Wednesday, February 27, 2013

Budget 2013: A tight walk for the FM


What has been the influence of the upcoming general elections 2014 on the budget will unfold in a few hours? On one end of the spectrum is a populist budget targeted at appeasement of specific groups for electoral gains and at the other end is a rational budget targeted at striking the ills that hamper growth. We have come down to a GDP growth of 5-6 % from the highs of close to double digits, although an optimist will take pride when comparing our growth with 2-3 % for the USA and Europe. In the mid of the spectrum is what the FM would call a Pragmatic budget and that is the budget most likely to be presented by the FM who takes on the stage for the eighth time. 

The populist budget drains the revenues into unproductive sectors which the FM can ill afford at a time when we are faced with a multitude of economic problems- stagnating growth, high inflation, continued high fiscal deficit and eroding trust of foreign investors. These need to be addressed and the FM realizes this. All elections in the future whether they are state or centre elections will be fought on the singular agenda of growth. The successes of Mrs Sheila Dixit in Delhi, Mr Nitish in Bihar and the recent success of Mr Modi in Gujrat is a pointer to a strong positive correlation between growth and electoral victory. 

I forsee the budget to have two main agendas - the economic agenda and the social agenda. Given his wide experience, the FM is likely to come out with a budget which is a judicious mix of the two agendas. 

The economic agenda will focus on putting the economy back on the growth path, targeting a growth of 7-8%, controlling inflation and aiming for fiscal consolidation with targeted fiscal deficit under 5% of GDP. This can only happen through investment led growth and the focus of the Government will be on increasing savings which is currently at 31% and has seen a declining trend in the past few years. Government is likely to look for ways of incentivizing savings and will look at confidence building measures. The other is to have a clearly well defined road map for economic reforms. Speed up the development of the infrastructure sector, look for ways in which the Indian manufacturing can be made globally competitive, and introduce GST. 

The social agenda along with the usual focus on subsidies and waivers will address the issues of greater financial inclusion, rural infrastructure development, timelines for issuance of Aadhar cards and coverage through direct benefits transfer. 

It's a tight walk for the FM and if he can convince the analysts with his economic agenda, the stock markets are in for a bull run. 

(The writer is Assistant Professor, Finance and Decision Sciences at Faculty of Management Studies, Manav Rachna International University.)



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