A Budget for Growth? - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 2 March 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani

Earlier during the week, the Finance minister Chidambaram released the proposed Budget for the 2013-14 fiscal year. Many analysts expected a budget focused on austerity measures to reduce the budget deficit. Instead, the budget announced significant increases in government spending along with tax rises in various categories.

Some of the new spending is certainly important, especially in areas of infrastructure, education, and items that are important for long term prosperity. Tax revenue is also needed to the plug the deficit, though some of the taxes imposed may have the unintended consequence of reducing both domestic and foreign investment.

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One of the most important points mentioned in the budget that is easily overlooked is the estimate for third quarter GDP growth. Third quarter growth is estimated to have fallen to 4.5%, and this is extremely worrying. Ultimately, the ability of the government to close their budget deficit depends a lot on what GDP growth is, as this determines how much tax revenue the government receives.

The stock markets fell significantly after the budget was released, largely because the majority view was that this budget would do little to spur the growth rate. In particular, some of the tax measures curt hurt foreign investment, which is needed to push the growth rate higher.

The main issue that the government needs to address with their budget is how is it going to maximize GDP growth. The recently released budget is mixed when it comes to growth. There are some positive measures and some negative ones, and overall is likely to have little impact on GDP growth in the near term. Growth is highly dependent on investment, and there is not much in the budget that really provides incentives to invest more into the economy.

Of course, we must also keep in mind the limitations of fiscal policy in achieving higher growth rates. High growth can still occur despite government policies that are not helpful, and sometimes even the best policies fail to achieve higher growth. Growth depends on many factor, of which fiscal policy is just one of them.

is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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2 Responses to "A Budget for Growth?"

bp

Mar 3, 2013

Budget needed for fiercely implementing what we already have..no need for this exercise again & again.It is more like a two hour thriller...nothing else.

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kimsuk sinha

Mar 3, 2013

A terrible budget.There will be an extra burden on every individual by 25 % YOY.He has castrated ,indian industry like Marble ,which will lead to builders/consumers buying cheaper spanish tiles.Real Estate market isanyway down , so trade should have been encouraged .Power willl rise making indian products ,even more expensive.The bringing down ,to 4.8 % is a pipe dream.Agriculture and agri business should have been encouraged.An opportunity gone missing.

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