RUN-UP TO BUDGET 2009-10

Low deficit, 11 priorities put Pranab on tight rope

fe Bureau
Posted: Monday, Jul 06, 2009 at 0938 hrs IST
Updated: Monday, Jul 06, 2009 at 0938 hrs IST

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New Delhi: Finance minister Pranab Mukherjee has set himself a basket of 11 priorities to address in the first Budget of the new government. This includes an at least 4% growth rate for agriculture, increasing investment in infrastructure to more than 9% within the next five years, and an integrated energy policy, besides a direct assistance to the poor to create a social safety net.

Latest estimates of government revenue and expenditure show all this will have to be done within the constraint of keeping the Centre’s fiscal deficit at less than 6.5% of the GDP as anything higher could impact sovereign ratings.

The best piece of news that Mukherjee will receive on Monday, as he drives for a quick Cabinet meeting to ratify the Budget before he addresses the Lok Sabha, is the fresh slide in global crude prices. It has slumped to $65.63 a barrel in New York, almost 10% lower than the year’s peak after US unemployment rose to highest in 26 years, signalling that the world’s largest energy user remains mired in recession.

Agency reports say prices may drop even more this week as US fuel inventories will climb as its weak economy curbs demand. Last week India raised petrol prices by Rs 4 a litre and diesel by Rs 2 to help public sector oil marketing companies recover some of their losses for selling kerosene and LPG at less than market prices. This means Mukherjee will not have to impose any extra cess on diesel and petrol for building roads and highways from the present Rs 2 a litre.

The optimism is also shared by the movement in the rupee, which has risen for a full week for the first time since May. The rupee has moved on speculation that government spending will reinforce growth in the economy that logged a 6.7% rise in 2008-09 and is expected to move up by over 7% this fiscal.

An analysis done by Axis Bank for 11 industrial sector shows the Budget is expected to be positive for nine and neutral for oil & gas and consumer durables. The former suffers from the overhang of the subsidy regime whereas the sharp cutback in consumer income has impacted the latter. This has been reflected in the buying patterns of the foreign funds too, which bought more Indian shares than they sold for a fifth straight day, last week.

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