A practical approach to policy making and execution

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: The finance minister (FM) has adopted a practical approach, one that is consistent with the social orientation of the past three years. There is a continuation of the social agenda of inclusive growth, economic stability and social balance – which again is a commendable and a noble intent.

So clearly the direction points toward a strong message of noble purpose, to broaden social prosperity and at the same time focus on providing an impetus to sectors that could enhance this long-term prosperity such as infrastructure, rural productivity, etc. This again has been a continuing theme for the past several years and rightly so.

The Budget 2009, presented against the backdrop of a strong political mandate, had generated expectations of radical reform for long-term growth and prosperity. Given the fiscal constraints, there was a clear opportunity to make big bang reforms and bring about substantial changes in policy.

However, this Budget was not about big ideas, which left the markets disappointed, but more about anchoring policies towards achieving growth over the medium term.

In the finance minister’s own words, it is a “journey,” which is not easy, in the context of global recessionary conditions and limited fiscal flexibility available. Rather than attempt bold and structural reforms, the FM has chosen to focus on building the consumption momentum on the back of increased spending and resource allocation on social development programmes, rural productivity, infrastructure, etc. However, this will lead to a further ballooning of the fiscal deficit to 6.8% of the GDP (against 5.5% in the interim budget), which does cause great concern and could trigger negative reactions from rating agencies and global investors, who may choose to react more to the higher fiscal numbers and downplay improving growth prospects and much lower political uncertainty.