Bluffed in the Budget

Today was the second budget that I listened. Last time I did not bother to understand it too much, this time I decided to check the numbers. Before I Delve into what has been presented by the FM, here is a small table that will help make matter simple

The FM is projecting a petroleum subsidy of Rs 23,640cr. If I do a backward calculation assuming that given the inflation scenario the government does not increase the prices of the petroleum products going further point 1 gives the scenarios

Item	Petrol	Kerosne	Diesel	LPG
Consumption Quantity (MMT) in 2011-12	15.2	9.3	66	14.8
Current market price	58.37	12.32	37.75	316

1. Now doing a quick math on the above figures, assuming that the government bears 77% of the total subsidy and the upstream bears 33%, the crude price has to be $76/bbl and the prices of these products should not be marked down if crude is to fall to those levels.
   On the other hand if I assume the crude price of $92 which I think is reasonable to assume in FY11-12 the total subsidy bill comes about Rs.98000cr. Now if the government is to provide only 23640cr that is too less at 24% of the subsidy. If the government does that then upstream companies, downstream companies everyone will be paying out huge money and it would be really difficult for the OMC’s to even show a profit figure. The third possibility is he is banking on plugging the leak i.e containing subsidy payouts by ensuring that only the needy get the subsidy through the UID project. I would assume it to be the right step, but assuming that it will happen in 1 year timeframe is like buying a stock with PE of 500!!. Huge expectations!. For as simple as taking approvals for setting up a power plant where you require approvals from just 5-6 agencies takes years, just imagine opening an Indian Rural Facebook with so many districts, panchayats etc


2. On the gross tax receipts Rs.9,32,440 an increase of 25% over the estimates of 2010-11, without too much changes in the tax structure and allowing the exemption to the common man which according the FM will lead to lower tax receipts of Rs.11500cr means he is expecting way too much from corporate profits. I mean how is that even possible, on one side equity markets is punishing companies due to inflationary scenario and our FM comes and says that he is expecting corporate profits to grow upwards of 25%. I don’t think that is possible.


3. For the above kind of growth to happen, credit should be available at reasonable rates, RBI has been tightening monetary policy has raised the key policy rates by nearly 150bps and can raise it further if it does not stop here. The borrowing gets expensive, capital plans get shelved, how does our FM expect the economy to grow by that much amount


4. This year the government received a bonanza in terms of 3G auctions, I say this because all the telecom players have made their not so ugly balance sheet into Altman Z balance sheets. This is not going to happen in the next year. I mean if government expects to come up with 4G then we might expect some payout but again that is not happening, even if it happens, we will need to find a whole new hosts of operators to pay the money.

I think the targets set by the FM are overly optimistic on the backdrop of no reforms and the rising crude prices and higher fertilizer subsidy payouts. FM has been able to deliver what he has promised, this statement is borrowed from one of the speakers on CNBC, but this one looks like he has raise the bar too high for himself. All can I say is best of luck Mr. FM. Hope to see the number s you put out actually being hit.