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Khatta-meetha Budget
As somebody said, I would call it a khatta-meetha (sour-sweet) Budget. Sour, because infrastructure, a key thrust area, is a mixed story this year. I would have liked to see greater deepening of the debt market for this sector. The Budget has only addressed one part of this by opening only special purpose vehicles (SPVs) for foreign investors. But who will invest only in SPVs? I would have liked to see regulatory change to allow new investors, such as foreign pension funds. On the sweet side, the Goods and Services Tax (GST) is a big game changer and a lot has been done in this regard.
This is one of the most important reforms. But this could have been done in such a way so as to align it a bit better with service tax. I think the Finance Minster has been a bit gingerly in widening the net of service tax. After all, the logic of GST is to widen the tax net.
The other positives are steps for improving governance, easier housing loans, providing direct transfer of cash subsidy for fertiliser and kerosene for those living below the poverty line and making the tax system transparent and near automatic.
Nitin Desai
Former Under-Secretary General, UN
Fiscally neutral
It's a fiscally neutral Budget as the Finance Minister clearly was not under any kind of pressure this time, apart from inflation. There are three kinds of pressure – from politics, economic and business.
This time there was no political pressure on him to buy votes with schemes such as MNREGA as no major elections are due soon, apart from in five states. There was no economic pressure, too, save inflation. But the Congress party never worries about inflation. It has addressed this problem by extending subsidies to food storages and warehouses. As far as pressure from business is concerned, the Finance Minister met a lot of them and seems to have satisfied them. On infrastructure financing, I think the logic behind opening it up to FIIs is to get more money from abroad as Indian companies feel that the returns for them are uncertain.
Ashok Desai
Former Chief Economic Consultant, Govt of India
Populist
Fiscal deficit has been pegged at 4.6 per cent by March 2012-end, down from 5.1 per cent last year. But given the fact that the GDP growth rate is projected at 9 per cent, I expect some pressure on the market.
The disinvestment target of Rs 40,000 crore can relieve this pressure to some extent, but the only if it is achieved.
As of now, the Finance Minister has not spelt out any time-frame for disinvestment. More importantly, if 9 per cent growth rate is not achieved for some reason, say, poor monsoons, there will be greater pressure on government resources.
We cannot wish away these pressures just because the fiscal deficit has come down. I earlier suggested that one way out could be for the Reserve Bank to auction the huge government deposits lying with it so that some pressure on the system can be eased.
Overall, I think it is a populist budget, probably because of elections that are due in three major states, Tamil Nadu, Kerala and West Bengal, as these will be key constituencies for the Congress in the Presidential elections due next year.
A. Seshan
Mumbai-based Economic Consultant
Average, below expectation
The Finance Minister is basically betting on the estimated 9 per cent GDP growth rate with 5 per cent inflation, but I feel that growth has been slightly over-estimated and inflation under-estimated.
Put together, this means a 14 per cent growth in nominal GDP. There may be some fiscal stability because of growth and inflation but agriculture has not been contributing to this growth. However, steps like indexing wages under MNREGA with the consumer price index, may mean a 10 per cent hike in income, and will add to the purchasing power in rural areas.
A positive step is the push given to infrastructure by allowing FIIs to invest in the sector.
Also, raising the allocation for improving farm productivity across the board and incentives to beef up storage and warehousing are positive steps.
Another significant aspect is that the Minister has not taken recourse to issuing oil or food bonds.
This indicates that some action is likely on the oil price front in 2011-12. Overall, the Budget was average and slightly below expectations, may be because of the ensuing elections in five states.
Devendra Kumar Pant
Associate Director, Fitch Ratings
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