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Expectations from Budget 2012

The budget announcement for FY 13 is right round the corner and expectations are running high. This year’s session assumes greater proportions given that the country stands at cross roads today. From a high of being one of the growth drivers post the financial crisis, India today faces the dual challenge of declining growth coupled with high levels of inflation which though having subsided in the recent past could scale up again given the persistently high crude oil prices.

Among the key expectations from the budget, the most important measures that would be keenly watched would be on the fiscal consolidation front. The government faces a daunting task of managing the fiscal deficit which seems to have gone a bit awry from last year’s budget estimates of 4.6% for FY 12. As such, one would be eager to take note the measures that will be announced to get closer to fiscal consolidation and thereby ensure a healthy fiscal situation for the country.

Among the other important areas that the budget should provide clarity on would be policy initiatives to remove supply side bottle necks that could pose a threat to the long term growth prospects of the nation. A lot has already been written about the long term structural growth factors that India enjoys including demographic dividend, a young and aspiring population in the productive age band. However, it is essential that supply side issues are addressed since these are capable of pushing inflation levels high amid consistently growing demand. It could also prevent the nation from direct these structural forces in the right direction due to lack of employment opportunities.

Every year, budgetary announcements form a critical milestone since they form an important platform to initiate several policy measures. In the current scenario, wherein there is an urgent need to attract long term capex investments to rejuvenate the growth engine, one would expect specific measures being rolled out to attract FDI inflows as well encourage investments push from local companies.  Similarly steps to provide impetus to different levers of the economy would provide a major fillip to realize the growth momentum that our country has enjoyed earlier.

Even as industry stalwarts and corporate honchos present their wish list for the budget, the common man awaits budgetary announcements with keen interests. The recent past has taken a toll on personal finances given a persistently high inflationary scenario for the better part of 2011. It would be encouraging to see the budget offering some relief to tax payers through higher tax exemption/ more avenues to save tax while at the same contributing towards building a better infrastructure for the nation. In addition, far reaching measures that focus on areas like health, education and retirement would be a welcome move since they will be steps in the right direction for improving the quality of life of a large population.

As India becomes more coupled with the global economy, it is extremely important that we embrace modern methods of investing while continuing with our healthy habit of spending within our means. Initiatives that facilitate greater retail participation using specific steps to inculcate the habit of long term investing in equity markets through appropriate means would go a long way in broad basing our capital markets and ensure that a larger group of people is able to benefit by adopting prudent methods of financial planning and asset allocation.

In sum, one would expect a budget that is pragmatic in outlook and crafts a clear path towards achieving long term sustainable growth for the economy. 

Gopal Agrawal

The Author is Chief Investment Officer, Mirae Asset Global Investments (I) Pvt. Ltd.

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