The Hindu Business Line : Budget guess swings between aam aadmi and growth

Kolkata, July 3 Key market players have been speculating about the Budget’s possible policy thrusts, but are unable to fathom how the Finance Minister would balance reforms measures with the element of inclusiveness.

Investment advisors of overseas and local outfits said the 2009-10 Budget would be expansionary and the Finance Minister would take a calculated risk in the backdrop of economic slowdown, burgeoning fiscal deficit and increasing public borrowings.

“The President’s speech had laid emphasis on inclusive growth, while the Economic Survey has put reforms at the forefront. The goal of a fiscal correction may be deferred for later years of this Government’s tenure,” said Mr Dipankar Mitra, an economist with Noble.

He expected some measures that have higher announcement value but unexpected by the market.

Noting that the RBI’s borrowing target has been overshot by over Rs 20,000 crore in the first quarter, he said this might be for market condition marked by lower private demand, which helped it to mop up money cheaper.

Additional borrowing

Market players also do not want the Government to increase revenue flow by raising taxes. Thus the market’s focus is on disinvestments agenda.

According to BoA-Merrill Lynch, the Centre’s fiscal deficit, a necessary evil to stimulate growth, might enlarge to 7.2 per cent of GDP. To support higher deficit, the Government might resort to additional borrowing of Rs 6,000 crore, it said.

BoA-Merrill Lynch expects the Government to collect $5 billion from 3G auction and $4 billion from PSU disinvestments. It also expects a cut in income-tax in the Budget.

BoA-Merrill Lynch said higher borrowing, supported by lower private credit growth as also lower oil and fertiliser bonds coupled with higher small savings and bank surplus, would not impact lending rates.

Morgan Stanley expects a roadmap for divestments as a part of the reforms agenda and estimated that this fiscal $4-5 billion could be mopped to gain flexibility on the fiscal deficit front. It said $163 billion (at current values) could be raised via disinvestments; if the Government pegs State’s holdings at 51 per cent.

A note from Dawnay Day AV India Advisors said: “Announcements are expected to be more socially oriented, aiming at growth rather than fiscal management.”

The advisory expects increased allocation social schemes, special package for agriculture, farm credit, including interest subvention or loan waivers. “With an expectation of below average monsoon, some special package may be announced.”

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