A pragmatic budget with a bias to steady and consolidate the gains of last year. Overall non populist unless we see surprises during the year, and non reformist with no policy announcements on insurance, banking or retail.
Key positives were the recognition of importance to creating capacity in the key thrust areas- agriculture, education and infrastructure. An increase of 17% on social sector spending , continuing spend through NREGA and a sincere attempt to integrate rural economy into mainstream are going to remain big drivers of the growth story for the next few years. Also there was a lot of mention on decentralising the expenditure to states, direct subsidies - all of which augurs well for better execution.
The opening of external flows to fund infrastructure is to be handled very carefully given money variables which can very easily get out of hand. The headline-grabbing number was the fiscal at 4.6%,.much better than expectations. While not sure what the state deficits are, the total deficit is still quite large amongst emerging market countries. Combined with a lower but still significant revenue deficit at 2.3%, the deficits are a problem, giving the FM little wiggle room.
My larger concern is the composition and stickiness of the expenditure rather than the number per se. Still heavy on subsidies, oil deficit, interest cost , it remains low on capacity building of the real economy. On the other side there seems to have been very little done on revenue enhancement besides some tinkering with new avenues for service tax. Hopefully this is augmented with better tax collection and administration. A very conservative market borrowing of Rs 3.4 lakh-crore which pegs central deficit to 44% of gdp down from 53%, is absolutely the right way to go, but therein lies the risk in the numbers and assumptions.
Lastly, this budget consolidates the 8%-9% growth paradigm, but does little to lay out a breakout strategy.