BUGET ON CORPORATE & CAPITAL

Pranab Mukherjee must be happy man, notwithstanding the walkout by the opposition from the Lok Sabha, while he was presenting his budget. Last year, Dalal Street crashed in the aftermath of Pranab babu's budget. This year the reverse happened, at least to start with. This has nothing to do with what the budget contains and what it does not. It has much to do with expectations. Last year the expectations from Pranab babu were very high. The expectations were based on the budgets presented by his predecessor P Chidambaram. These budgets were very high on visions of the future and philosophy of growth .

Pranab da delivered some positives in the budgetary pronouncements! With all the talk of the stimulus measures initiated by the finance minister mid year likely to be wound up, the market was also pleasantly surprised when the finance minister only partially rolled it back ( by raising excise duties by 2 per cent). The market that spontaneously reacts was also taken in by Pranab da's projections about the fiscal deficit which he aimed to rein in. And the Re 2.67 per litre rise in petrol/diesel prices may have forced the opposition parties to react sharply but for the market this was good news Reasons: there has been widespread speculation in the run up to the budget that oil prices would go up significantly in the budget. The announcement that new banks would be licensed and that the service tax was not raised form its present level of 10 per cent also made the market happy ( though there may be some bad news as the fine print is read and it is found that the service tax has extended to sectors like air tickets for domestic travel).

Some of the analysis will follow a pattern. If the stock market goes up, the budget may be described as successful because it didn’t “rock the boat”.

If it moves sideways, it may be said the market had already absorbed the good news — the growth figures for instance.

If it moves down — the fiscal deficit may be the reason.

If the finance minister withdraws the stimulus it may not be good (for some) because it may mean more taxes and hence less profit. Bad for the market. Bad marks for the budget?

But if the stimulus is withdrawn, more taxes mean more revenue and less fiscal deficit.

Which means less government borrowing, which means more scope for private borrowing and private investment.

Good for the market. Good marks for the budget?

It seems to me that the finance minister would overshoot his actual expenditures by the end of the year. That is if he wants to do justice to these sectors. This would be mean that his fiscal deficit projections - 5.5 per cent of GDP for 2010-11 will not come true. As far as his claim of meeting the targets of inclusive growth is concerned, much would depend on the delivery machinery. This is , as we well know, quite poor. In that sense it really does not mean anything that 37 per cent of expenditure has been allocated to the social sectors and 46 per cent will be spent in the infrastructure sector. Mukherjee says that 25 per cent of the funds allocated to the infrastructure sector will be spent to build rural infrastructure. We have seen many such grand pronouncements before. If all the money that is supposed to be spent for rural infrastructure actually upgrades the life of farmers, why do farmers still commit suicide in parts of the country

In sum, it does appear that a combination of inflationary taxation, significant revenue optimism and a modicum of window dressing have helped craft a budget that appears growth oriented, partially inclusive and fiscally prudent. We need not wait till the revised estimates come next year to conclude that this is by no means the true picture.