FE Editorial : The post-Budget Budget

Posted: Tuesday, Jul 07, 2009 at 0018 hrs IST
Updated: Tuesday, Jul 07, 2009 at 0018 hrs IST

Font Size

Print

Feedback

Email

Discuss

: Markets, chambers, the corporate sector and more than a few experts haven’t taken kindly to Pranab Mukherjee’s Budget. An opportunity wasted, given the political economic context, is the basic verdict of the critics. But there may be another way of reading the Budget—that Pranab Mukherjee is communicating that this need not be the only occasion for big reforms, that declaration of intent on some key areas should be seen as important, that policy-making is a continuous process and that UPA II is not giving up on making reformist policy between this Budget and the next one. That interpretation gives a better feel to the Budget. Two big caveats, however, even given this kinder interpretation. First, will UPA II actually take on some of the reforms? Granted that the Budget need not be the only modality, but will the seven months remaining in this fiscal year see serious policy change? To take one basic example, will details of a disinvestment programme be announced? And if so, how quickly? Or is the Budget’s proposal on increasing the public holding threshold of listed companies the way to bring PSU paper in to the market? If that’s the case, the criticism is why be so awfully coy when disinvestment was announced in the Congress manifesto? The second caveat is the fiscal situation. At 6.8% of the GDP, the highest in 16 years and taking the combined Centre plus state deficit/GDP figure to double digits again, red lights are flashing. One criticism, highlighted by one of our columnists today, is that the Budget makes deficit and borrowing numbers look worse than they may end up as. But beyond poor communication, there are other concerns. The FM said FRBM II will be in place once the Finance Commission gives its report. That should happen in three-four months. But even if FRBM II takes the cyclical deficit targeting approach—higher deficit allowed in slow growth years and deficit tightening in high growth years—the big question is how will the government shave off 300 basis points plus from the deficit/GDP figure. Are we betting on very high growth from fiscal 2010-11 onwards? Certainly, the Budget growth expectations for 2009-10 are healthy and realistic but, therefore, not sizzling. If one does the math with Budget numbers, it is clear 10% nominal growth is being expected. One can reasonably break that up with 7% real growth and 3% inflation. Around 7%...

More from Edit & Column