund this unnecessary cost.  Apart from paying higher taxes we are affected in more than one way –

a) If the Government does not borrow such huge amount every year, then these funds would be available to Industry and Trade to increase production and business.  Increased production and business would bring more income to people reducing poverty level and increasing their prosperity.

b) With more funds available, Interest rates would fall.  Interest is a significant cost factor for any industry and business.  Reduction in interest would reduce cost, products would be available at lower price, inflation would go down.

c) Reduction in sovereign debt would give a boost to the credit rating of the country.  This will open up the gates for more foreign funds at low rate of interest.

Therefore, for healthy growth of the economy of the country and benefit of ‘aam aadmi’ it is e Debt.