Expert Zone

Straight from the Specialists

Tough to get the math right in 2014/15 interim budget

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Finance Minister P. Chidambaram went more by economic considerations than political ones in manoeuvring his pre-election budget, the focus being on fiscal consolidation with an eye on rating agencies.

The 2014/15 interim budget did not have any new populist measures. The minister may have been convinced that such gimmicks just before elections do not yield votes. Also, there was hardly any time to effectively roll out a new scheme.

The long-term policy target Chidambaram had set himself was to reduce the budget deficit to 3 percent of GDP. This is necessary to bring about price stability, reduce government borrowing, prevent overcrowding in the market and leave more financial resources with the private sector for investment. Although the budget engineering was on these lines, the way deficit has been restrained would not amount to fiscal consolidation.

For the current year, the deficit has been reduced to 4.6 percent from the budgeted 4.8 percent. This was possible in spite of an excess 49 billion rupees of non-Plan expenditure, which admittedly was not much in a 15.9 trillion rupee budget.

Why the rupee is linked to jobs in the U.S.

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It appears odd that an increase in job offers in the United States should pull the rupee down in India. After all, any improvement in the U.S. economy should benefit the rest of the world. It means an increase in imports by the U.S. and exports by other countries. But there is more to it than that.

India Markets Weekahead: Beware the Ides of March

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Markets ended budget week below support levels of 5800/5840 and just when the six-month rally seemed over for good, it made a spirited V-shaped recovery to close at 5946 on Friday, with gains of 3.95 percent. The Street is divided with some expecting this to be the beginning of a new rally with the market scaling highs that it missed in February; others see it as a strong pullback which will fizzle out soon.

The government seems to be responding faster to allay investor fears. It was quick to respond to FII worries over proposed changes in tax residency certificates. Finance Minister P. Chidambaram has been assuring investors of continued policy measures, including the Direct Taxes Code (DTC) bill being introduced in the current parliament session.

Budget 2013: Political strategy, not economic blueprint

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With the dust settling after Budget 2013, the picture is getting a bit clearer. Opinions on the budget have ranged from praise to outright criticism. The true position lies somewhere in between — depending on one’s political inclination, views on the finance minister and one’s financial interests.

Most agree there is considerable misalignment between diagnosis and prescriptions in the budget. The three biggest problems identified by P. Chidambaram are:
- rising fiscal deficit that needs to be controlled
- high current account deficit and
- declining economic growth rate.

Risk factors in Budget 2013

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Finance Minister P. Chidambaram has apparently done the impossible. He has brought down the fiscal deficit in the current year from the budgeted 5.3 percent to 5.2 percent in spite of the fall in revenues. What’s more, the deficit was further slashed to 4.8 percent in the 2013/14 budget. Is that realistic?

Look at the expenditure. In the current year, subsidies on food, petroleum products and fertilizer were up by 676 billion rupees or 36 percent. These are precisely the expenditures the minister had to curtail, though he did make an effort to do that too late in the day. With the jump in non-Plan expenditure, the fiscal deficit could be brought down only by cutting Plan expenditure.

Budget 2013 not a death knell for reforms

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In announcing the new budget, Finance Minister P. Chidambaram tried to square the circle. On the one hand, with the prospect of elections next year or possibly sooner, handing out costly goodies was always going to be a temptation. On the other hand, like its Western counterparts, the Indian government was faced with the fact that it must rein in public spending, which could anger some voters, not to mention dampen economic growth.

The trick, therefore, was to cut spending on areas where the negative impact would be least damaging. On that count, the budget met our expectations. We had long thought the deficit could be cut from 5.2 percent of GDP to 4.8 percent in 2014. And while the underlying nominal GDP growth assumption of 13.4 percent may be a stretch, we didn’t think it was beyond the realm of possibility.

Budget 2013: A high-calorie budget

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India’s left-leaning government believes in the ‘eat more, burn more’ philosophy in managing its finances. Budget 2013 takes that idea further with an even stronger projected rise in spending.

If the increased spending is aimed at productive use, it may still end up doing some good. But the track record does not inspire confidence. I hope that after talking the talk, the finance minister will not lose his nerve when it’s time to walk the walk.

Budget 2013 does have some words of wisdom

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The finance minister had a tough job in hand with this being the government’s last budget before elections due in 2014. P. Chidambaram had to focus on fiscal consolidation while walking a tightrope between populism and pragmatism.

In my previous column, I had written about the issues he needs to address. Here’s a look at how Budget 2013 fared on these counts.

Budget 2013: An opportunity missed

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Industry leaders have hailed Budget 2013 saying that this is the best Finance Minister P. Chidambaram could have done under the circumstances. Opposition leaders have slammed the budget. Each had their own compulsions but I feel the truth lies somewhere in between.

Budget 2013: Visible impetus on growth

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(Any opinions expressed here are those of the author, and not necessarily of Thomson Reuters)

Finance Minister P. Chidambaram presented the annual budget at a time when India’s economy is going through a challenging period. India faces the four-pronged problem of high fiscal deficit, an unacceptably high current account deficit, declining growth and lower savings.

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