At 7.2%, the advanced estimate of real GDP growth in 2009-10 looks respectable. The last quarterly estimates are still for Q2. With 6.1% in Q1 and an unexpected 7.9% in Q2, 7.5% for the full year was plausible, especially because revision in the base from 1999-2000 to 2004-05 has been good for growth numbers. For instance, using 1999-2000 as base, GDP (market prices) in 2008-09 would have been Rs 53,21,753 crore and not the 2004-05 base figure of Rs 55,74,449 crore. This is not to suggest a diabolical motive in changing base.

The base change was warranted and a common base for GDP, WPI and IIP (all will switch to 2004-05) helps. If figures for both 2008-09 and 2009-10 are with the new base, that doesn?t distort growth numbers and 2004-05 was a reasonably normal year to use as base. 2008-09 showed growth of 6.7% and 2009-10 might have been higher than 7.2% had it not been for the impact of drought on agriculture. Agriculture is expected to decline by 0.2% though it is necessary to mention that at the advance estimate stage, agricultural estimates are only those of crop output.

Though firm numbers are only available till December, projections for all non-agricultural sectors are respectable?mining & quarrying (8.7%), manufacturing (8.9%), electricity, gas & water supply (8.2%), construction (6.5%), trade, hotels, transport & communication (8.3%), financing, insurance, real estate & business services (9.9%) and community, social & personal services (8.2%).

The context is several questions pertaining to 2010-11. First, what will growth be in 2010-11 and beyond? Second, is recovery broad-based enough to warrant withdrawal of stimulus? After all, gross fixed capital formation (constant prices) is down to 32.5% in 2009-10, though a dip also occurred in 2008-09. Third, what is the budget for 2009-10 likely to do and what does increased government borrowing in 2010-11 imply for interest rates? It is worth remembering community, social & personal services grew by 13.9% in 2008-09 (Sixth Pay Commission effect) and CSO expects a decline of this from 13.9% to 8.2% though some pay commission effects will filter through to states, local bodies and quasi-government. Before reacting positively to growth numbers in 2009-10, one should remember 2008-09 (especially the second half) was a distorted year and this affects the base. Comparisons with 2007-08 are better. Having said this, there is no denying green shoots and even export numbers are beginning to turn positive. That does not warrant 8.5%-plus growth rates in 2010-11. But there is no reason why growth should not approach 8%. This brings one to the withdrawal of stimulus.

Unfortunately, people mean different things when they talk about stimulus and there are three different elements?monetary policy easing, public expenditure before September 2008 and fiscal concessions between December 2008 and February 2009. The last of the three should be withdrawn in the 2010-11 budget and not later, especially if one has goals of direct and indirect (GST) tax reform in mind. Indeed, those goals can be used as triggers in 2010-11 budget to neutralise inevitable lobbying from industry bodies on retention of fiscal concessions. (Saying this now is of course pointless, since the budget has been finalised, barring the speech.) With inflation unlikely to disappear as an issue, and food-price inflation extending to inflation of manufactured goods, monetary policy tightening is certain and will extend to hikes in policy rates fairly soon. That leaves public expenditure through assorted flagship schemes. These pre-dated the global crisis and are part of the UPA?s so-called inclusive agenda. Right to education and right to food will have to be budgeted for, even if not immediately. And it is unlikely subsidies will ever be targeted or prices of petroleum products completely freed. Arguments about improving the efficiency of public expenditure are fine. However, there is no reason to presume public expenditure will decline.

The fiscal deficit-GDP ratio promised for 2009-10 was 6.8%. Government will certainly do better. GDP base revision itself leads to 6.4% and higher-than-expected disinvestment receipts will contribute to a deficit of around 6.2%. The FM is more or less committed to a ratio of 5.5% in 2010-11 and 4% in 2011-12. While 4% in 2011-12 will be tough, 5.5% in 2010-11 is eminently doable, even if numbers on disinvestment and 3G auctions are not explicitly included in the budget numbers. There is slack because of Planning Commission arrears and debt relief to states being unnecessary in 2010-11, though one doesn?t yet know the implications of 13th Finance Commission recommendations. Since the fiscal deficit is expressed as ratio of GDP, there is also scope for boosting the denominator by plugging in a nominal GDP growth rate for 2010-11 that is close to 15%. The government conundrum is the classic trade-off between inflation and growth, though this isn?t an issue that will be addressed through budget. RBI has said government borrowings (gross) in 2010-11 will be higher than in 2009-10.

The author is a noted economist