Budget Aala Re!!

Union Budget of India 2009-10 to be presented on 3rd July is without doubt one of the most awaited budgets in the history of India. It will be Finance Minister Pranab Mukherjee's 4th full budget (rest three presented during Indira Gandhi's government). Undoubtedly, our dear Pranab Da has a mammoth task on hand, as he not only has thwart the galloping march of global economic recession to hurt India further, but also has to reduce the fiscal deficit (currently a humongous $62.26 billion). After handing UPA a glorious victory and almost a stable government, the expectations of the Indian Junta are high & hopeful. The FM is well aware of this fact and rightly points out - The focus of the government is the aam aadmi with more employment & income generation schemes.

India enjoyed a gross domestic product (GDP) of over 9% for 3 years consecutively from 2004-05 to 2007-08, but India's economic progress took a beating because of the global slowdown and the GDP now is just 6.7%. Although, the stock market showed signs of revival by touching 15,000 points mark, most of the industrial sectors particularly infrastructure, exports, housing, and textiles are still reeling due to the effects of economic crisis. So, how does the newly elected government plan to bring the growth rate back to 9% ?

Disinvestment of the Public Sector Undertakings (PSUs) seems to be the answer for the funds that the government need to provide the much-needed stimulus to the economy. With Left out of the government, the government will most likely go for a big-bang disinvestment of it's stakes in blue chip companies like BSBL, MMTC, NALCO, NTPC, NMDC, and Coal India. It is expected that the government will add $94.77 billion to its kitty by selling it's stakes in these companies. Infact, at the current market rate the divestment of 10% in BSNL alone could fetch the government a meaty Rs. 20,000 crore (Courtesy: Times of India). The auction of 3G spectrum and the public issues of companies like Oil India, RITES, and NHPC will further increase the government's spending power. If the sale goes as expected, the infrastructure sector seems to be the biggest beneficiary of the increased government spending and it will mean a green blinker for various gigantic road and energy projects.

The economic recession has also bolstered the government's appetite to surge the foreign direct investment (FDI) in the insurance and pension sectors from 26% to 49%. Indian government is also likely to dilute it's ownership in retail & banking sector to increase the foreign currency reserves. However, Congress's key allies TMC and DMK have already given indications that the government's path to divestment & foreign investment will not be hassle free and it will be interesting to see how does the government pushes it's liberal economic agenda. Will the government keep atleast 51% equity in the PSUs? Mostly yes, but we will have to wait and see!!

Despite providing the loan waivers to the farmers and lifting the ban on exports of wheat & non-basmati rice, the agriculture sector which supports two-thirds of India's population, is under crisis. The under-performance of the agricultural sector apart from various external factors has led to the increase in price of the essential commodities. Nearly one-third of India's total population lives in extreme poverty and slashing the prices of these commodities is of paramount importance for the government. The government is expected to boost the agricultural sector by providing cheaper credit, fertilizer subsidies, easing the curbs on grain exports and future trade, and improving the irrigation facilities. On a different note, the government should also promote organic farming, which as compared to conventional farming can yield greater productivity & returns on a small area of land.

India's second largest employer textile industry is one of the most hard-hits by recession with job loses touching 1 million mark. The industry is highly unlikely to meet its target of $40 billion in exports by 2009-10 pertaining to the lack of competitiveness and the economic slump. The budget will cater this issue by mobilising funds to build technologically advanced manufacturing facilities and urging the banks to provide credit at low interest rates. The proposal of scrapping the import duties on synthetic fibre will surely surely help the industry in cutting costs by 5-7%.

Deregulating the auto-fuel prices is another critical issue which Mukherjee may address in his budget. The trio of Indian Oil, Hindustan Petroleum (HP), and Bharat Petroleum (BP) registered a combined losses of Rs. 1 trillion by March 31 2009, mainly due to selling the fuel at government mandated prices. The proposed move is likely to help these companies to cut down the losses.

Indian Junta is also expecting the finance minister to reduce their tax burden by increasing the income tax slabs, which in turn may propel consumer spending and generate demand. India Incorporation is also looking to get a relief in taxes by atleast 5 percentage points. The IT industry already stunned by the indications of US probable move towards protectionism, is expecting the government to bail them by extending the Software Technology Parks of India (STPI) scheme for atleast 5 years and abolishing the fringe benefit tax (FBT).

Government spending on education, health, and employment programmes is going to be high. According to the Assocham (Associated Chambers of Commerce & Industry of India), a stimulus package of Rs. 1 trillion should be announced to put a major thrust in the real estate, housing, and construction sectors. However, considering the high fiscal deficit Pranab Mukherjee has warded off the industry against any expectations to receive big sops and incentives. Government is wary of the fact that it's national rural employment scheme & mollification of the farmer's loans in the last term has led to a tremendous increase in the fiscal deficit. So, this union budget will be a litmus test for Pranab Mukherjee & Co. as not only will they have to ensure the economic growth momentum, but also will to have keep the fiscal prudence in mind.

Well for all the Indians, the expectations are really high as they have done extremely well by giving Congress led UPA a clear majority and by denying Left any role in decision making. Now it's time for the government to live up to the expectations of the Indian Junta, deliver their promises, and come down to business. After all victory does not come at no cost!!

-Kartavya Jain