Random Thoughts

Union Budget 2008-09: Quick bites

The finance minister has not provided for the Rs 60,000 crore loan waivers that doled out to farmers. It is believed that the government would reimburse the banks for the losses arising out of this arrangement but how? That’s not clear. Further no provision for the recommendations of sixth pay commission, which would come on the anvil soon. Both the things are unavoidable and come with a time deadline of about 3-6 months.

The government can borrow money to fund these decisions. However, that would adversely impact its targets for fiscal and revenue deficits. Given this imbroglio, there are two possibilities. Either the government would increase taxes or print more of paper currency. There was no major increase in the tax structure nor were new taxes proposed during the budget. So, the government may have to settle down with the second option. And, that may result in higher inflation in the coming months.

If one has to consider impact of the budget on industrial sectors, then that is more obvious in case of sectors like auto, banking, paper, textile, FMCG and pharma. Among the less obvious customers is IT. There is no direct benefit for the IT services exporters, which form the bulk of the sector. However, the government seems to be serious about the growth in IT and communications in the domestic market. It reflects from its decision to give fillip to broadband connectivity in rural areas and to set up statewide communications corridor. Given this, the domestic IT market is likely to see a major demand push in the coming years, which might compel the IT biggies to pay more attention to the Indian market, which they more often ignore.

For FMCG, there is one more benefit from the budget proposals, which goes beyond the duty sops. It comes in the form of push for consumerism. Higher income tax brackets, the proposals in the sixth pay commission are likely to increase disposable income in the hands of the consumers. This would in turn result into higher consumer expenditure in a market economy.

Labels: Policies

posted by Ranjit @ 3/01/2008 02:43:00 pm