The Hindu Business Line : No clear fiscal roadmap

It is unfortunate that there was neither specific measure nor significant articulation of a roadmap to fiscal consolidation in the Budget. However, the 13th Financial Commission report this October could give us the broader picture for the fiscal consolidation in the medium term and FRMB-2.

We also expect separate announcements on the divestment plan or other plans relating to the fiscal consolidation. While the 6.8 per cent of Central government fiscal deficits remains on the high side, they are within the boundary of expectations.

In addition, the Government’s revenue target looks conservative. For example, the tax revenue target is expected to grow only 2 per cent, lower than expected 9.5-10 per cent nominal GDP growth.

There is an increasing size of grants to State and UT governments and non-planned capital outlays, which could help boost regional economies and the economy as a whole.

However, the budgeted expenditure has grown a substantial 33 per cent, which could be financed largely by increased government borrowing, putting pressure on interest rates. This could be alleviated by revenues realised through tax buoyancy, 3G spectrum licence fees and disinvestment proceeds.

The consequence of the increased domestic interest rate could be partly countered if greater access to international funds could be facilitated.

Investment initiatives

Economic growth, investments and global competitiveness must underpin the policies for investment and growth in different sectors such as electricity, construction, roads, environmental cleanliness, educational institutions, agriculture and urban infrastructure.

It would be worthwhile for the Government to consider making a consolidated announcement to help the market and private sector prepare for investment initiatives.

Reforms on the personal tax front will help stimulate consumption, as will the enhanced outlay for the NREGS, the government’s flagship scheme for inclusiveness.

Tax reforms

Other tax reforms, such as the termination of the FBT and CCT, will make life a little easier for corporates and commodity traders.

Increased commitments to rural infrastructure and the tax credit provided to investments in cold chains and other components of the food processing sector will help raise rural incomes and purchasing power.

The April 2010 deadline for implementation of the GST is also a welcome commitment to the overall tax reform agenda.

The equity market was disappointed by the lack of triggers for sustaining or indeed even resuming the upward buoyancy.

In a sense the budget is a good starting point for the market to move from the paradigm of vertical moves up and down, which is debilitating to an emerging market such as India with a huge development agenda and move more sedately and surely, reflecting the calibrated moves of the policy makers.

(The author is Managing Director & Region Head, South & South East Asia, Standard & Poor’s. The views are personal)