At Outlook Business, we have maintained all along that the Union Budget is nothing more than media hyperbole. No matter who is the finance minister, the budget speech usually is a statement of intent with little accountability. As for projections of government finances, fiscal prudence targets are never met but there is always a different reason why. Hence, our energies this time of the year are better spent gauging business sentiment in important industrial clusters across the country.
Our high-horse view aside, Arun Jaitley’s latest budget had its share of interesting pronouncements, particularly on tax evasion and black money, expectedly without much elaboration on how exactly this intent will be executed. Be that as it may, the expectation that Jaitley will work some magic through the budget to spur an economic recovery was misguided enough in the first place — the government does not have any fiscal room to do that. The best Jaitley could have done is ease bureaucratic bottlenecks, though this has been aired out before, there is very little sign of the government walking the talk.
That apart, the biggest hurdle in the way of a sustainable recovery is financing. Most debt-laden private sector infrastructure players can’t refinance themselves and non-performing loans-saddled public sector banks aren’t lending either. The government hasn’t put any money on the table and the next best thing would have been initiatives to re-route savings from fixed and unproductive assets like real estate and gold to productive assets. The tax-free infra bonds announced may help in part.
The saving grace is that our ground reports from nine industrial clusters show that businessmen are more optimistic this year than the last. Sentiment is decisively better and some sectors are witnessing an uptick in business (see Racing Ahead, Slowly). Exports are being banked on as a driver but much will depend on global growth and the currency. The irony is that while a weak currency is vital to maintain export momentum, a stable currency is important to get foreign investors to fund our deficits and growth. The latter playing out should be good news for a government whose latest financial statement has a built-in best-case scenario.