Union Budget 2010-11: Time for calculated moves

The Finance Ministry and Industry Associations have been buzzing with activity over the past few days. While the former has been busy formulating this year’s Budget, the latter have been engaged in preparing their wish list for the Budget apart from trying to justify the reasons for the continuation of the stimulus provided by the government to them last year.

However, the Finance Minister is once again at the crossroad. He has to choose between: 1) continuation of the stimulus measures provided to various sectors over the last one year (to weather the global crisis) and support growth or; 2) withdraw some of the stimulus keeping in view the high fiscal deficit situation in the country, especially considering the fact that the stimulus measures have done their bit in pulling the economy back up.

Notably, partial Stimulus rollback and fiscal prudence setting in are already reflecting in the current behaviour of the market participants. Thus, any significant deviation from the expected can lead to heightened volatility in markets. However, considering the limited options at hand for the FM in this Budget, it seems unlikely that he can deviate from the path visible. Thus, the FM’s moves are expected to be calculative so as to ensure that a move towards fiscal prudence is initiated without jeopardizing the country’s growth prospects.

By Mr. Hitesh Agrawal,Head – Research,Angel Broking