This is an Interim Budget. That it’s turning out to be a “non-event” has not really come as a surprise to me. It is creditable that the UPA government has avoided providing sops now, which is sensible, as the new government would have inherited a financial mess four months later.
In any case, with the year expected to end with a substantial shortfall in revenue targets, there was very little leeway for further cuts on direct tax. The December reduction in central excise duties has taken away whatever room the government had on the tax front. The decision to boost flagship schemes like Bharat Nirman and Rural Landless Employment Guarantee Programme with adequate funds for 2009 is welcome, and is likely to generate demand in rural areas. However, the high fiscal deficit is a matter of concern, and it is likely to worsen in the coming months since the government will be forced to spend heavily to revive a sagging economy. The finance minister estimates additional plan spending of 0.5-1 per cent of GDP, but I suspect the spending will have to be even higher if India is seeking to sustain higher growth. Higher government borrowing could lead to a hardening of interest rates in the long term. However, in the short to medium term, I expect interest rates to come down, and the RBI to reduce repo rates.
Pawan Munjal, MD and CEO, Hero Honda Motors