Fiscal situation is going to be keenly watched by most analysts on Budget pronouncements.

Analysts are hoping that the Union Budget 2012-13 will bring about fiscal consolidation to manage the growing fiscal deficit. At the time of an economic slowdown, there are also hopes that the Government will announce appropriate policy announcements to boost the economy.

Budgets in India are also determined by political considerations, the regional elections in Uttar Pradesh and four other States may have a significant impact on the Budget, said analyst reports.

The Government is unveiling the Union Budget on March 16 this year.

Deficit to slip

At the beginning of FY12, the fiscal deficit was targeted to be 4.6 per cent of GDP. “However, on account of a sharp increase in expenditures and fall in revenues as a result of higher spending on oil subsidies and other social spending programmes, as well as lower tax collections due to the slowdown in the economy, fiscal deficit is likely to slip to 5.5-5.7 per cent of GDP,” said a report by Care Ratings.

Most financial institutions are expecting the fiscal deficit (FY12) to be in the range of around six per cent of GDP. Goldman Sachs' Asia Economics Flash expects the fiscal deficit to be six per cent, Morgan Stanley estimates it to be around 6.2 per cent and MF Global feels it will be 6.1 per cent of the GDP.

“We expect the FY12 fiscal deficit to be 5.8 per cent of GDP (1.2 per cent of GDP higher than the budget) but moderate fiscal consolidation should bring this down to 5.3 per cent of GDP in FY13,” said a research report from Standard Chartered. The Government urgently needs to reduce unproductive expenditure on subsidies to demonstrate its commitment to fiscal consolidation, they said.

Due to the expected fiscal consolidation, analysts estimate the fiscal deficit for FY13 to reduce.

Balancing act

A pre-budget report put out by Care Ratings said they expect that the theme of the FY13 Budget would be to strike a balance between fiscal consolidation and public spending while maintaining sustainable inclusive growth.

The Budget should focus on growth in rural areas and provision of more education and health facilities through centralised sponsored schemes. The other themes would be to increase infrastructure investment and move towards implementing GST and DTC.

The Finance Ministry is expected to increase revenue collections by raising excise duty and service tax (from 10 to 12 per cent). “There can be an increase in general excise duty to 12 per cent and some specific sectors such as diesel engine car and cigarettes can attract more duty.

“It is possible that more services can be brought under the service tax net and a marginal increase in the corporate tax rate,” said Mr Vikas Khemani, President and Co-Head Wholesale Capital Markets, Edelweiss Securities Limited.

Sectorally, analysts expect the Budget to be positive for the infrastructure and utilities space. To ensure a healthy GDP, good investments in the infrastructure space are needed. In the auto sector, analysts estimate the excise duty to be raised on small vehicles.

Fiscal prudence

For the banking sector, the most important thing would be “fiscal prudence from the Government. If the fiscal expenditure and deficit is restrained, it would create headroom for the RBI to cut rates and would be a big positive for banks,” said Mr Lalit Thakkar, MD Institution —Angel Broking.

The Asia Economics Flash expects the Budget to be positive for infrastructure companies and power developers, and negative for autos, consumer goods, and oil marketing companies.

> priya.s@thehindu.co.in

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