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Growth at crossroads: will budget bring a turnaround?

business Updated: Mar 01, 2012 02:16 IST
HT Correspondent
HT Correspondent
Hindustan Times
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Barely a fortnight ahead of the Union Budget, national income data released by the government on Wednesday confirmed signs that a widespread slowdown has hit most sectors of the economy.


Growth of India's gross domestic product (GDP) - the sum of the income of all entities - slumped to 6.1% during October to December, the lowest in 33 months, at a time when finance minister Pranab Mukherjee and his team of officials are giving final touches to the govenrment's budget.

Experts said policy uncertainty is one of the major factors that have hit growth.http://www.hindustantimes.com/Images/Popup/2012/3/01_mar_biz1.jpg

"It is difficult to firmly to establish when the government's policy inaction will reverse, but concrete action for investment upturn is still missing, though the noise level and concerns have risen," said Rajeev Malik, senior economist at Singapore-based CLSA

All eyes will be on what action Mukherjee announces in the budget to shrug off perceptions of a policy paralysis, as investors appear increasingly worried that the Manmohan Singh-led United Progressive Alliance (UPA) government, stung by a series of corruption scandals, low business sentiment, poor investment uptick and the need for populism, will fail to push through policy reforms in critical areas to boost long-term growth.

"I think the market will be looking for action rather than comments," said a top executive of a foreign bank. "Confidence can come back only when there is perceptible movement in the policy stance."

The government staring at a R40,000-crore shortfall in tax revenues compared to budget projections, and a mounting food subsidy bill arising from the proposed food security bill. Finding resources - apart from imposing a specific cess - will not be easy.

A swelling deficit (government borrowing this year is set to touch a record R5,12,000 crore - 25% higher than budget estimates) and a fiscal deficit target of between 5 and 6% will severely constrain the government's ability to borrow and fund a stimulus package

"Unless strong measures are taken to have an implementable plan for revival of the manufacturing sector, it is unlikely that GDP numbers in the coming quarters will improve noticeably," Anis Chakravarty, director and senior economist, Deloitte, Haskins & Sells.