Investors are waiting with bated breath for Finance Minister Pranab Mukherjee to announce a positive budget later today. This is at least what the results of a poll on our website suggest. As per it, a majority 58% of those who have voted are waiting for the Union Budget 2011 before making their next investment move.
So there are high hopes from the investor community that the FM pulls off an investor-friendly budget this time. But will he be able to do this is a tough question to answer. It must be even tougher for the FM to make everyone happy, given the way his government's hands are tied.
Last year, the FM was distinctly lucky as the markets gave a thumbs-up to his budget announcements. The biggest announcement last year was of the roadmap for reduced fiscal deficit in the future. As against an estimated figure of 6.9% and 5.5% of GDP in FY10 and FY11 respectively, the rolling targets for fiscal deficit were pegged at 4.8% and 4.1% for FY12 and FY13 respectively.
The best part is that the government is looking set to meet its FY11 deficit target. It is another fact is that this is more a result of higher government revenue than prudent spending.
Anyways, if the Economic Survey for 2010-11 was any indication, there are dangers arising on the horizon. The biggest of them of course is inflation, which is showing no real signs of cooling down. The Survey has blamed the rise in food and global commodity prices as the key reasons for the surge in inflation since the end of 2009. The blame has also been put on the easy money policy of the western nations that are trying to jump-start their economies.
It has also suggested that the government and the RBI are aware of the fact that there is a need to provide ample liquidity to the system so that economic growth is not hampered. However, it has also pointed to the potential negative consequences of the same in the form of an even higher inflationary threat in the future.
Coming back to the markets' expectations from the budget, these are big (the expectations) as always. But the fact remains that the government is very constrained this time around. Taking the two (markets' high expectations versus government's tight hands), any small disappointment from the FM can have negative implications in the short term.