Through this budget, the government has continued to support the twin engines of growth namely CONSUMPTION & INVESTMENT. On the consumption front, by increasing exemption limits and keeping the central excise rates broadly unchanged the Gov... has sought to create a conducive environment. On the investment side the government has decided to increase the infra spend by 23%. The government commitment to fiscal prudence is still doubtful. Being a coalition government populist measures will not be curtailed, though the finance minister has as usual given a broad indication that the government will try to reduce fiscal deficit by year 2012 which is highly unlikely with the burgeoning subsidies.
Revenue receipts are expected to increase by 3.6% and tax receipts by 18% but no clear indication has been given regarding how to control expenses. The point is controlling deficit will help in reining in interest rates, lower borrowing cost and hence give the country a further fillip to control inflation. The private sector is allowed greater freedom to access debt markets which is good sign for market participants as it will give depth and liquidity to the much needed debt markets. This could also enable Infra funding at much lower rates and give more transparency to the entire scheme of things.
While the overall direction is encouraging as usual, one must realistically assess the underlying assumptions. The 'funda' is simple growth should be kept intact by allowing smooth flow of credit to the Infra sector. Consumption (at the Public level) should be kept healthy by controlling inflation (food inflation due to bad policies and vested interest).
Overall I feel the finance minister is tried to strike a balance between populist measures and fiscal prudence but the real difference will only be visible with effective and disciplined execution of plans.
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