Rating for the Finance Minister: Meets Expectations, says Adil Malia
Considering the criticality of developing human capital for the future of India, our commitments and investments do not appear to be adequate
In the given market context and a fractured political mandate, a corporate citizen rates your Budget for our dear country as ‘Meets Expectations'
A government grounded in political bickering for its survival, whilst frantically attempting to energize and fuel a growing economy, has conjured a deficit budget, anchored to global economic pulls, local market pressures and a fractured political mandate.
The buzz as always was - so how is the budget? (a meaningless banter just like wishing all and sundry a 'happy new year' on January 1). Everybody, knowledgeable and not so knowledgeable, imitates economic sounding terms picked up from panel discussions on some television channel they may have surfed in the last hour.
“Budget did not cut fiscal deficit"... "Highly sensitive services will now be taxed and this will lead to insensitivity at the bottom of the pyramid"... "Government's bloated borrowings will crowd out private companies"... "Two-way fungibility of IDRS will encourage global companies to reconsider listing in India"... "Equity markets will react with studious patience". Pheeeew!
I picked up from my archives, old copies of financial media reports dated March 16, circa last two years. You will notice similar phraseology being endorsed by different celebrities and influential voices, every year! Try this exercise for yourself and have a great laugh.
No one sought my views on the Budget!! I am stereotyped more as a professional with a view on management and leadership thoughts than economy and least, the Budget. So, I thought of dissecting this Budget not with a butcher's knife, but more with the scalpel of a surgeon and give it a corporate twist. What would a corporate CFO, be expected to deliver to the larger system through a budgeting exercise? How does such a leader through, his proposed plans and programs for the organization (country in this case), hope to deliver? And whilst doing so, (remember, it is annual performance appraisal time in corporate India), give a performance rating to our Honorable Finance Minister (FM) for this job done on the nation's Budget.
So, here is my attempt.
Performance assessment criteria 1: Strategy formulation and metrics
Is the Budget prepared on the basis of an in-depth analysis of the macro-economic environment and does the leader articulate the organization's strategy with a suitable roadmap to reach the desirable results?
With a slowdown in GDP at 6.9%, a high headline inflation during the year impacted largely by agricultural supply constraints and global cost-push, having diversified its import and export markets during the year to weather the impact of global (read European) crisis, and a current account deficit impacted by a reduced net capital inflow, the FM has realistically set the specific national targets with GDP growth at 7.6%, current account deficit at lower than 3.6%, average inflation moderated around 8.3%, and enhanced gross tax receipts.
To deliver this target, the FM has laid out a clear five point strategy:
First, focus on growth through internal demand creation; second, build enabling conditions to encourage private investments; third, address supply bottlenecks; fourth, address malnutrition concerns in highly impacted geographies, and lastly, improve efficiency and delivery systems of governance through speed, better co-ordination and transparency.
He has backed his overarching strategy with fiscal consolidation programs, expenditure reforms, subsidies and tax reforms. However, if you evaluate the entire financial outlays of these supporting programs, you will see the FM's stated budget strategy and his recommended plans and programs, do not appear to be fully aligned.
Performance rating on KRA 1: I would personally, on an assessment panel, rate the Finance Minister's strategy formulation and his supporting roadmap at a 4 on a scale of 5: ‘Exceeds Expectation’.
Performance assessment criteria 2: Human capital development
Is the stated strategy, backed up and supported by plans and investments to develop potential of its human capital?
The FM has planned investments for programs like agricultural credit, providing protein and other food supplements, investments in program for food security, supporting specific education programs, continuance of the mid-day meals, empowerment of adolescent girls through SABLA and for providing primary healthcare through national rural and urban health missions.
He has proposed subsidies to institutions to foster a modern nation through research and creation of new knowledge. He has also recommended enacting public procurement legislation, amongst other things.
However, considering the criticality of developing human capital for the future of India, our commitments and investments do not appear to be adequate.
India is sitting on a huge pool of potential talent, waiting to be developed for the future. To that extent, our investments do not seem to match, considering the outlay on other agenda items of the strategy. Nor do the proposed programs show anything more than a lackluster desire and a weak attempt to deliver on some of these initiatives and programs.
Considering the seriousness with which the country needs to make investments to develop and augment its human capital, the budgeted programs do not evoke confidence of delivery on the strategy. One sees meaningless extensions of some of the fuddy-duddy programs and schemes sponsored in earlier Budgets by the FM, despite these having failed to deliver. All these are continued in the name of consistency - consistently repeating failure!
The total financial outlay in the Budget is meager and does not suffice for human capital development and capability building of a country of several people, which is destined to be the world's youngest country within a decade.
Performance rating on KRA 2: I would personally, on an assessment panel, rate the FM for his proposed programs on developing the critical national human capital, on this particular KRA as 2 on a scale of 5: ‘Could Do Better'.
Performance assessment criteria 3: Engagement of internal stakeholders
Does the Budget facilitate an enabling environment that keeps the internal stakeholders positively engaged through adequate programs for return on their investments and wealth creation for the nation?
I believe the FM has strategized and planned well for this. He has made programs to ensure flow of savings in financial instruments, deepened capital market reforms and encouraged investments in infrastructure sector. The FM has encouraged a disinvestment policy and put up programs for suitable changes in laws to support financial sectors. Another serious program the FM has mooted is the idea of recapitalization of banks through a financial holding company using the Singapore model, to raise resources of public sector banks particularly to tap funds in overseas markets. However, the Indian investors will remain skeptic initially about the government's ability to meet the targets it has set through the proposed programs. They will initially be on the selling side until they see the other collaterals impacting the markets through FII inflows.
On a sectoral front, the FM has presented a Budget that supports most sectors other than oil exploration and certain segments of pharma. With the international oil prices at $128 a barrel, this will contribute to inflation numbers moving northwards. Whilst one understands the market compulsions, the Budget does not provide any motivation or incentives for Indian investors to look at our economy as a favorite investment opportunity. Focus of the Budget seems to be more in the form of penalties for investing elsewhere; it attempts to reach its goals through the savings route, which is slow and not the best impetus for India's economic aspirations.
Performance rating on KRA 3: I would personally rate the FM for his proposed programs to facilitate an enabling environment and keep the internal stakeholders positively engaged, as 3 on a scale of 5: 'Meets Expectations’.
Performance assessment criteria 4: Corporate brand building
Position the corporate brand (read India) such that it attracts potential external stakeholders and investors to partner in the future growth of the organization.
India at a brand level has taken a severe beating in light of the current political paralysis, corpo-political legal issues, etc. We have not managed our international investor relations effectively. There are alternate investment options comparable to India on a net ROCE basis at the global level. The Budget has not provided any incentives to attract these investments into our growth story.
Performance rating on KRA 4: I would personally rate the FM for his proposed programs on positioning the corporate brand (read India) to attract potential external stakeholders and investors to partner in the future growth, as 3 on a scale of 5: 'Meets Expectations’.
Performance assessment criteria 5 - Building confidence through governance and transparency
Does the Budget create confidence in the general environment by adhering to high governance norms and insulating the system against security and other risks?
Let us quickly look at the budget offerings: Panchayati Raj philosophy further strengthened; security and defense budgets enhanced; UID Aadhaar additional capital expenditure Rs.79,579 crores; 5 point program to handle malaise of generation and circulation of black money; double taxation norms tightened; and programs to strengthen security and fight militancy in states with a strong defense budget in the current growth focused globonomy, seems adequate. However, whether the country is prepared against the Chinese dragon and its other friendly insurgents from neighboring countries, leaves a lot to desire.
Performance rating against KRA 5: I would personally rate the FM for his proposed programs to create confidence in the general environment by adhering to high governance norms and insulating the system against likely risks, as 3 on a scale of 5: ‘Meets Expectations'.
Our individual growth as corporate professionals is closely linked to the success of corporates and economic growth and development of our country. So, if Sir, you were, with humility, a corporate CFO and were to be subjected to a classical appraisal for this Budget exercise, I would, as a citizen of India, rate you as a 3 on 5.
Sir, in the given market context, economic reality and a fractured political mandate, a corporate citizen rates your Budget for our dear country as 'Meets Expectations'.
On a five point appraisal rating, ‘3’ is measured as “Meets Expectations”, ‘4’ as “Performance Exceeds Expectations” and ‘5’ as “Performance Significantly Redefines Standards”. ‘2’ is rated as “Performance Below Expected Norms” and ‘1’ as “Does Not Meet Expected Levels”.