Fiscal prudence on the cards in Budget

The Union Budget may signal a partial roll-back of the generous stimulus extended in late 2008. Where would the action be?

Come 26th February and all eyes and ears will be on finance minister Pranab Mukherjee, as he enters into a long monologue on the government’s budgetary plans for the coming year. Very prominent on the agenda is the move towards fiscal consolidation, a subject on the tip of the tongue of every industrialist, banker, analyst, economist and, perhaps now, even the common man.

Debates abound whether the time is right for withdrawing the fiscal stimulus. The business community is against such a move while economists strongly believe the fruit is ripe and needs to be plucked. Both sides of the argument hold merit.

However, the question is not so much whether the government will act on its fiscal position or not. It is more a question of the extent of government action on this front.

Vikram Kotak, chief investment officer, Birla Sun Life Insurance, believes, that “whether the stimulus will be and should be withdrawn is no longer debatable. The question is (of) a clear roadmap on how it will be done. India has already withdrawn 40% of the monetary stimulus. With the economy already on a sustained recovery path, we expect fiscal stimulus to also follow suit, in a gradual and calibrated manner without snapping growth. The government would attempt to finely balance the dual objectives of sustaining growth momentum and addressing fiscal consolidation.”

The government is treading a fine line between growth and inflation, but the scale seems to be tilted more towards the latter. While the government’s fiscal deficit is nowhere near the bloated figures of western countries, it is indeed caught in a tight spot.  

Anand Rathi Research says, “Although fiscal prudence would be the right choice for India, we do not expect any tough measures in the FY11 Budget—either a broad-based tax hike or a major across-the-board cut in expenditure. Yet, the non-recurrence of one-off expenditures as in FY10, strong non-tax revenue growth, partial rollback of tax rate cuts and the change in the composition of GDP is likely to lead to narrowing of the fiscal deficit.”

Vikram Kotak is of the opinion that the government should not miss the opportunity of fiscal consolidation as it did in the growth phase of 2003-2007. “At this juncture, it is pertinent to note that the economy does not require big promises. The need of the hour is the timely execution of the unfinished agendas which has the potential to take India to the next growth trajectory,” he added.

The government had doled out Rs1.80 lakh crore through three stimulus packages to prop up a faltering economy against the recent global downturn. The stimulus was mainly directed towards exports, especially textiles, leather and gems and jewellery; small and medium enterprises (SMEs), infrastructure and housing.

While exports in some of these sectors have witnessed a turnaround, others are still struggling to hold their own. As such, the government may opt for a selective withdrawal of stimulus measures, giving some more space for the laggards to put up a better performance.

Anand Rathi Research believes the focus of the Budget is likely to be on driving broad-based growth, fostering agro productivity, infrastructure development and exports. “Sectors that are likely to benefit include agro products, financials, capital goods, construction, IT services and utilities. Rising tax rates, however, are likely to be negative for the automobile and metal sectors.”
 

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COMMENTS

Shibaji Dash

7 years ago

FM does not appear to have any alternative to hike direct taxes levies, may be, by inserting one more bracket above 30%

No hike in fares, freight rates in Rail Budget

Railway minister Mamata Banerjee proposes no increase in passenger fares and freight rates, reduces tariffs for transportation of key items

The Railway Budget for 2010-11 unveiled today proposed no increase in passenger fares and freight rates while reducing the tariff by Rs100 per wagon for transportation of foodgrains, kerosene and fertilisers to tackle the price rise, reports PTI.

The Budget, presented by railway minister Mamata Banerjee in the Lok Sabha, also proposed to reduce the maximum limit of service charge on e-booking of tickets to Rs10 for sleeper class and Rs20 for AC class. The present maximum charge is Rs15 and Rs40, respectively.

This is the seventh year in a row that passenger fares have not been raised.

Announcing a slew of concessions for passengers, Ms Banerjee proposed free travel for cancer patients going for treatment in three-tier AC and sleeper class and continuance of concessions for students of madrassas and journalists.

The minister said 101 new suburban services will be introduced in Mumbai and more services will be launched in Kolkata and Chennai.

A special train, named 'Sanskriti Express', to mark the 150th birth anniversary of Rabindranath Tagore will run across the country and also to Bangladesh.

Special tourist trains called 'Bharat Teerth' will be started on 16 routes while six long-distance non-stop Duronto Express and four short-distance Duronto day trains will be introduced, the railway minister said.

The Budget estimates for 2010-11 pegs the freight loading target at 944 million tonnes, an increase of 54 million tonnes over the current year's revised estimates. Passenger traffic is likely to grow by 5.3%.
 

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SBI needs to raise Rs40,000 crore in five years, says Bhatt

Chairman of India’s largest lender says Bank will raise up to Rs20,000 crore in the next fiscal, through a rights issue

India's premier bank, State Bank of India (SBI), needs to raise around Rs40,000 crore of capital over the next five-years and this would be done through a rights issue, a top bank official told reporters.

"In the next five-years, we need to raise somewhere around Rs 40,000-crore. This is in addition to Tier II capital and in addition to retail earnings which account for Tier I capital," SBI chairman OP Bhatt told reporters here.

This number would, however, keep changing depending upon requirements, especially of the bank's subsidiaries, Mr Bhatt said.

Of the Rs 40,000-crore, the public sector lender is looking at raising up to Rs20,000-crore in the next fiscal.

"In the next financial year, we are looking at a ceiling of around Rs 20,000-crore—it could be anywhere between Rs 10,000-20,000-crore," he said.

Though the bank is fairly well-capitalised at 14% plus, "we always look at a slightly longer-term horizon of five years," Mr Bhatt said.

The bank will keep updating its capital requirement for the next five years, after every quarter or six-month period, he said.

The bank would raise funds at an opportune time depending upon market conditions and requirements of its subsidiaries, especially its insurance arm which is unlisted, he said.
 

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