Moneycontrol
Mar 17, 2012 01:29 PM IST | Source: Moneycontrol.com

Budget 2012-13: Budget overview by Prabhudas Lilladher

Prabhudas Lilladher has come out with its report on Budget overview.


Prabhudas Lilladher has come out with its report on Budget overview.

Fiscal deficit target a tall order: In the wake of rising current account deficit and fiscal deficit, the government was expected to announce a transparent and credible fiscal consolidation roadmap in the Union Budget. With one of the highest ever current account deficit of 3.6% of GDP in FY12 and large slippage in fiscal deficit from a budgeted 4.6% to 5.9% of GDP in FY12, the imperative was all the more to spell out how the government planned to curtail fiscal deficit. It has announced a sharp reduction of fiscal deficit to 5.1% of GDP in FY13. If achieved, this will be a significant move towards fiscal consolidation. However, its achievement looks difficult in the wake of unrealistic assumptions on the subsidy front. We believe the realistic deficit number should be closer to 5.5%. Control over fiscal deficit is necessary for anchoring inflationary expectations and achieving reduction in interest rates. The RBI, in its policy, had unambiguously mentioned that although interest rates have peaked, the extent and pace of reduction in interest rates would be primarily guided by clarity in government

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