‘A practical and realistic budget’
The steps announced by the government are expected to increase the spending ability of consumers in both urban and rural areas, writes Roopa Kudva.india Updated: Jul 07, 2009 01:42 IST
The fiscal arithmetic of this budget is realistic and well-thought-out. However, since this was the first budget of the new government, there were hopes of a clearer articulation of a long term economic and fiscal vision.
While the projected fiscal deficit of 6.8 per cent is high, it is still within the broad range of expectations. Since the oil and fertiliser subsidy burden is expected to be lower than the previous year’s, government resources can be directed towards infrastructure creation and providing continued stimulus in a far-from-over economic downturn.
The steps announced by the government are expected to increase the spending ability of consumers in both urban and rural areas. The reduction in personal income tax should leave more disposable income with consumers, and should lead to higher spending in urban areas.
Similarly, the significantly increased allocation for NREGA coupled with an increased target for agricultural credit should improve rural investment and income levels, and sustain rural demand. As a result, companies focused on consumer spending, especially in the rural markets, should do well.
Investment demand should increase because of the visible focus on infrastructure and housing sectors.
While directionally the budget has stated the intent to reform the subsidy regime, we will have to await detailed and specific measures.
The increase in the prices of petroleum products was implemented last week, but the modalities of how the move towards nutrient-based pricing for fertilisers will exactly work are unclear.
An overarching vision of a longer term fiscal and economic agenda would have considerably augmented the shine of what is a practical and realistic budget.
(The writer is Managing Director and CEO of CRISIL Limited).