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Feb 26, 2013, 11.18 PM IST | Source: Moneycontrol.com

Budget 2013: FM must balance between populist, economist Budget

We have seen a continuous phase of correction in Indian Equity markets. During the month of February, Indian markets underperformed global markets.

Vivek K Negi
Wellindia Group

We have seen a continuous phase of correction in Indian Equity markets. During the month of February, Indian markets underperformed global markets. Generally, during February markets are driven by expectations from the budget. I would like to outline two challenges for the finance minister in the upcoming budget:

1. Pre- Election Budget: As we all know that this is the last budget of the current Government; they have the last chance to cheer public with subsidies, fiscal packages and increased spending on public utilities. There will be pressure on Mr. Chidambaram to offer lucrative budget to keep their vote bank intact. Therefore, we can expect positive triggers for the agriculture sector. The Government may also launch Food Security Bill which will further increase fiscal deficit of the Govt. Industry is also expecting tax rebates, increased liquidity and spending support from the current year budget. On this basis, we can expect a populist budget this year.

2. Threat of Rating Downgrade: There are repeated warnings from leading credit rating agencies to reduce Indian credit rating from lowest investment grade to junk. Major reasons can be fiscal deficit, failure to implement reforms, failure to re-start investment cycle, situation of stagflation etc. Finance minister will take care that there shouldn’t be any rating downgrade before election next year, otherwise that will make situation further worse. Govt. is in a situation where they will have to sacrifice either growth or vote bank.

In past, Mr. Chidambaram has always cheered investor. This time job would be tough. Although, we expect he will take the middle way. When we say middle root, it means populist budget with a bucket of reforms or economist budget with a bucket of fiscal packages and subsidies for the public. Whatever is the budget, but next one year is going to be very challenging for the country as a whole. Keep a hawk eye on the budget.

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