The Great Indian Budget

There are so many idiosyncrasies about Indians which are difficult to explain. Our obsession with food, movies, cricket, TV soaps, dance and music in the movies - all are difficult to fathom. The way we express our affection for these are equally bewildering. Indians have one other obsession that is quite unique, the annual budget.

Actually we Indians are masters at creating a festival out of everything. The savvy media has just upped the ante even more. The budget is just a financial document, where the government lists out its incomes and expenses for the past year and draws up plans for the next. It should actually be a very simple exercise devoid of glamour and hype. But we are Indians!

The Indian economy used to be such an insulated one. The year 1991 changed all that. It was in that year that the Indian economy started to embrace the world. Past Finance Ministers have since used the budget platform to launch mega proposals for disinvestment and to announce major plans. This strategy has added the mystery factor to the budget which is what keeps all and sundry glued to the budget speech. Eventually, when the Indian economy is more open and mature, I think the budget will lose a lot of it's importance other than being a reflection of how well the government manages it's finances.

On Monday, 06th July, the FM broke with tradition and refused to play to the gallery.Consequently, the speech was bland and devoid of any major policy announcements. In the context of taking the glamour out of the budget I think he deserves a lot of accolade. In a way the government is asking its citizens to grow up. The budget should not be an event and I hope the lessons have been learnt. The stock markets had a dramatic fall, why, nobody is quite sure. There were many positives for the industry and many issues have been addressed or at least promises made. The poor have been given their due. Farmers have been extended a long helping hand. So, many many positives. But still Dalal Street panicked. All because of the heightened expectation of the budget charting a path for positive government intent on several fronts. Was the market wrong to have reacted the way it did? Well, yes and no. What the market is worried about is that the government will not carry through on it's intentions in terms of disinvestment and a host of other issues dogging the markets in particular and the economy in general. But I think this time the market has got it all wrong, all because of this obsession with the annual budget.

Problems remain, no doubt. Fiscal deficit is looming and the planned government borrowings are a huge concern. It is a no brainer that lenders would prefer to loan to the government than the private sector, this is what has most worried. When the entire world seems to be grappling with deflation worries, India, it seems, is headed for an interest correction upwards. Pretty weird. The question uppermost in everyone's minds is what this will do to demand. So perhaps the market is right to be concerned. But the government is adamant that growth will not be affected. However, the statement from the government that the budget is a calculated risk, shows that they have their concerns. So it is not going to be a smooth ride, for sure. Challenging, and interesting times, to say the least.

What about the markets? Well we rallied all the way from 7,600 to 15,000 so there is bound to be a lot of bumps and sharp drops. Markets have never been for the faint hearted and that is not about to change. If markets don't drop then how does one get buying opportunties? Remember, the turtle only makes progress when it sticks it's neck out.