On February 17, Monday, India had her 952,231 crore interim Budget for the fiscal year ending 2009 with little smile 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 signalled 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.