Finance Minister Pranab Mukherjee delivered more in Budget 2010 than was expected. It was a challenging job to roll back the stimulus in a small and calibrated manner, as well as lower the fiscal deficit significantly. But, the FM delivered more than this tight-rope balancing act. He laid out the big picture on fiscal consolidation by reducing government debt, as recommended by the Thirteenth Finance Commission. He promised that the Direct Tax Code and the Goods and Services Tax will be implemented from April 1, 2011. These would be vital ingredients in allowing the government to meet its fiscal consolidation targets.

However, some of these announcements were expected, and perhaps not fulfilling these expectations would have created negative sentiment. What came as a pleasant surprise were some new initiatives in the budget speech.

First, the FM announced the setting up of an apex-level Financial Stability and Development Council to strengthen, institutionalise and maintain financial stability. The need for such a body has been acutely felt after the global financial crisis. In the nascent field of financial stability there is an understanding that taking steps to address issues of risks to the financial system as a whole can require giving directions to all regulators. On his own a regulator, such as the equity markets regulator, or the banking regulator, may not be able to see risks building up and may not tighten norms when required. This means a body over and above the existing regulators is required. Also, in the Indian context, this may involve taking decisions about unregulated entities, as it did in the case of the investment banks in the US. Today we may not know where trouble may arise but if it does, these trouble spots should not fall between the cracks in regulation.

... contd.