With speculation rife about the intentions of the new Congress-led UPA government regarding the Budget and its views on the economy, the powers-that-be thought it fit to field its frontman on the financial front, Finance Minister Pranab Mukherjee, to calm the rumours and end any knee-jerk reactions stemming thereof.
The newly-anointed finance minister, duly took the stage and spoke, in a press conference, on what would be the most important issues that he would be considering while carrying out the Budget-making exercise, aside from revealing the fact that the he would be presenting the full Budget on for 2009-10 in the first week of July and the whole process would be finalized by July 31 as was indicated in the UPA manifesto -- full Budget within 45 days of formation of govt.
While his views were mostly pointers that are already in the public domain, figuring from the priorities of the last government as well as what was left undone, but which will be on the to-do list now that blackmailing allies can be ignored, the reiteration thereof has underlined the importance that the new government is willing to assign them.
Here is an enumeration of what can be expected as policy measures from the government on the basis of what the finance minister said today.
At the start, it was evident that what the finance minister was trying to achieve was a balance between his politically expedient objectives, while at the same time he was looking to make a case for a stable and rejuvenated economy-- something that is very difficult to achieve. He said that a coordinated approach by government and the RBI has helped the economy to stabilize and that gave hope for the further flow of future benefits to all sections of society. He gave a view that Budget 2009 would be looking to follow an inclusive agenda and that means an exercise requiring a trapeze artist's skills to pull it off. Patting the pervious regime on its back for its achievements, he said, “A growth of 6.5 to 7 per cent is no mean feat, but that the people should know the targeted growth rate will be tried to be achieved, but it cannot happen overnight.”
He emphasized that along with growth, employment generation would acquire as much importance, “Let me say that we are committed to restoring growth and employment and that would not have been possible without increased spending funded by incremental borrowing. This would need to be further continued in 2009-10.”
He added, that the government derived great strength from the people reposing their trust again with the Congress and UPA, saying, “Mandate of the people has provided a booster dose to the government and it will not depend on dogma or cliché to deliver quality changes in the country.”
While reviving the economy would be the top-most task for the government, for which public expenditure will be increased, Mukherjee said that this would be strived for keeping in mind fiscal prudence and will not involve any steps that could be deemed counter-productive. With inflation at reasonably low levels, he said that it will give the government quite enough leeway to effect some far-reaching changes across all sectors of the economy. He went on to add that, “The prophets of doom have unduly focused on public spending and the subsequent growth of deficit, but there is no need to do that as we are keeping a watch on all fronts. I see the fiscal deficit at 5.5 %.”
He said that the options available to him to revive the economy are good enough and that the net result would be that the new government will be able to maintain a high rate of growth. Therefore, he indicated that since industry and businesses have largely been hit by the lack of availability of funds as well as the cost of sourcing of funds has become very costly, in addition to time taken for the process to be completed having increased exponentially, there would be put into effect policy measures to improve the situation. Among them, he said, would be a meeting with bankers to persuade them to back a more benign plan of action that will get credit flowing smoothly again, thereby removing one of the most troubling problems faced there and get industry back on the high growth path.
In particular, the finance minister said that the government will concentrate on boosting the infrastructure sector and that would be achieved by re-calibrating the policy applicable there and at the same time he would be looking to boost employment generating capacity of the economy. According to his own words, “Pipeline of infrastructure projects will be re-appraised and given further boost.”
Talking about other sectors on his watch-list, finance minister said he would address the long-pending proposals/measures of the financial sector and that means he would be looking at introducing further reforms in areas like banking and insurance.
While the finance minister’s primary task of calming the country in general and the markets in particular seemed to have gone down well as per initial reactions, yet what remains to be seen is whether there will be enough money to fund all these measures. And if not, then what kind of policy measures will be eyed to generate revenue. That would be a tough task and can include such sensitive areas like raising taxes and duties. However, the chance of the government looking towards a stimulus for this purpose cannot be discounted, especially after what the finance minister said on Tuesday. Nevertheless revenue generation would be a huge task for the government.
As an immediate reaction to the finance minister’s words, stocks have moved up, but that was put at the door of short covering.
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