Monday, 24 March, 2008


Last week, I attended a one-day seminar “Raising Funds for IPO (Initial Public Offering) in India” by the Federation of Andhra Pradesh Chambers of Commerce and Industry (FAPCCI) CEO Club in Hyderabad.

During the course the day, many a merchant banker and financial wizard talked about the nuances involved vis-à-vis raising funds from the market. However, one presentation, though a bit of a deviation from the main theme stood out for its audacity of thought and expression.

Titled “Overview of the Indian Economy,” by A.V. Vedpuriswar, Director (Learning and Development), UBS, the presentation gave an insight into the recommendations of Economic Survey 2008, the three main barriers to India’s economic growth, Union Budget 2008, Agriculture Sector, Industry Scenario, Financial Sector Reforms, General Economic Reforms and Labour Reforms.

While one can have access to the entire presentation by contacting Mr. Vedpuriswar at, I will confine myself to what our Finance Minister has claimed in the Union Budget and how Mr. Vedpuriswar has responded to his claims based on information gathered from various sources like – IMF observations and “The Economist” Magazine. I will also touch upon Mr. Vedpuriswar’s thoughts on the much-hyped Rs. 60,000 crore farm loan waiver announced as part of the Budget.

During the course of his Budget speech, the Finance Minister said that the current revenue deficit is 1% of GDP and the Fiscal Deficit is 2.5% of GDP. The Indian government has also claimed to reduce its deficit to an estimated 3.3% of GDP in the year ending March, from 6.5% in 2001-02.

However, Mr. Vedpuriswar said that in a recent report that appeared in “The Economist,” the IMF argued that the true total deficit of India is closer to 7% of GDP once the State governments’ deficits and various off-budget items are included. He goes on to add that if the losses of State Electricity companies are also included, the total deficit could cross 8% of GDP. India’s public debt is also uncomfortably high at about 75% of GDP (source – “The Economist”).

Mr. Vedpuriswar expressed his reservations on the farm loan waiver as well, more so in the context of Indian Agriculture being dependent on people who have borrowed from moneylenders rather than the Banks. He said that the damage can be minimized by giving borrowers with good records lower interest rates, lower credit limits and imposition of higher collateral on bad borrowers. This would reduce the risks in agriculture by lowering the number of intermediaries, bring down the consumer price index, and improve the realization for farmers. He also called for institutional reforms, which will be instrumental in reducing farmers’ dependency on moneylenders.

I am also sharing with you few important quotes of the presentation…

“Higher education is a dark spot. Though FM has enhanced allocation for education, he hasn’t done much for higher education. Starting a few IITs is not going to make much difference to the country. Bold steps are called for to open the sector. While steps have been announced to invest in skills development and education, clearly they are timid.”
Nandan Nilekani, Economic Times, March 1

“We are very keen to do more in these areas but we have our resource constraints. So we cannot do everything at one go.”
Manmohan Singh, Economic Times, March 1

“Generous grants, compression, righteous rule and succour to the downtrodden are the hallmarks of good governance.”

P.Chidamabaram in his Budget speech

Should the Fiscal Responsibility and Budget Management (FRBM) Act be scrapped? For this law seems to be having the perverse effect of making the government hide more and more of its expenditure and not show it in the Budget. The finance minister can then claim that he is meeting FRBM targets, when in truth he is not. Scrapping the law might encourage more honest budgeting.
Business Standard

The tiger may be the animal most Indians associate with their private sector; but a more apt symbol is the peepul (sacred fig) tree. Revered by many Indians, the peepul has a habit of making room for itself, poking up through roads, sometimes smothering its rivals. India's dynamic private sector has shown a similar skill. But if the next government again flunks reform, it could be the peepul itself that is smothered.

–The Economist, March 8, 2008

For a copy of the entire presentation, please contact Mr. Ved Puriswar at

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