The challenging political landscape and economic backdrop of slow growth and sticky inflation made this Budget a tightrope walk. It refrained from outlining a directional changes in economic policy priorities and failed to cheer the markets. The fiscal consolidation road map lacks details and credibility. We anticipate that fuel and fertiliser subsidies will be much higher than the Budget estimates, unless the government takes the politically contentious decision of raising administered prices. The decision to raise service and excise tax rates and widening the service tax net will be critical for fiscal consolidation but expectation from the 2G spectrum auction could be optimistic. We would not be surprised if the fiscal deficit for FY2013 slips to about 5.5 per cent. The composition of expenditure remains heavily lopsided towards revenue spend, with the share of capital spend lagging at just 13 per cent. It is not clear whether the extent of fiscal compression and quality of spending will be sufficient to prompt rate cuts from RBI. Details of critical supply-side initiatives have mostly been left outside the budget. It is a Budget which treads the middle path to avoid a political logjam but might fall short of reviving private investment.
Samiran Chakraborty Regional Head of Research (India), Standard Chartered