India Union Budget 2009-10

The much hyped event is finally over – India Union Budget 2009-10.

I am still trying to understand the maze of Indian public finances (btw, just like the budget,  this is an annual exercise as well without any success actually) .

A couple of quick points:

  • The equity markets have declined big time as the wishlists of corporate sector have not been met. I don’t know but we always expect just too much from govt. Just before the budget,  all forms of business media (print, tv etc) asked different corporate chief-tans of their wish list ahead of budgets (what if I were the Prime Minister). Most said it needs to consolidate its finances and down below  was written various stimulus  they needs for their sector! How can the two be met?? The markets and people should understand a few things. One India’s budget is mainly about politics. It has some bit of economics involved but politics prevails. The government has just come to power and will look at basic issues first (right or wrong is open to debate). Two, the announcements in Budget don’t matter. What matters more is what happened to them? There is hardly any debate/awareness about the same. All the markets want is steroids for a short-term performance but they should know it is very dangerous . What instead matters is a tough workout conditioning the entire body. (Though am sure people will find other ways to just pump up the markets…next event July monetary policy hype ??)
  • In Feb 2009 interim budget, the fiscal deficit for 2009-10 was put at 5.5% of GDP. This has been increased to 6.8% in the final budget. Here is how the nos look:
        Interim Final Final over interim (%)
(in Rs crore) 2007-2008 Actuals 2008-2009 BE 2008-2009 RE 2009-2010 (BE) 2009-2010 BE  
Revenue Receipts 541864 602935 562173 609551 614497 0.8
Tax Revenue 439547 507150 465970 497596 474218 -4.7
Capital Receipts 170807 147949 338780 343680 406341 18.2
Total Receipts 712671 750884 900953 953231 1020838 7.1
Non-plan Expenditure       507589 507498 617996 668082 695689 4.1
Plan Expenditure 205082 243386 282957 285149 325149 14.0
Total Expenditure 712671 750884 900953 953231 1020838 7.1
Revenue Deficit 52569 55184 241273 238534 282735 18.5
  -1.1 -1 -4.4 -4 -4.8 20.0
Fiscal Deficit 126912 133287 326515 332835 400996 20.5
      -2.7 -2.5 -6 -5.5 -6.8 23.6
Primary Deficit -44118 -57520 133821 107324 175485 63.5
  -0.9 -1.1 -2.5 -1.8 -3 66.7

RE- Revised Estimates
BE Budget Estimates

All the indicators of deficit are higher than projected in Interim Budget.  Needs more analysis.

The process of fiscal consolidation during the FRBM Act regime has created necessary fiscal space to undertake much needed social sector expenditure and provide for higher infrastructure outlays. The performance upto 2007-08 was heartening. Fiscal deficit was brought down from 4.5 per cent of GDP in 2003-04 to 2.7 per cent in 2007-08. Similarly, revenue deficit was reduced from 3.6 per cent of GDP in 2003-04 to 1.1 per cent in 2007-08. The government was steadfast in following the fiscal consolidation path. However, subsequent to the global meltdown, there was a compelling need to adjust the fiscal policy to take care of exceptional circumstances through which the economy has been passing. The result of the fiscal measures taken by the Government for containing inflation has been positive as is evident from headline inflation dropping from high of 12.9 per cent in August 2008 to (-) 1.3 per cent in June 2009. Similarly the intervention of the Government has ensured that the economy grew at 6.7 per cent in a difficult year when most of the developed economies are facing recession. The fiscal consolidation process has to be put on hold temporarily. But there cannot be any fiscal profligacy. Most of the countries are actually looking at increasing stimulus for the current financial year in order to provide boost to aggregate demand. Without putting at risk the revival process, the Government will look at exit strategies as soon as there is improvement in economic conditions.

Well this is all fine but there could be some path, some roadmap for fiscal consolidation process.

Moreover, this statement about govt intervention leading to lower inflation is not right. The inflation has not come down because of govt measures but mainly because global meltdown led to lower oil and commodity prices. THe CPI inflation is till very high and RBI itself agrees to the problem.

  • Finally there is just no talk of having a complete picture of fiscal deficit. The markets were pretty concerned about this in 2008-09 Budget but has completely discarded it this time around. There was big talk of including off-balance sheet liabilities in the main budget. However, I still don’t find it to excluded and just noted as an item if you do a deep dive in the statements.



5 Responses to “India Union Budget 2009-10”

  1. India Union Budget 2009-10 « Says:

    […] Continue reading here: India Union Budget 2009-10 […]

  2. satwa gunam Says:

    True, Lies of Budget deficit
    Posted: Today at 11:59am
    UPA has given their first budget after the election. Market has fallen by 800 points as the budget deficit has moved up from 100,000 crores [ 20 billion usd ] to 400,000 crores [ 0 billion usd ]

    Finance minister has not given any explanation for this gap and how we are going to fund. Manmohan singh and the RBI official nows the reason :

    The above file gives the holding of us government bonds by different countries. India was holding 10.5 billion usd worth of government bonds in aug 2008.

    Assuming that that interest yield of thems is around 3%. Current rate of interest is around 0.25%. [ bond market dynamics is that the market value of bond goes up when the interest rate goes down]. India can swap these bond with the latest bonds of 0.25% with 3% yield bond. That is by 12 times. So the current value of those bonds are 100 billion usd. current holding is 38.5 billion usd. Remaining 61.5 billion usd might be used ot fund 300,000 crores of government deficit for so called rural upliftment.

    With all countries completing with the US in printing notes, the currency will loose value over a period of time and we might move towards barter or commodities. Even our honour FM mentioned in the ndtv interview that the recent price rise in commodities like oil could be due to funds moving their position to commodities to protect from depreciating currencies.


  3. India Union Budget 2009-10 « Mostly Economics | India today Says:

    […] Read the rest here: India Union Budget 2009-10 « Mostly Economics […]

  4. shewolftracker Says:

    The most hyped event in India was covered by our representative and this is what he found. Read more:

  5. Some basics for India’s FRBM rule « Mostly Economics Says:

    […] It says we should have a fiscal policy ahead of the budget document. Well, it is always an outcome of the budget document. Moreover, the statement has a lot to be desired. […]

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