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Business News/ Politics / Budget hopes may be too high to fulfil
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Budget hopes may be too high to fulfil

Budget hopes may be too high to fulfil

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New Delhi: Senior executives, equity analysts and brokers expect the budget for 2009-10 to serve up a fresh fiscal stimulus, composed of a new round of tax giveaways, and at the same time signal the government’s intention to pursue reforms with renewed vigour, according to the Mint-CNBC-TV18 Budget Barometer, a survey conducted by market research firm Synovate.

However, given the macroeconomic constraints on the economy, especially growing inflationary pressures and the dramatic rise in the government’s gross borrowings, or fiscal deficit, the expectations of the 505 chief financial officers (CFOs), stock market brokers and analysts, who participated in the pre-budget survey, with respect to a stimulus package may be belied, triggering a potential backlash.

The Union government’s fiscal deficit for 2008-09 is around 6.12% of the country’s gross domestic product. The aggregate deficit of the Centre and states together is close to 12% of GDP, among the highest recorded in recent times. The macroeconomic backdrop to the budget makes another round of significant tax cuts unlikely, economists said.

Also Read More on Budget 2009

What CXOs, brokers want from the Union Budget

“In my personal judgement, they cannot allow the fiscal deficit to go up significantly as they can’t risk a downgrade by international credit rating agencies when foreign institutional investment has started coming in," Suresh Tendulkar, chairman of the Prime Minister’s economic advisory council, said.

Demanding times: Finance minister Pranab Mukherjee. Ramesh Pathania / Mint

According to N.R. Bhanumurthy, professor at the Institute of Economic Growth, the institute’s economic model puts the optimal level of fiscal deficit for the government at 5% of GDP. If the deficit exceeds 5% of GDP for a while, it would nudge up interest rates in the medium term, adversely affecting economic growth, he added.

“As a macroeconomist, I feel there should not be a further fiscal stimulus."

Policymakers have to deal with another challenge. While headline inflation measured by wholesale prices declined 1.14% for the week ended 13 June, this trend is at odds with consumer price indices which have remained firm on account of the rising prices of foodstuff.

The monthly consumer price index for urban non-manual employees in April 2009 was 8.8%.

Deficit risk: Suresh Tendulkar says India can’t risk a credit downgrade. Ramesh Pathania/Mint

The survey was conducted for Mint-CNBC TV-18 by Synovate India and covered respondents across Mumbai, Delhi, Chennai and Bangalore between 8 June and 23 June.

On the reforms front, respondents expect the government to focus on disinvestment of its stake in state-owned firms, effect significant changes in rules regulating foreign direct investment, and announce a road map for implementation of a single goods and services tax (GST), which, as Mint has reported on 11 June, has run into some fresh roadblocks that could well delay its roll-out, scheduled for 1 April.

The executives surveyed also believe the budget will include significant changes in excise duties, direct taxes and sector-specific incentives.

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Published: 01 Jul 2009, 01:15 AM IST
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