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Budget 2013 or Elections 2014 ?

| 2/7/2013 9:00 PM Thursday

Finance Minister P Chidambaram will be presenting the last of the Union Budgets for the UPA II before we go to elections in 2014. Will he be able to help the markets sustain their positive momentum by meeting expectations? Here is what he should ideally be doing to ensure that the markets maintain their upward momentum and at the same time the country’s finances don’t suffer from vote bank motivated government largesse, says Shailendra Lotlikar.

Over the past three to four months, the Indian government’s stance of proactively supporting the markets has been more than evident. Its firm resolve to take forward the reforms agenda and stick to it has changed the market sentiment for the better.

The corporate results have shaped up according to expectations, and in some cases, much better than what was expected. The Sensex is within striking distance of a lifetime high, and it doesn’t look like there are any factors that could go against the markets right now. The next big trigger for the markets in these circumstances will be the Union Budget, which is due on February 28, 2013.

Being the last of the regular budgets that the UPA II will announce before we go to elections in 2014, what should it shape up like? While a populist budget could hurt the government’s resolve in managing its finances (read: Fiscal Deficit and Current Account Deficit), a practical one, on the other hand, could dampen its poll prospects.

So, what should the FM be doing in this budget? Whatever he does, it should certainly be in a direction that will enable the markets sustain their upward momentum. Will there be any surprises in store? There had better not be any. What must the Finance Minister do to ensure a good investment climate? Here is what he needs to do in order to make sure that he doesn’t spook the markets, which have been on a roll since the time he came back to the North Block and ushered in the new wave of economic reforms.

While on our part, we have drawn up a very clear framework which will ensure all of the above, we also sought the views of leading market participants and intermediaries in order to know what the market at large is expecting from the FM this time.

On The Broader Front

After months of criticism that it faced for lacking the will to put the country back on the growth track, the government finally began doing its bit four months ago when it initiated the reforms process. What really turned the tables around was the return of P Chidambaram to North Block. His reinstatement as FM after Pranab Mukherjee was elevated to the President’s post came in as the first sign of what the government was probably gearing up for.

Shortly thereafter, the wheels of reform began moving at a steady pace. Pushing its way past the opposition’s resolve of disrupting the proceedings of the House, the government has successfully pulled through a spate of reforms that have been instrumental in changing the economic situation in general and the market sentiment in particular. But putting the wheel into motion is just one part of the story. It is equally important to ensure that it gathers sustainable momentum.

This leaves no iota of doubt as to what the FM needs to do in this year’s budget. He will have to carry forward the reforms initiated by proposing appropriate provisions in that direction. There is a strong need to ensure that nothing in the budget stalls the upward march of the markets. So, what exactly should the FM be doing? Here is what.

The most critical job at hand for the FM is to spur overall economic growth. This can come about by providing the right support points for certain sectors. Among those that need the most attention right now is Infrastructure, and within that, Power. Two factors that will help these sectors are higher allocation of funds towards the development of these sectors and probably tax sops, particularly for the Power sector, which will help it bounce back. Our take on this part is substantiated by what Motilal Oswal, Chairman and Managing Director, Motilal Oswal Financial Services says. According to him, “Though we need to have an aggressive plan for GDP growth to come above 7 per cent there is also a need to maintain fiscal discipline. There should be more thrust on aggressive infra spend and subsidy provisions on petrol and diesel should be removed.”

 

Find More Articles on: DSIJ Magazine, Cover Story, Budget, DSIJ Pre Budget Analysis, Analysis, Budget Quotes, Economy

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