Budget 2011 - What's cooking?

From television screens, newspapers, and websites to workplaces, cocktail circuits, and golf courses and whether among corporate executives or housewives, if there is one topic that is prominently discussed during the month of February, it is the much-awaited Union Budget. Whether you understand the nitty-gritty of economics or not, the budget is always a keenly watched event, for it offers an insight into how your finances are likely to shape up in the coming financial year. What the Finance Minister will do has always been a closely-guarded secret and the prologue every time covers the expectations and speculation on what would probably come out.

For us, nothing is more important than the investors who have always looked at DSIJ to have a correct perspective of every aspect that impacts them. Today the mood on the street is sombre as market volatility continues to take its toll every single day. From a peak of 21,000 posted in November 2010, the Sensex has corrected by almost 16 per cent and is now trading at the 17,593 levels. A lot of wealth has already been destroyed, giving investors a nightmarish experience in the New Year. The overall volumes have dropped sharply and even the frontline counters are witnessing this pressure. While everyone knows this has happened, no one is aware as to how long it will last. Experts continues to cook their own theory about finding the bottom from where the market would bounce back, while others continue to hunt for majors triggers, which will not only stop this downside but also give a new direction to the market.

This major trigger currently is none other than the budget itself. Though the markets have over the years challenged the relevance of the budget as a major event, in uncertain times, when investors tend to be confused, there could be no major guiding star than the budget and hence we believe that the budget as a trigger will never lose its relevance. Industry associations or experts, investors, corporates or people at large will continue to have their wish list as the budget season nears and this year is no different. Here is a broader view of what could probably come up and some suggestions which we think are relevant in today’s economic landscape.

A Tightrope Walk
While many would believe that last year’s budget was a tightrope walk for the government given the fiscal deficit which was at a 15-year high of 6.6 per cent, we at Dalal Street Investment Journal believe otherwise. We think the forthcoming budget would be more of a tightrope walk for the government. Last year, though the fiscal deficit was at its peak, the huge success of the 3G auctions which brought in Rs 1,06,262 crore to the government kitty, followed by a better-than-expected tax collection in the first nine months of FY11 and the disinvestment proceeds, helped the government to reduce its fiscal deficit. In fact, for 9MFY11 the fiscal deficit was down by 45 per cent and for FY11 the fiscal deficit could be less than the earlier budget estimate of 5.5 per cent of the GDP.