1) A lowering of the fiscal deficit in 2010-11 to around 5.5% of the gross domestic product (GDP). Many brokerages have the 5.5% target, possibly because the government took this as the level of deficit in its medium-term fiscal policy statement last year. But some put the deficit much lower. As the Prime Minister’s economic advisory council, or EAC, has said, the absence of the one-off expenditure on the loan waiver and government pay arrears will save spending equivalent to around 0.5% of GDP and the expenditure/GDP ratio could be reduced by 1% of GDP “without too much difficulty". But much will depend on the credibility of the plan to reduce the deficit.

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2) Despite the lower deficit, a modest increase in expenditure on infrastructure and social programmes. EAC too has said the government shouldn’t reduce capital expenditure.

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3) Lower net borrowing in 2010-11 (estimates of Rs3.5-3.8 trillion), although gross borrowing (estimates of Rs4.4-4.6 trillion) will be higher because redemptions are higher—Reserve Bank of India (RBI) governor D. Subbarao has already said this. Additionally, net supply of paper will be higher because of limited scope of unwinding securities under the market stabilization scheme (MSS) and the conversion of MSS bonds into government debt. Strong fund mobilization through small savings schemes may help reduce market borrowing.

4) Rollback of service tax to 12%, though there’s a difference of opinion on this with some economists believing that the tax may instead be extended to more services. EAC has said, “If service tax is expanded to cover previously exempted items like railway fares and freights, this could add to the revenue by about 0.5% of GDP".

5) Rollback of excise duty, but expectations about the quantum of increase vary, with some saying that the rollback would be limited to sectors that are doing well, such as autos. What may happen is that excise duties are brought in alignment with service tax in the run-up to the goods and services tax.

6) Inflows from disinvestment of around Rs25,000 crore.

7) The Budget will include proceeds from 3G telecom auctions, postponed from the current fiscal.

8) Assumption of a nominal GDP growth rate of 13-14% for 2010-11. EAC has forecast that GDP at market and current prices to rise from Rs61.6 trillion in 2009-10 to Rs70.1 trillion in 2010-11, an increase of 13.8%.

How will the Budget affect the markets? The key thing to remember is that the expectations given above are already discounted. What will move the market is any deviation from these average expectations.

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