My piece on the Indian budget can be found here. Now that it is more than three days since the budget speech concluded, I do not think that I have too many reasons to believe that my conclusions were in haste.
This is, however, not to be confused as an endorsement of the stock market reaction that day. Both are clearly independent. 17% rally on May 18th was, perhaps, more egregious than a 6% drop on the budget day. But, this one was excessive too. Not warranted. But, that is how overbought markets unwind – on some pretext or the other.
‘Economist’ writes mostly along the same lines as I did.
Clearly, not all shared my disappointment. Surjit Bhalla called it one of the best budgets ever. I leave it to you to draw your own conclusions. Of late, I have had difficulty in doing so, myself.
Of course, Shankar Acharya does not leave much room for doubt as to where he stands on the budget. He is disappointed and worried.
Surprisingly enough, Bibek Debroy thought that, on balance, the FM did not do much damage. However, there is a specific response to these observations of Bibek Debroy:
Were we expecting big-bang reform announcements, as has often been the practice in budget speeches since 1991? The budget speech may then warrant 9/10 by the chambers, but these promises often amount to nothing. Why mention FDI in telecom or civil aviation or opening up of pensions and insurance? It is far better to leave petroleum product pricing (including targeting of subsidies) to the ministry of petroleum and natural gas or convergence to the ministry of rural development.
The counter to this comes from Paul Beckett of Wall Street Journal:
There is definitely an argument to say that the budget should not be used for broad policy initiatives but for an accounting of the government’s balance sheet and short-term spending plans. So the fact that there was scant mention of stake sales in public companies, or of liberalizing industries where there remain restrictions to foreign entry, or indeed of attracting overseas investments shouldn’t be taken as a negative.
But it’s hard not to think that those – and other reform-oriented initiatives – were deliberately omitted when the same speech gave us a slum-free India in five years, public-sector banks and insurance companies to remain in state hands, a National Food Security bill that already was detailed in the President’s speech to Parliament, and a national mission on female literacy. [More here]
The Financial Times takes a sanguine view of the deficit:
Observers huff about a budget deficit at 6.8 per cent of gross domestic product, more than double the 2.7 per cent of the 2007-08 fiscal year. But this is not a shock, nor much to get worked up about. The government was already in the red by 6.1 per cent of GDP in 2008-09 because of a fiscal stimulus it is now continuing. This is the right policy while global demand remains frail – and it is hardly excessive compared with US and UK deficits twice as large. [More here]
They are right that the fiscal deficit in other places is higher and might remain at a higher level for quite a few years. But, each country must deal with the cards as it is dealt. In the case of India, the stock of debt is high already and political consensus on belt-tightening has always remained difficult to obtain.
Business Standard writes two edits. One starts with these observations:
The only explanation for the broad calculation underlying the Budget is that the government is more nervous about the state of the economy than it lets on. A fiscal deficit of 6.8 per cent of GDP, up from 5.5 per cent postulated in February’s Interim Budget, means an additional stimulus of nearly Rs 80,000 crore. No government, already saddled with a big public debt overhang, undertakes such spending unless it feels compelled by the circumstances. A finance minister who believed that the worst of the economic slowdown was over would have moderated spending, and capped the deficit at last year’s 6.2 per cent. To not do that, and to provide for a significant step-up in spending (about Rs 67,000 crore more than indicated in February), implies a lack of faith in the revival of private demand and therefore the need for additional public spending stimulus. [More here]
The other one written the following day wonders whether the conservative revenue assumptions were designed, deliberate or there by default because it failed to detect a method in them. It concludes as follows:
Perhaps there is a logic to all these numbers, but if so it is known to only those in the finance ministry. To the outside observer, they seem to reflect a quixotic combination of simultaneous caution and optimism. [More here]
The MINT also excerpts, I believe, the editorial comment from Wall Street Journal. Two observations stand out:
The Budget is in line with party leader Sonia Gandhi’s emphasis on populism, but it’s especially disappointing given the track record of Prime Minister Manmohan Singh who, once upon a time, was an economic reformer…
… the broader theme of spending without constraints or accompanying liberalization is a setback for growth. Mukherjee said “the road ahead will not be easy”. He is not making it any easier. [More here]
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