Budget 2012: Pranab Mukherjee's cautious game disappoints market

Santosh Nair
moneycontrol.com

The good thing for Pranab Mukherjee was that few people had any big expectations from the Budget, given the political compulsions of the UPA government. Still the market was hoping to hear something positive on subsidy cuts, lowering expenditure, improving capital investments, and a roadmap on the Goods and Services Tax (GST) and Direct Tax Code (DTC). The finance minister has disappointed on all these counts.

But the bigger worry for the market now is that inflation could increase further in the coming months because of the proposal to hike service tax, excise duty and widen the number of taxable services (all but 17). The companies will mostly likely pass it on to consumers. Bond yields climbing to 8.4% already reflect those concerns, and there is a saying that if the bond market and equity market gives conflicting signals, always believe the bond markets.

Some economists have been pointing to the worsening quality of India