There was some disappointment on the fiscal front as the government of India raised the budgeted deficit to 6.8% compared with 5.5% targeted in the interim budget. We believe that the fiscal deficit will be higher than the budget estimate of 6.8% and hence a strain on PSU banks. The finance minister did, however, say that the government will try to restore the fiscal health as soon as possible, although specific announcements will have to wait the report from Thirteenth Finance Commission.
India’s finance minister Pranab Mukherjee presented the Union Budget for 2009-10 in Parliament on Monday. Despite the fact that the Budget Speech did not seem possessing big-bang reform announcements as had been expected by a revolutionary Economic Survey that preceded the Budget, it still contained enough material to raise hopes for a stronger economy in medium term.
The focus of the speech was certainly infrastructure and agriculture. The finance minister set the tone of the Budget with two early announcements saying that the government will try to achieve 9% rate of growth for infrastructure in line with the 9% growth for broader economy by 2014, and also aimed at 4% growth in agriculture in the near term.
He further raised the allocation for NHAI up 23%. The minister said that IIFCL will be given more wings and the entity will refinance 60% of commercial bank loans in PPP infrastructure projects.
Another important focus of the speech was, as expected, agriculture and rural India. The finance minster proposed to provide subsidized loans to farmers at 6%. Allocation for the National Rural Employment Guarantee Scheme (NREGS) has been increased to Rs 39,100 crore while that for Indira Awaas Yojna hiked by 63% to Rs 8,883 crore. Further, Rs 7000 crore have been earmarked for rural electrification schemes and there has the budget also intended to hike allocation for irrigation projects by 75%.
There was something in the speech for the industry as well, as the government announced to extend the excise cut that was unveiled as a part of the fiscal stimulus announced December last year.