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.

• I am really disappointed to see nothing (as of now) on any plans over fiscal consolidation. The fiscal policy strategy document instead says:

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.