Budget 2012: The focus on infrastructure is laudable, says CARE Ratings

By D R Dogra, MD and CEO, CARE Ratings

The FM has presented a fairly pragmatic budget given the constraints, but the attainment of the target of 5.1% is contingent on certain growth assumptions, which quite did not take off last year.  The Budget has not exactly put a leash on expenditure but has tried to rationalize subsidies on fertilizers and oil, though we need to see if they do work out at the end of the day. The Budget actually sees these numbers coming down from FY12(R) Revenue is to come mainly from indirect taxes as there is a loss on direct taxes, which will tend to put pressure on prices especially when juxtaposed with the hike in freight rates just before the Railway Budget. Quite clearly, things will be tough on the price front going ahead. The focus on infrastructure is laudable as are the schemes relating to tax benefits on the finance part which should help to garner funds too. However, the financing of the fiscal deficit will still be a challenge given that we can see industry also demanding credit as the economy gradually moves up the ladder. The number of Rs 5.7 lakh crore is large. This in turn will definitely put pressure on liquidity and hence interest rates. In fact, the overall debt of the government is quite daunting at around Rs 50 lkh crore. We would have been happy in case we did have some mention on reforms which are in the way of growth, which have been avoided in the Budget. Again the optimism on disinvestment does raise some doubts given the past performance as well as the uncertainty about the markets. Finally, the test of credibility of these numbers is in meeting targets, which will remain the principal challenge