Markets orphaned
Nothing seems to be going right for the markets. The recent elections in five states gave a clear thumbs down to the Congress party,
heightening the fragility of the UPA government. Its chances of lasting a
full term have further diminished. The fiasco about the rail budget and
rollback of the proposed increase in passenger fares further signalled
that reforms under UPA-II remain a distant dream and any expectations of
rationalisation of diesel prices appear over-ambitious. The Reserve
Bank of India in its mid-term monetary policy review is still not
convinced about inflation, which was enough to warrant a rate cut, and
has actually gone by a CRR cut only to release much-needed liquidity.
The
Union Budget talked of all good things such as tax on gold, Rajiv
Gandhi Equity Scheme, cutting the fiscal deficit to 5.1 per cent by
borrowing less and capping subsidies.
But
the proposals in the finance bill have little to show that the Finance
Minister honestly wants to walk the talk. For instance, it is highly
unlikely that the fiscal deficit may be cut to 5.1 per cent – a figure
that can be achieved only in the best case scenario. The budget has
placed heavy reliance on revenues without doing enough on the
expenditure side. Besides rolling back excise cuts and the hike in
service taxes, it expects to collect substantial sums through non-tax
revenues such as disinvestment, the auction of the 2G and 4G telecom
spectrum, licence fee and also auction of coal mines, etc.
Most
of these revenues are based on the assumption of a GDP growth rate of
7.6 per cent and the economy and markets remaining in a good condition.
But a combination of high inflation, which is on the rise again, slowing
domestic demand and weak exports may not allow the GDP to grow beyond 7
per cent, making these revenue estimates a bit too optimistic.
The
fiscal consolidation that heavily relies on asset sale and not through
raising of revenues by taxes may not give comfort to the RBI, which may
decide to hold back on the much expected rate cut in its annual monetary
policy on April 17. The proposed reduction in fuel subsidy also does
not appear credible. ......READMORE : http://www.gfilesindia.com
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