Experts discuss the road ahead for economy post Budget

RELATED NEWS Budget 2010: Sunset on STPI, EOU schemes Budget 2010 positive for economy, market: Emkay FICCI: FM balances fiscal deficit and growth Budget 2010 initiates some action to reduce debt: Networth Budget 2010 - pragmatic, progressive, prudent: KRChoksey

The Budget has received a somewhat middling applause. On the macro front the fiscal deficit has been curtailed but it can't be called growth or reform oriented Budget in any fashion. The middle class have been taxed less, but the inflation impulses are strong.

So how does the economy fare from hereon? In a special discussion on CNBC-TV18, a panel of economists including Suman Bery, Director General, NCAER; Dr Govinda Rao, Director, NIPFP; TT Ram Mohan, Professor- Finance & Economics, IIM-Ahmedabad, and A Prasanna, Economist, ICICI Securities gave their assessments of the Budget and the road ahead for the economy.

Here is a verbatim transcript of the interview. Also watch the accompanying video.

Q: Inflation, really the biggest economic argument against the Budget has been that it has flamed inflationary expectations. I am talking about the reason for the walkout. The fact that both customs and excise duties on petrol and diesel were raised and on crude oil, some of it was rollback but some of it was entirely new was that really necessary when everyone knows that inflation is a beast that could have been unleashed anyways?

Bery: I was on the Kirit Parikh Committee I was slightly surprised and disappointed, disappointed perhaps not entirely surprised that it was referred to the oil and gas minister and to another movement. I would make two basic points.

One is that there are important relative price changes that need to take place in the economy. The price of fuel is one. We store our problems to the point that they become unmanageable if we do not adjust. So that is point number one. In any fast growing economy and indeed I would argue that what has been happening in food prices is more properly thought of as a delayed adjustment in relative prices. We pick it up in the indices inflation.

The second point I would make is that I think what they would were doing is accumulating enough resources so that they can bring the subsidies on Budget for a while because they do not think they are ready for the full scale deregulation. I hope they go to that because that is what is appropriate from both the fiscal and resource allocation point of view.

Q: What do you think will be the inflation scenario - your numbers upto March 31, and more importantly the second rung effect; the first rung effect perhaps may be calculable. What is the second rung effect and where do we see ourselves in June 30 perhaps?

Prasanna: Going into February and March probably we go closer to 10%. I do still do not think we can touch 10% so probably we are going to be in the 9-10% range broadly. I am saying this because it looks like the food prices are coming down and even sugar prices are coming down.

So you are going to get some relief on that front. Whereas your fuel prices going up of maybe manufacturing prices could be edging up because of all the CENVAT hike. So if you are lucky enough you should maybe not touched 10%. I guess because of seasonality in food prices inflation should come off but it will come off gradually.

Q: You see perfect 10%- you do not see the next quarter?

Prasanna: Slightly less than 10% is what I would think. The delayed impact in other prices will be there. But as I said hopefully the food prices would come off. So we will come down gradually to about 7-8% by June.

Q: Any numbers from you in terms of inflation do you think that it gets worse than single digits it goes into double digits and more importantly what does that do to growth?

Mohan: I think there is bound to be some inflationary impact of the changes in the petroleum prices and this is not the forum for getting into a debate on the merits of the Kirit Parikh Committee recommendations and so on but certainly there is a lack of political sensitivity here and the timing does seem to be singularly inopportune.

But let me just say that the whole question of petroleum pricing and the so called subsidies needs to be looked at very carefully because after factoring all the taxes and so on what is the quantum of subsidies has to be correctly calculated. So I think there is a fair bit of obfuscation on the subject.

But I think that the move is certainly ill-timed. It could push inflation into double digits and we just have to keep our fingers crossed and hope that the next agricultural harvest turns out to be as good as we have been promised.