The most awaited moment for the stockmarkets at the start of this year, is past. We are talking about the Union Budget 2010 that was tables in the Parliament last Friday. All in all, this year's budget seemed a balancing exercise – between growth and financial discipline. At least it seemed from the Finance Minister's (FM) speech that he tried to keep both the economists and the aam aadmi happy.
The key takeaway for the economists was the announcement of a roadmap for lowering the central government's fiscal deficit. The FM talked about a target of reducing the same to around 4.1% of GDP by FY13, from 6.9% of GDP estimated for the current fiscal FY10. At least the intention seemed there. Now it will be important for the government to act upon the same. But that will be a difficult task. Political compulsions of keeping all alliance partners happy will be on the top of the FM's mind before he announces any measures to cut short the deficit.
After all, the exercise will involve raising duties and taxes on products and services that the aam aadmi consumes. Petro-products are one such category. The walkout by some of the UPA government's alliance members as the FM talked about raising these prices during the budget announcement must have come as a warning sign for the government. Therefore, it will be difficult for the FM to raise prices further in the near future, even if the going on the fiscal deficit front gets tough. Also given that the FM has just announced a roadmap as of now, and is yet to talk about any concrete measures towards reducing the deficit, there's a lot of 'hope' built into his estimates. This also leaves a lot of room for doubt as to 'how' the government will actually cut on its spending and borrowings without compromising on growth.
Now coming to the aam aadmi, this budget can at best be termed a mixed bag. It was good that the FM somewhat lowered the tax burden for individuals (the post budget positive reaction from the market was seemingly largely on account of this 'feel good' factor). However, the budget also took away the low excise benefits on certain products and also raised prices for key items like petrol and diesel. Given that the country is already reeling under high food price inflation, the excise cuts and fuel price hikes announced in the budget seemed like taking away from one hand what was given to the common man from the other hand.
Overall, while the budget seemed to have some pragmatism and feel good factor attached to it, it seemed more of a balancing exercise than anything. There are several roadblocks ahead for the economy. The FM and his government has a real tough task on hand. Merely setting a roadmap towards fiscal discipline will only amount to a starting point. There is a lot of ground to cover to achieve whatever has been promised. Now what is required is 'real intention' from the government to act upon its promises. Nothing else will do!