Glimpse and prospects of the Budget 2009-10

On February 17, Monday, India had her 952,231 crore interim Budget for the fiscal year
ending 2009 with little smile but and wide disappointments. Mainly because the
expectations of some of the sectors particularly those who suffered the most of
recessions were immensely high and the Budget deliverables were too low to even
account for any possible reviving hopes for them.

We’ve been facing the longest recession since World War II so it’s not wise to expect any
good from the current recession until second half of 2009. Economies world wide have
been cleverly deploying stimulus packages, battling seriously with huge deficits in their
Budgets, to avoid any serious consequences, job cut explosions and export shut downs.
The magnitude of the slow down was so brutal that it affected even the most immune
economies like India and the Middle East. However, India’s economic sustainability
model has prevented any job-cut panic to occur here. This is different from what US and
Canada is facing.

The connection with U$: Worst is the scenario in the far west from where it all
started. People in the US lead a lifestyle that is beyond comparison and that is on
borrowed money and this is one of main cause of all the post-recession situations now.
The US CBO projects that the deficit this year will total $1.2 trillion, (or 8.3 percent of
GDP) and any enactment of an economic stimulus package would add to that deficit.
Similar situations with different data sets will occur in India if the third stimulus is to be
launched. Besides a comprehensive US government’s multi-billion corporate bail out
package of ($787 billion), The US Federal Reserve, Treasury and other agencies have
taken ample other actions in Support of the Housing and Financial Markets such as
Reductions in Interest Rates, Loans to Financial Institutions through the primary and
secondary credit programs, Acquired control of nearly 80 percent of the insurance
company, Support for primary dealers, Mortgage market, Consumer and Small Business
Lending and Support for Money Market Mutual Funds through Commercial Paper
Funding Facility, Temporary Liquidity Guarantee Program, Assistance to Citigroup
among other vital steps. These steps are focused not only revive the much depressed
economy but also to bring about a massive employment to compensate for the million
job loses. However, as unlike the US, a massive unemployment rate hike is hopefully not
expected in India leaving some minor exception in the Private IT sector. Since the
Indian context is different and so are the likely solutions.

A Third and a final stimulus needed: Fallout of global slowdown on Indian

economy were countered with fiscal stimulus packages announced on December 7, 2008
and January 2, 2009 providing tax relief to boost demand and increasing expenditure
on public projects. But there is an urgent need to take the similar step for a last time.
World wide economies are have already signaled suspicious signs through these
continuous economic packages. Such suspicious signals must enforce RBI and the
Indian government too to figure out serious plans to deploy the third stimulus package
mainly for the infrastructure industry, banking and the real-estate industry and sectors
that are specifically hard hit. A third and perhaps the last stimulus package is expected
to reverse the repercussions left by the year long economic recession.
However, a third stimulus would force the government to borrow additional funds from
the market. This borrowing decision could be very crucial and has been a major
headache for the government because any borrowing of additional funds may have its
own adverse implications on the country’s fiscal deficit considering the fact that the
government’s previous two packages and an extravagant spending of Govt. on Iraq and
Afghanistan battles have already piled up a huge fiscal deficit gaps. The deficit
calculation, that already stands a taller 5.5 % of the GDP during 2009-10, will surely rise
if the borrowing plan’s flexibility in the third stimulus is not secured. RBI too has
already warned that the interest’s rates may possibly go up and funds allocated to the
private sector may get tighten if the borrowing exceeds a pr-calculated threshold.
Besides, it also poses threats for the current liquidity amount from the system.

Need of the hour: We have seen major drops in our export industry and factory
outputs and a major blow to the recruitment process particularly in the banking, energy
and IT sector. A consequence like these must be included in the priority list of the
economic policy but the budget failed completely to address these issues too. Being a
developing country, economy and inflation, besides terrorism are our main concerns
today.
What could have been a hopeful step in the budgetary plan was the immediate funding
in the real estate and infrastructure sector to boost investor and borrower confidence
because Stocks in these sectors took the steepest fall. But the budget failed to catapult
these tumbling segments of the economy as well. It infact failed to meet any of the
market expectations. It is possibly because of this lack of buoyancy in the budget that
even when the acting Finance minister was delivering his speech in the house, the
Sensex tumbled its highest down since Feb ‘09 to close at 9305.45, nearly 3.42% down.
No doubt, National security and social issues were held utmost important but such
schemes could have been halted for some time. The budget focuses larger spending on
social sectors, on rural job guarantees schemes, on education and healthcare and the
mid day meal, some new schemes for the upliftment of the status of widows in India but
missed a lot many issues of grave national importance. Unaltering tax rates are just one
such. All the common man expectations were met with a surprise who were expecting to
have a tax-cut in certain things. Tax cut could have helped to increase the number of
domestic buyers and that in turn boost production and sales but sadly the ministry
missed this brighter aspect too as none of the Tax rates were touched upon.
Mr. Mukherjee realizes the threat and loopholes in the security and have so forth
extended the Defense expenditure by about 27,103 crore. However, at this time, issues
that are not concerned to boost the economy palpitating nerve may be kept aside for
some time. While the budget has lend an eye to the issue of national security after the
26/11 dastardly, but the need of the hour is to held economy-reviving actions most
important and address issues like cutting down taxation rates and enhance real estate
spending. What is needed is a strong growth of exports and by government policies that
included a significant easing of monetary policy and tax rebates.
The only cause for some weaker smiles was for the worker class who’ll not face pay cuts
whatsoever despite recession. The other cheerful clauses in the budget was the
government’s approval to 37 infrastructure projects worth Rs.70,000 crore from August,
2008 to January, 2009.
Our Budget lacked a Vision: There are certain other bold alternatives that are,
honestly speaking, risky but hold massive future potential. One such possible and
audacious solution that could also compensate for the likely deficit is to sought new and
innovate ways to attract FDIs and FIIs through green projects.
It’s a long tyranny of every budget that we keep on neglecting issues such as investing
into green projects, promoting innovation and entrepreneurship that can prove bliss
both for the nation and economy in a long run. This budget too is not an exception and
lacks such visions. No funds have been allocated to enhance the prospects of green
energy. In face of the current global environmental issues, an investment in these new
sectors could heavily attract both domestic and foreign investments such as in solar and
tidal energy sectors so as to reduce our dependence on oil and embrace principles of
sustainable economic development. If such new sectors are explored for any potential
foreign investments to reduce our central and trade deficit, then the government might
safely plan to launch a high grade third stimulus to revive the slowing economy at once.

Bad sentiments: I strongly feel that it’s an unethical conduct of BJP to remark about
the nation’s budget as being like an exposed Satyam’s Charge sheet. Such statements
when travel in and across national and international media are meant only to depress
the nation’s financial image. BJP should not forget that in her rule, she was even not
able to shield the evil reach of corruption in defense budget and have recorded
maximum number of farmers committing suicide out of heavy financial burdens.

In all, the nation greeted the Rs 953,231 crore interim budget news for 2009-10 with
disappointment at all income group and common citizens and investors alike. A well
sought 69 minute of speech prepared was seemed to serve only the UPA’s agenda for the
coming general elections and was mostly occupied in highlighting achievements of UPA
government.