India Inc gives Thumbs up to Budget 2010 for its ‘Unambiguous’ Approach!

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The key highlight of the Union Budget 2010 was its ‘Balanced’ and ‘Unambiguous’ approach towards clarity of future goals and various policy initiatives related to the macro-economic concerns of the country.

transparency

Markets Don’t Like Uncertainty

As per the popular belief, the equity markets do not prefer wild uncertainty going in to the future. Adoption of non-transparent approach along with half hearted announcements by policy makers often leads to undesirable speculation and consequently volatile market conditions on the back of lack of directional cues.

During the last 2 years of budget announcement, the stock markets had clearly indicated a negative post-budget trend, on account of unclear roadmap towards swift implementation of reform movements, rather than any negative announcement.

The fact that the benchmark Sensex was up 175 points on the day of Budget 2010 announcement is a proof in itself that the India Inc had whole heartedly supported Pranab Mukherjee’s efforts towards a clear roadmap of policies for next couple of years at least.

Balanced and Transparent Approach

Budget 2010 was a bold initiative by the Indian government to tread the path of future with clear planning, pronounced objectives and setting realistic targets for the next few years. Add to it, a truly balanced approach initiated by the finance minister in weighing fiscal prudence, managing inflationary expectations and optimum utilization of resources.

The Budget was successful in gaining popularity from all quarters including corporate world and individual tax-payers, if only for those opposition parties. Big credit for this goes in laying a clear roadmap with unambiguous and transparent approach regarding the future direction.

Clear Roadmap for Future

1) Roadmap to GST and DTC Reforms

Finance minister has done well in coming out clearly that the important reforms of GST and DTC could be implemented by April 2011.

My View: However, the implementation of GST has been delayed by 1 year; the Centre needs to develop a consensus among various States before moving full-fledged with the reform for better effectiveness.

This will offer a clear roadmap for the Corporate India about the things to come in next year and thus initiate necessary adjustments in their own internal policies.

2) Accounting of Off-Budget Items

Pranab Mukherjee has done equally well in introducing greater transparency by announcing inclusion of off-budget items like subsidies, bonds, etc. in to the Budget accounts. Further, the FM said that the oil subsidies would now be paid in cash instead of bonds.

My View: This step will ensure that the calculation of macro-economic data will get more realistic in nature. The fiscal deficit number of 6.8% of GDP does not reflect true liabilities of the Centre as it does not include off-budget liabilities. This would bring greater transparency and accountability.

3) Targeting Fiscal Consolidation

The government has conveyed that the fiscal deficit needs to be controlled in the years to come with the target of 5.5% of GDP for the fiscal year 2010-11 and 4.8% and 4.1% as rolling targets for the next couple of years.

My View: The clarity of this step ensures the commitment of the government towards adhering to the fiscal prudence targets as recommended by the Thirteenth Finance Commission. However, I feel that the target of controlling fiscal deficit to 4.1% of GDP by 2012-13 may be out of bounds as the UPA government nears to the end of its 5 year term with the passage of time.

4) Pronounced Disinvestment Targets

With the Follow-up Public Offerings of NTPC and REC, the government has unlocked a good value during this year by way of disinvestment. The government has announced that it is likely to further divest stakes in the PSU and aims to disinvest a sum of around Rs.25,000 crore further this year.

My View: In the interim budget last year, the government had failed to give a clear roadmap on the targets and proceeds of funds to be accumulated from disinvestment. The government had paltry targeted around Rs.3000 crore as against an actual realization of over Rs.30000 crore for the fiscal year 2009-10. However, this time the government has spelled the clear target for divestment is the fiscal year 2010-11.

5) Moving towards Inclusive Banking

Government’s announcement about RBI willing to allot new banking licenses to the private sector companies and other Non-Banking Finance Companies (NBFC) is a long pending reform in itself for a growing economy like India with ever increasing financing needs.

My View: The government has shown its desire to move forward with the new banking licenses on the back of the urge to broaden the scope of banking deeper in to the heart of rural India to serve the farmers and the rural public in a better manner. However, the allotment of licenses is subject to strict RBI criteria.

6) Renewable Energy Focus

The government has offered concessions in customs duty of 5% to equipments required for initial setting up of solar thermal power generating units. The finance minister has also announced a reduction in excise duty on LED lights, a highly energy efficient source of lighting. The government has also announced full exemption of central excise duty to electric cars and vehicles.

My View: India’s thrust for spending on renewable energy sector has been upped from Rs.620 crore to Rs.1000 crore. This shows the government’s commitment towards willingness to adopt alternate energy resources in the times to come.

7) Willingness to Adopt Expert Recommendation Reports

In his budget speech, the finance minister has shown urge to move on the path of expert recommendations of Kirit Parikh committee report to decontrol oil pricing and allowing FDI in retail sector.

Pranab Mukherjee has also shown keen interest to bring down the fiscal deficit to GDP at 5.5% for 2010-11 and 4.8% and 4.1% of GDP for next two year rolling years as recommended in the Thirteenth Finance Commission Report.

8) Recapitalizing PSBs

In the past few years, the PSU banks had complained about inadequate funding on behalf of the government with its majority ownership and hence crunch of cash and lag in competition with respect to well-capitalized private sector banks.

My View: However, in this Union Budget, the government has announced to recapitalize public sector banks to the extent of Rs.16500 crore. This would help smaller public sector banks to stay afloat in competition with private sector banks as well as other larger large public banks like SBI.

9) Implementation of UID Project

India’s biggest two reforms till date remains UID project and proposed GST implementation. The government has allotted an outlay of Rs.1900 crore in the Budget for Unique Identification Authority of India.

The government announced setting up of technology advisory group for unique projects in order to speed up execution of government IT projects under the leadership of Nandan Nilekani.

10) Removal of Governmental bottleneck

Pranab Mukherjee has admitted that one of the challenges to India’s growth further from here would be weakness in the government system & different levels of governance. He refers to this obstructive nature of system as bottle neck of our public delivery mechanisms.

My View: The willingness of the government to resolve these issues shows the commitment and awareness among the top bureaucrats about the seriousness of the red-tapism and its hindrances for the growth of the Indian economy.

Most of the above mentioned points are flag-bearing aspects about the government’s willingness to act with pronounced targets as announced in the Budget 2010. It shows the commitment of the government to move ahead in the planned direction rather than no direction at all.

The FM would have chosen to remain mum on some of these aspects, but his budget speech had no such un-ambiguity with this regard and Pranab Mukherjee announced a clear roadmap for many micro-economic issues which could have been indulged separately even outside the Budget event.

Clarity about the events and a base of clear roadmap often receive a standing ovation from investor community including domestic and foreign institutions. Such unambiguous announcement ensures the effectiveness of the Budget as a document which conveys the ‘Vision’ of the government for the economy in the years to come.

Do you hold contrary views than the ones mentioned by me above?

Now Trak.in readers can follow me on Twitter @viralsss

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  1. Madhav Shivpuri says

    Viral,

    Once again an excellent post.

    Yes, this government’s policies have been good and setting India on the right path for the next couple of decades. I hope this government gets re-elected so they can pursue this agenda and bring prosperity to all.

    Cheers.

    1. Viral says

      Hello Madhav,

      Thanks for the positive response.

      As your truly pointed out, we need re-election of this very govt to ensure optimum continuity of policy and reforms adopted by Manmohan Govt. In fact, even if the current govt completes its term successfully for the remaining few years, it would go a great deal in enabling bigger reforms most of which have been in pipeline and expected to be implemented in next 1 year.

      Nice point raised by you.

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