The company that you hold stocks of has just given you bonus shares, and you are obviously happy with the largesse. But the company has also announced a much larger bonanza to a select class of its shareholders, excluding you. Worse, the company management has no explanation for how it will fund the bonanza.
Will it be funded by taking money out of future investments? Or will the company rejig its finances drastically without taking its shareholders’ approval?
Either way, this is something for shareholders to worry about. Because financial mismanagement can reduce the future value of the bonus shares you have today. The company in question is the Indian economy, the shareholder is you, the management is the UPA government and the announcements we are talking of are from Budget 2008.
Sure, P Chidambaram, the finance minister, has raised your real income by cutting taxes and that will help you spend and save more in 2008-9. But, as a stakeholder in the future of the Indian economy, you should not only be concerned with what the finance minister has given you but also with how he is managing your tax rupees for the future growth of the economy.
And this is where there are reasons to be worried about two of Chidambaram’s biggest expenditure proposals—the Rs 60,000 crore loan waiver to farmers, and what is as yet a black hole, the Sixth Pay Commission award. The problem really is not with the proposals, but with the fact that the finance minister—the CFO of the Indian economy—has little or no idea about how he is going to fund these mega items of expense.
On farm loans write-offs, all we know is that the money will come partly from banks and partly from the government’s balance sheets. On the Sixth Pay Commission award, which will be implemented with effect from 1 January 2006, Chidambaram has no idea of how much it will cost the exchequer. Yet he has gone ahead and committed the government to implementing both measures.
In personal finance parlance, this is like buying a house or sending the children abroad for higher education, without having the money or even a plan for raising the money. So, however happy you may be with Chidambaram’s tax reductions, don’t ever emulate his methods in your family budgeting.
Our cover package for this issue is one of our shortest, and deliberately so. Given the rather confused cacophony over the political and economic impact of the Budget proposals, we decided to tell you only what is absolutely clear right now: how to maximise and utilise the gains from the Budget.
