Budget 2012 Expectations – Source:TOI
This year and the previous one - it's been different: The Union budget will be presented on 16th March, 2012. Historically, with the economy running almost on auto pilot, the budget has always taken a back seat when it comes to impact on markets. However, the macro backdrop is certainly different this year and the previous one. This year's budget assumes particular importance due to the ongoing macroeconomic problems within the domestic economy.
Frugal, reformist and pro-growth budget?: Given the investment-led slowdown in the economy, with a need for fiscal pump-priming on one hand, and steadily deteriorating public finances on the other, the budget needs to be frugal, reformist and pro-growth at the same time. Not an easy task, given the (populist) demands of the realpolitik. Moreover, the recent assembly election results in UP, Punjab, Uttarakhand, Goa and Manipur have left the current UPA-2 government at the centre on a back foot. The budget would thus reveal Congress' response and the way forward for the next 18 months - whether it turns more 'populist' or muddles along.
Two most important aspects that are key to the FY13 budget are:
- Roadmap on fiscal consolidation
- Policy measures/proposals aimed at improving overall sentiment and infrastructure investment
Balancing growth with deteriorating finances: The government is walking the tightrope with growth concerns on one hand, and its deteriorating finances on the other. What makes it trickier is the lack of headroom this government has, to provide a fiscal boost to support growth, like the way it did back in 2008-09. On the other hand, it needs to announce enough policy measures to address the visible slowdown in economic activity. Though the Union Budget is not a platform to announce 'non-budgetary' reforms, the government can use the opportunity to do so, as it has in the past, in order to mitigate the prevailing negative sentiment. However, the key need of the hour is for provisions enabling a revival in investment activity in the economy.