India’s budget does not propose any grand plans or major reforms, disappointing several groups that expected the finance minister to combat decade-low growth with a radical plan. However, multinationals have welcomed the realistic and well-balanced strategy
FSG View:
Relatively Neutral Budget:
- Given the historical trend of overpromising and under-delivering, India’s newly appointed Finance Minister P. Chidambaram has set the budget for a relatively neutral course with no radical proposals, focused around increasing the planned spending, cutting down on subsidies, and encouraging investment
Increase in Planned Spending:
- Companies should be encouraged by the government’s plan to increase the size of their overall expenditure by 16.4%, the majority of which will come from an increase in planned outlay, while reducing non-planned spending, which entails interest payments, subsidies, and defense
Decrease in Subsidies Bill Difficult:
- Subsidy cuts during a pre-election year are going to be difficult, but the government expects cuts in its petroleum expenditure. Last year, the government’s subsidy target was 1.9% of GDP but the revised estimates are over 2.5%
Historical Trend:
Overpromising and Under-delivering:
- The Congress Party Government has consistently set unrealistic targets in a bid to keep voter confidence high; a maneuver that was not given much importance during the days of high-growth, but one which could backfire given the current slowdown
- With the general elections coming-up in 2014, the government’s actions and performance are likely to receive closer scrutiny from both voters and the private sector
Speak Your Mind