The Budget does make the govt’s balance sheet look stronger, but there’s a long way to go

The finance minister had multiple trade-offs when formulating the Union Budget. He could have rolled back on the fiscal stimulus. This would have meant raising tax rates and cutting expenditure. At the same time, there was the objective of growth, which was hinted at by the Economic Survey. Then there was inflation that had to be tackled through the fiscal route. Amidst all this, was the fiscal deficit number which could have been the target.

The FM has quite rightly chosen the fiscal deficit as his starting point and worked the Budget around this number. The fiscal deficit came out to be lower than what was expected in FY11 due to fortuitous circumstances as well as a buoyant economy. Growth was good, which increased tax collections. But, the 3G auctions brought in the money for the government while the revision in the GDP (gross domestic product) numbers made the ratio more acceptable at 5.1%. The direction for the journey this year has clearly been to lower this ratio further. The rest of the numbers have been centred on this ratio of 4.6%. Does the balance sheet look stronger?

Lets us look on the positive side. Total expenditure has sort of been frozen at last year’s level. Within this number he has tried to make the funds work better through focus on core infrastructure and agriculture. Last year we had the food inflation problem mainly due to the failure of physical infrastructure in

... contd.