With industrial growth showing no signs of moving up, increased reliance for GDP growth will be placed on the agriculture and services sector. A close reading of the Economic Survey will show that a 4.8 per cent growth rate in GDP is the only realistic one to assume for the coming fiscal. The fear is that Sinha will opt to forecast a 5.8 per cent growth rate. That would help to make this government acceptable, if not good! The government frames its fiscal deficit and expenditure proposals based on the expected growth in GDP, tax and the inflation rate. While the past one year gives enough confidence to peg inflation at 6 per cent, we need to closely examine the assumptions on tax growth. While short-term forecasting of the economy is admittedly difficult, yet these assumptions are crucial. Because, the greater the disparity between the receipts and expenditure estimates, and likely actuals, the risks for the investor increases in terms of volatility in interest rates, trade flows, exchangerate and stock prices. Actually, coupling a higher expectaion in GDP growth with a higher tax-GDP ratio will increase synergic risks for all types of investors. While it is better for the Government to tone down tax growth expectation in tune with the slowdown in growth of private consumption, it might still chose to project a higher growth rate. That is the only way it can appear to be controlling the rising primary deficit. Such an approach will also give room to propose expenditures which would make the government make look good to the galleries. But for analysts, this will only accentuate the lack of credibility in Government's budget forecasts year after year. The reason to peg down revenue expectations are amply clear from the following figures. The revenue deficit during April-December, 1998 amounted to Rs 36,408 crore as against Rs 13,384 crore in the corresponding period of 1997. The budgeted revenue deficit for the current fiscal is Rs 48,068crore. The government might argue that the shortfall in revenue is due the failure of private consumption demand growth. And the later in turn is due to the lag effect between growth in agriculture and private consumption. While such analytics are considered legitimate, high risk market players should rather wait to see for the demand pick up to really show up during the fiscal.

There are reasons for being apprehensive about GDP forecast as well. The higher GDP is being forecast based on agriculture. Let us not forget that there is much volatility in agriculture and admittedly the data base for projection itself has serious shortcomings. Let us hope Sinha chooses to stay closer to reality than what his Prime Minister would like to forecast. The farther the budget goes from reality, the greater will be the worries for the investor. itself much with means of raising tax revenues. A higher GDP growth and tax forecast will lead to higher levels of taxation, normally, and withdrawal of concessions. Marketmen will keenly watch how these higher expectations cascade down to the excise and customs duties. The new excise duty levels and categorisation of products into three groups would decide the fate of the various industry groups. Import duty cuts oo will be eagerly looked and reacted to on the trading screens. In trying to raise his revenues higher,the finance minister is likely to lean more towards tapping higher import duties. For that would achieve several things. Hopefully it will increase customs revenue, afford protection to the domestic industry (the financial institutions have a valid case here), and further progressing on the modvat scheme. The additional duty on imports to make a level playing ground for domestic players will probably stay on. Can excise duties come down? This is a difficult terrain to decide. With demand showing no signs of picking up, lowering excise duties would be tempting. The industry would be happy, demand will move up and government can garner more revenue. Sinha could well be exploiting the scene, lowering excise duties on poor and middle class goods and jacking up on luxury goods. The government will win public applause. And if there are more cuts and less raises, the stock markets too would look up. The question is will Sinha make the gamble on lowering exciseduties. That is because there is no knowing if demand will indeed go up. Right now, the consumer is unwilling to spend and that seems to be deriving from his growing sense of insecurity arising from the political climate in the country. Will an excise duty reduction tempt the consumer to spend more? But, even if does not tempt him to consumer goods, the common man might yet spend on housing construction, if imaginative incentives are given. That in turn can stimulate demand for steel and cement. But can the budget go beyond raising revenues? The needs to kick off the second phase of the reform process has been well delineated. But the question is who will bell the cat? Probably no one. At least, the budget is unlikely to tackle this issue seriously. I am sure even the FIIs will understand if the government has limitations on what it can do with this budget to tackle the pending reform issues. That is because they have seen such limiations in other countries aswell. But beyond the budget, the global fund managers will be definitely continue to watch if their investments are safe. And such an assurance can come only if the Government proceeds with the second phase of reform, even if it be after the budget. This is crucial for a pull out by FIIs will put corporate growth in reverse gear. And in my view it is not difficult for the Government to pursue reforms, especially now that we have a committed man heading the Finance Commission. The commision can indeed form an able instrument to bring even states into the reform ambit. So, approach this budget with a two step strategy. Keep yourself open to the idea that the market could react negatively to the macroeconomic weakness and the way the budget handles it. Should the market go down, it is time to pick up selectively with an investment view of eighteen months. and consumer spending will be restored by calendar year 2000. As to political uncertainity you willrealise that AN alternate Government is not a greater evil. In fact it could be better. So that should crystallise your action plan. Buy on disappointment with the budget. And hold on on expectations that things can only get better. And be sure to stick to software, pharma, infrastructure and FMCG stocks to reduce your risks and improve your returns. Good luck!