New Delhi: Given the
state of the Indian economy, Finance Minister P. Chidambaram is
most likely to unveil concrete measures to revive growth and
ensure fiscal discipline in the union budget to be presented Feb
28, economists and analysts believe.
Chidambaram will present the budget at a time when the economy is
growing at its slowest pace in a decade. The current account
deficit has hit a record high and the fiscal deficit has been on a
cliff. Also, inflation is much above the comfort level and
infrastructure bottlenecks continue to hinder growth and
Adding to the finance minister's woes is the threat of ratings
downgrade by global agencies.
"We are expecting some concrete measures to revive growth.
Widening deficit is a huge challenge. The current account deficit
is particularly more worrisome. Tough measures are needed to
ensure fiscal consolidation," said Anis Chakravarty, senior
director, Deloitte in India.
Chakravarty said the government has made some genuine efforts in
the past few months to improve investors' sentiments, but a lot
more needed to be done.
According to the Central Statistics Office (CSO), India's gross
domestic product (GDP) is expected to grow at five percent in the
financial year ending March 31. This will be the worst performance
of the Indian economy since 2002-03 when the growth was recorded
This will be Chidambaram's eighth budget, the second most after
Morarji Desai, who has 10 budgets to his credit. Pranab Mukherjee,
Yashwant Sinha, Y.B. Chavan and C.D. Deshmukh have presented seven
Although some analysts and policy makers - as also Chidambaram -
expect the growth to be higher than the CSO estimate at around 5.5
percent, the optimism offers little comfort considering an average
of nearly eight percent growth recorded in the past 10 years.
In the budget for 2012-13 presented last March, then finance
minister Pranab Mukherjee had pegged the growth at 7.6 percent. So
it is clear that the actual growth this fiscal will be much lower
than what was estimated.
"We hope that the union budget will be pro-growth and give a
renewed thrust to capital formation," said Naina Lal Kidwai,
president, Federation of Indian Chambers of Commerce and Industry
India's current account deficit reached a record high of $22.4
billion or 5.4 percent of the GDP in the July-September quarter of
2012-13, according to the latest data available with the Reserve
Bank of India (RBI).
The current account deficit has widenedbecause of high merchandise
trade deficit, which reached $167.16 billion in the first 10
months of current fiscal, largely due to high imports of petroleum
products and gold.
Considering the trade deficit and other data, the current account
deficit is expected to befive percent of the GDP in the financial
year ending March 31 as compared to 4.2 percent recorded in the
The government has scaled up the fiscal deficit target at 5.3
percent of the GDP as against the budgetary estimate of 5.1
percent. Fiscal deficit soared to 5.8 percent of GDP in 2011-12
against the government's target of 4.6 percent, prompting threats
of a rating downgrade from global agencies like Standard & Poor's
Both Standard & Poor's and Fitch have assigned BBB minus ratings
to India, the lowest investment grade ratings. A downgrade would
take the country's credit ratings to junk status, making overseas
borrowings difficult and costlier. It would adversely impact the
Indian currency and capital inflows both for the government and
the corporate sector, thus aggravating the situation of current
According to Angel Broking, Chidambaram is likely to announce
tough steps in the budget to curb the fiscal deficit and any
populist measures might come later during the year, closer to the
Chidambaram is likely to announce incentives to boost savings and
channelise households' savings into financial sectors, away from
non-productive physical assets like gold, which is also adding to
the current account deficit.
"A positive budget will help in streamlining the economy and
provide impetus to the GDP growth," said Pranay Dhabhai, managing
director, Akai India.
Dhabhai emphasised on the need for bringing stability in the tax
He said any clear direction regarding the implementation of the
goods and services tax (GST) regime would send a positive signal
to investors and the markets.
(Gyanendra Kumar Keshri can be contacted firstname.lastname@example.org)