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Low profile moves

The pre budget talk has always been on big bang reforms. Macro issues are generally the talk of the town in the run up to the budget session.

HOWEVER, THIS TIME around, a couple of issues are going to play a significant role through the year. These were low profile moves made by deft timing of their announcements but are likely to have a significant impact on the budget. The Corporate Affairs Bill, the increase in railway fares, the food security bill and the UID spending are likely to have an impact during the year ahead.

The Corporate Affairs Bill was passed by the Lok Sabha late last year in the winter session amidst the hoolala about FDI. One of the key aspects of the bill is the mandatory clause on corporate social responsibility. The CSR clause is applicable to all companies that have either net worth in excess of Rs 500 crore or turnover of Rs 1000 crore or more, or a net profit of Rs 5 crore or more. They have to set aside 2 per cent of the average net profit of the preceding three years for CSR activities. While this is a welcome step by the government to promote corporate social responsibility, there are issues with its mandatory nature. There is a fear among India Inc that this could lead to an overflow of funds to ‘trusts’ owned by politicians. Since the penalties for non-compliance of this CSR rule are vague and the penalties for misuse of these funds are also vague, there is a perception that this could be misused by the powerful in order to leverage the maximum out of India Inc. In addition, there is also a concern on the lack of say the shareholders would have in this regard. For example, let’s assume that the economy is in recession and the company is having a large deficit that it needs to reduce it. Now, shouldn’t the priority be in reducing the debt? Can’t the 2 per cent CSR funding be transferred here if the shareholders feel that is more important?

Another point of content is the compulsory presence of the woman director in the board. This is a commendable act by the government; however, the bill is not refined enough to keep checks and balances in this regard. Most Indian businesses are family-oriented and they could easily appoint directors within the family in pseudo roles. This could defeat the intended purpose of female empowerment.

These are some of the questions that need to be addressed during the budget session in the run up to the bill being passed in the Rajya Sabha.

Besides this, the railway fare hike is something that has been done with a deft touch. The timing was so immaculate that there was little protest from the consumers and the legislators. It was also amidst the focus on other important issues such as women’s safety across the country. This timing was important for the rates to increase without any major nosie. This was a move that had to be done considering the disparity in the costs and the actual expense per customer. For example, before the railway hike, the second class ordinary cost the Railways 42 paise per passenger km (pkm), but it was priced at 17 paise/pkm. The mail/express sleeper class fetches only 32 paise/pkm against the operating cost of 62 paise/pkm; and mail/express second class 22 paise/pkm against the cost of 36 paise/pkm. This vast gap in costs has hit the railway finances pretty hard and the hike it was imperative. Another important thing to look out for is the additional investment being given to Aadhar project. It is becoming more and more certain that the UID initiative is going to be the platform for development in the upcoming year with the direct cash transfer scheme likely to become more prominent. This additional investment to the UID could make the fiscal deficit worse considering that the Food Security Bill would be passed this budget session. It would be a challenge for the finance minister to contain the fiscal deficit at 5.3 per cent in the coming year. Since the bill is likely to cover almost 75 per cent of the population, it is important to understand the impact of the bill on the country’s exchequer.
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