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G. Narayanan

The Budget lived up to the market's low expectations, remaining largely a non-event. The undertone, however, remained positive, with real growth for FY06 being expected at 8.1 per cent, on the back of 7.5 per cent plus growth in the past two years. On the fiscal front, the Finance Minister has further reaffirmed the commitment towards the Fiscal Responsibility and Budget Management (FRBM) Act and budgeted the fiscal deficit at 3.8 per cent of the GDP for FY07.

The strong growth performance has provided a further cushion against continued fiscal correction. The growth is backed by a step-up in the savings rate and increased gross capital formation. Investment rate has also gone up from 25.3 per cent in FY03 to 30.1 per cent for FY06, with growth in non-food banking credit exceeding 25 per cent for the past three years.

Plan expenditure, as a percentage of total expenditure, has also been budgeted to increase, leading to better expenditure planning. Growth in revenues has also been strong with tax revenues reaching 10.5 per cent of GDP.

Also significant was the increase in the cap for foreign institutional investors' investment in government securities to $2 billion, up from $1.75 billion, and in corporate bonds to $1.5 billion, up from $0.5 billion.

In the government securities market, the Negotiated Dealing System-Order Matching (NDS-OM) platform has been extended to mutual funds as well as provident funds and pension funds to add depth to the market and aid better price discovery.

The continued rationalisation of excise and Custom duties on a wide range of industries has been taken positively by the equity market. The Budget can be termed as good, provided the growth momentum is maintained.

(The author is Managing Director, State Trading Corporation of India.)

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