India Insight

Budget 2010: Time for annual guessing game

February 12, 2010

It’s a laudable effort that often gets more brickbats than bouquets. This year, when Finance Minister Pranab Mukherjee presents the Union budget in parliament on February 26, he will walking a tightrope between managing ballooning fiscal deficit and supporting economic recovery in Asia’s third-biggest economy.

Budget 2010: Time for the annual guessing gameExpectations from the finance minister, as always, are high — people and corporates want more in their pockets. There has been no let-up in the rise of food prices and most middle-class families still have to wait for annual sales to get branded products home.

In other words, the nation would like to see changes in tax rates, consumables getting cheaper and credit continuing to be available easily.

When the world was teetering on the brink of recession, the UPA government had introduced three stimulus packages of tax cuts, higher spending on public projects and increased liquidity in the financial markets through an easy monetary policy of the Reserve Bank of India. These policy measures helped shore up India’s faltering economy and put it back on a growth path.

The incentives which were passed on to some sectors of the economy are still in place and experts say it is time for a gradual withdrawal.

The Congress-led government has been reassuring people that growth will not be derailed by any decision to withdraw stimulus, but analysts say it is treading a thin line between supporting the economy and inflaming inflation.

The government has pegged GDP (gross domestic product) growth for 2010-11 at 7.2 percent, up from a six-year low last fiscal, and said efforts will be made in the budget to lower fiscal deficit which is at a 16-year high of 6.8 percent of GDP.

Manufacturing too is forecast to grow 8.9 percent, a sharp rise from the 2.4 percent in the previous year.

A withdrawal of stimulus would mean taking away the incentives given to sectors like exports, textiles, manufacturing and infrastructure, which in turn would lead to tighter credit and escalation in prices of raw materials.

The RBI, which till now has resisted raising its key interest rate, is expected to do so in the coming months. This would make loans costlier for the common man and could subsequently lead to a decrease in demand for the realty sector and a fall in consumption.

It’s a delicate balance that the government must get right, but whether Pranab Mukherjee will introduce populist measures or toe a practical line and respond to the existing financial situation, is anyone’s guess.

Comments
2 comments so far | RSS Comments RSS

The finance minister will be right in taking back some of the stimulas given earlier as the Indian economy is doing well with GDP growth expectation of more than 7.5% for 2009-10 and 8 % for 2010-11.What is important today is to control inflation & fiscal deficit.With RBI hiking CRR by 75 basis point enough signals are given that the Govt mrans business.I expect the RbI to take some direct measures like hiking the repo rate by 50 basis point in near future.What i expect fm the budget is to increase the excise duty across the board by 2 % and 4 % on automobile ,cement and some luxury products.the finance minister may tinker with capital gain tax and stt rates also.Considering his past reputation of being a tough person ,i do not expect him to do anything to boost the capital markets.The markets according to me are going to fall heavily after the budget presentation.till then all the best .ashok ajmera,cmd ajcon global services ltd,a market analyst

Posted by ashoka | Report as abusive
 

feb17’2010

with due respect to the finance ministry & all its members.

1. interest rates r too high in relation to global reality. reduce deficit spending that is driving up interest rates.
2.food prices are a result of energy cost unusual jump during last few years. it is not because of lax financial policy.
3.thru an act of parliament all funding to political parties must be legalised and tax rebateable/ deductable.
4.thru an act of parliament all helping legislations of unnecessary laws encouraging corruption must be done urgently. this will reduce poverty and help growth.
5.gnp growth is the result of all positive actions of governments that hv been in power and such actions must continue. gnp growth would be higher if decifits r reduced and interest rates allowed to reflect international cost of funds.
6.education must be liberalised and morals and values must be the core of the same to help discard the corruption that has been in built since independence due to failure of good value politics by all parties.
7. considering the masses to be stupid is a big mistake dont underestimate thier will and ability to increase growth and bring about changes

chand datwani

Posted by datwanichand | Report as abusive
 

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