Budget initiates some action to reduce debt: Networth

The FY11 budget shows government inaction in terms of near-term fiscal consolidation. Cutting the fiscal deficit from 6.9% to 5.5% of GDP in FY11 is a step in the right direction – but this is in line with previous forecasts which have relied on heavy borrowing.

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Also, the government has not specified longer term targets for cutting the deficit/debt as percentage of GDP but has pegged fiscal consolidation to a possible double-digit growth in India. Meanwhile, GDP grew 6% in December FY10 quarter lower than 7.9% in the previous quarter.

With the fiscal deficit expected to be still high over the next fiscal year, it is clear that the onus will be on the RBI to hike policy rates and deal with inflation.

On the positive side, the budget has initiated some action to reduce debt, giving banking licenses to private players, capital support to banks, higher allocation to infra, power, roads, higher social spending, rural development spending, broader income tax spreads, and keeping service tax steady.

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