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This is what happened last year when finance minister Pranab Mukherjee presented his budget.
The market slipped badly as it did not see an announcement on divestment or reform, which every one had expected, given that the government did not have to any more bank on the leftists for survival.
We at Financial Chronicle took a contrary view. On a careful reading of the fine print, we took the stand that, in view of the global financial situation, Mukherjee had done his best.
He increased the disposable income in the hands of people by reducing tax rates and making changes in tax slabs, and continued with tax concessions in the stimulus package announced at the height of the global crisis. All this helped revive demand at various levels.
Mukherjee did not pander to Dalal Street’s wishes and merely said that divestment would take place. He left it at that, without announcing any details. It spooked the market and indices took a nosedive.
It took the market some time to realise that the budget was for the country as a whole and not for Dalal Street alone. After its knee- jerk reaction on the budget day, the market recovered and performed pretty well. Even today, after corrections, India is one of the best performing markets.
At that time, our assessment was that announcements of reforms and divestment would be staggered, as it would ensure positive news flows over a period of time. An announcement did come after few weeks. We now see just how aggressive the government has been with its divestment plans.
In fact, public sector undertakings will mop up more money from follow-on public offers and initial public offers (IPOs) over the next few months than the private sector companies will.
So, what does the market expect from the coming budget? Its most fervent prayer is that there is no sudden withdrawal of sops in the stimulus package. Some conservative economists have already started to shout from rooftop that India should start the process of withdrawal of concessions as growth has resumed.
However, the finance minister it is unlikely to do that in a hurry – for two reasons. First, there is a distinct possibility of a relapse of recession in the US, taking the global economy with it. Therefore, it will be imprudent to take away the concessions that helped Indian come out of its slump faster almost all other countries.
Second, another bad monsoon cannot be ruled out for certain. If rains let India down again, then all the recovery achieved so far will go down the drain. Remember, it is the rural economy that has given a big push to recovery.
Since the government has a huge pipeline of IPOs, it is unlikely to do something to make the market jittery again about corporate earnings, certain to be affected if the stimulus package is withdrawn suddenly.
More than anything else, the health and positive mood of the market is important to the government. So, don’t expect any major negative decision.
Rather, this time round, Mukherjee may talk of some broader reforms in more sectors. The idea will be to impress foreign institutional investors which, in all their research notes, constantly express fears of a rising fiscal deficit.
This budget, we may see more steps towards fiscal prudence and a focus on raising rural incomes, in the light of the fact that it is the rural and semi-urban areas that have been the prime movers of the overall recovery.
The budget may have something relating to oil prices. Some of the Kirit Parikh committee recommendations may be accepted and a schedule of their implementation announced. In all likelihood, the market will take this positively since fuel subsidy has been one big reason for the fiscal deficit.
So, expect a budget speech which furthers this government’s agenda of inclusive growth. Expect also some broad-picture reforms.
The writer is a consulting editor of Financial Chronicle and director of an independent brokerage.
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