This is a middle-of-road budget with a populist flavour, from a Government with an eye on 5 state elections this year. Heavy on spending, light on economic reforms

By Deepak N. Lalwani

Ahead of 5 state elections this year the F.M. has focused on the rural and infrastructure sectors. Farmers are short-term “swing” voters and, with stubbornly high inflation which hurts the poor most and recent scandals which have tarnished the Government's image, the F.M. has adopted a broadly populist approach. Some handouts to capital markets, but no bold reforms. 

Positives include: (a) Food inflation to be addressed by improving supply chain; (b) Reducing the fiscal deficit and keeping an eye on fiscal prudence; (c) Excise duty fiscal stimulus retained (10% rate) - helps consumption momentum; (d) Increasing personal allowances will leave people with more disposable income and boost consumer spending; (e) Infrastructure/ Rural sectors given continued focus; (f) FII investments liberalised to attract more foreign capital and aid infrastructure.

Negatives include: (a) No bold reforms on (rigid) labour laws, retail, insurance or pensions; (b) No definite news on developing the Corporate Debt market; (c) Rather rosy assumptions made of growth and expenditure - could upset calculations badly especially with oil price rising. 

Overall, an unexciting budget ahead of 5 state elections. There are no depressing negatives. On balance, positive signals have been given that India Inc. is still on a growth path with fiscal discipline and wishes to share gains with the less privileged sections of society. Infrastructure and rural sectors given continued focus.

March 2011

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