The way out of the past

A well-known business news channel commentator used a cricketing analogy to suggest the stock markets were expecting a Dhoni-like slog by Finance Minister P. Chidambaram, who seemed content to play defensive like Rahul Dravid. So the stock markets did not appear to be satisfied with the substantial fiscal correction effected by the finance minister, which really was the core theme of the 2013-14 budget. The real achievement on the fiscal consolidation front is a psychological shift in the mindset of investors and rating agencies that the fisc is on the mend. Only six months ago, no analyst in Mumbai gave even 1 per cent chance to the fiscal deficit for 2012-13 being anything less than 5.8 per cent of GDP for 2012-13.

The scare, then, was all too real, with rating agencies threatening to reduce India to junk status. If you assess the budget against that backdrop, the positives cannot be wished away. The fact that the fiscal deficit has been brought down to 5.2 per cent of GDP this year and is pegged at 4.8 per cent of GDP for the coming fiscal, as per the roadmap suggested by the Kelkar committee, should be commended. Some analysts are questioning the feasibility of the numbers put out by the finance ministry. The main doubt is about how the finance minister would meet the fiscal target of 4.8 per cent of GDP in 2013-14, in spite of having projected about 16 per cent growth in total expenditure. Many analysts have said the expenditure growth looks a bit optimistic, especially against the backdrop of a 19 per cent increase in revenue growth. The logic being put forward is that the budget somewhat overestimates the nominal GDP growth at 13.4 per cent — 6.4 per cent real growth and 7 per cent inflation. It is possible to get 16-18 per cent revenue growth on that growth base. After all, revenue growth is about 12 per cent this fiscal on a GDP growth of 5 per cent. So all the numbers are predicated on a substantial GDP upturn.

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