The government has taken a realistic stance. It had to increase spending on social areas to support vulnerable sectors while it did not have much flexibility on the fiscal side. The government’s expenses shot up in 2008 due to the subsidy burdens and the fiscal stimulus, thus the Budget has been a tightrope walk between striking balance and prudence and stimulus.
The responsibility now moves to RBI for managing the economy and the environment going forward. The size of the borrowing programme has increased exponentially and, clearly, the market does not have the appetite for the same at current levels of yield. Any further hike in borrowings will cause yields to shoot up and, consequently, derail economic recovery. RBI has to decisively use all available tools at its disposal.
Nilesh Shah, Deputy Managing Director, ICICI Prudential AMC