Poll-eve Budget for rural India

By M H Ahssan

The Interim Budget, presented against the backdrop of the forthcoming Lok Sabha elections, was heavily tilted in favour of rural India, infrastructure and agriculture. This could explain the knee-jerk reaction of the stock market, which tanked three per cent to register its disappointment at no tangible sops to recalcitrant sectors like real estate. But the rest of India, which has benefited from the stimulus packages and the Rs 80,000-crore largesse from the Reserve Bank of India since September last year, also stands to benefit though they don’t seem to realise it.

Acting finance minister Mr Pranab Mukherjee has talked of a hefty increase in non-Plan expenditure and this could immediately revive consumption. He has also increased the allocation for the mass rapid transport systems in several cities. All these are designed to increase employment and consumption, which would benefit the services and the FMCG and white goods sectors.

Mr Mukherjee repeatedly cautioned the nation that there is no room for complacency and warned that difficult times could continue till the end of the year. Mr Mukherjee has also assured the country and, incidentally, the global community, that though fiscal responsibility and budget management targets (FRBM) have been relaxed in these “extraordinary circumstances”, fiscal consolidation must be achieved at the earliest. The first 45 minutes of his speech could be called a report card of his government’s achievements on various fronts, and particularly in inclusive growth, but he emphasised that the “need for growth with equity and downturn security is inescapable in a market economy”. He reiterated the need for a social security net.

Mr Mukherjee laid out a road map that could be followed if his government comes to power after the elections. He held out a possibility of personal income-tax rates being reduced and defusing of distortions in tax rates. The new government, he said, would have to pursue macroeconomic policies that would create employment, reduce poverty, spur agricultural growth, strengthen the regulatory framework, bridge the infrastructure gap, speed up exports, and, among other things, “provide safety nets for the dislocative effects of the economic slowdown”. He also reiterated that planned expenditure would have to be increased substantially to cope with the global recession.

Defending the huge deficit, which is 5.5 per cent of GDP for 2009-10, Mr Mukherjee said conditions are not likely to be normal and hence the huge deficit. The verdict immediately after the finance minister concluded his speech was “zero for the stock market and industry”. One can imagine the disappointment of these two sectors because of all the self-induced hype by the media and business leaders tripping over each other issuing wishlists. But in calmer moments they will realise that the market sank under the weight of its own expectations.