The FM presented another budget of the government’s income and expenditure before the parliament and the nation on 28 Feb. It is a non-event. It confirmed my take on the GDP numbers which I had written in an earlier blog on CSO’s GDP projections.
The RGESS has been expanded for people with a gross salary upto Rs 12 lakhs. A sop of a home loan benefit in taxation and that is about it. A lack lustre budget . But what can Mr Chidambaram do? He has limited options. The govt is spending like Mallya and earning like a kirana store. There is a huge mismatch. This is leading to a fiscal deficit. More so a current account deficit which is dangerous. I don’t think , except for a few in the ruling party the others understand the implications if we do not control the deficit.
The govt has to borrow to bridge the gap between income and expenditure. This borrowing is dependent on India’s financial rating to some extent. If Moody’s or S&P or Fitch downgrades India, which is likely, there will be a flight of FII funds which is fleet footed money. This will put a run on the Rs and depreciate it. A depreciated Rs makes oil imports costlier and our import of raw materials by various industries costlier. All in all a huge negative for the economy. If that happens be prepared for a shocker in the stock markets and if you are ready with cash , there may be an opportunity to invest.
The ruling party probably knows the writing on the wall for the next elections. To hell with the economy, let’s be populist in our approach and look at votes.
And all those of you who are too optimistic in comparing India with China as a regional power, please revise all your estimates. I am a skeptic. Unless India solves its governance issues, we are no more than a tin pot banana republic being run on the whims and fancies of 545 people.
India needs jobs for its youth. Jobs come with economic growth. The day is not far when we may have a “Desi Spring”. No jobs(due to 4.5% economic growth) , No girls(due to our adverse sex ratios) and No governance(corruption and selfish interests) make for a deadly cocktail for the youth. Don’t say I didn’t warn you…..Hasta La Vista