Budget 2009-10 backs infrastructure, farmers

1. Government on Monday outlined measures to speed infrastructure development and unveiled increased spending for farmers and the poor in its first budget since Prime Minister Manmohan Singh's government was reelected by a resounding margin in May.
2. Finance Minister Pranab Mukherjee, sticking to the theme of "inclusive growth" espoused by the Congress party-led government, unveiled breaks for exporters hard-hit by the global downturn and direct subsidies for farmers. He also urged a return to fiscal responsibility targets as soon as possible.
3. "The first challenge is to return the GDP growth rate of 9 percent per annum at the earliest," Mukherjee said.
4. "The second challenge is to deepen and broaden the agenda for inclusive development." Bond yields rose rose after the announcement of additional spending, while stocks were down by 1.37 per cent.
5. The first budget of Singh's new administration is seen as a roadmap for how he will govern for the next five years after his Congress party-led coalition was reelected by an unexpectedly decisive margin.
6. Mukherjee called on states to remove bottlenecks for infrastructure projects, and outlined plans for more flexible financing for infrastructure and development of long-distance gas pipelines.
7. Unconstrained by its previous alliance with leftist parties, Singh's new government has a freer hand to implement economic liberalisation measures to drive expansion but has also promised "inclusive growth" to support social programmes and rural development.
8. At the same time India is hobbled by a fiscal deficit that ballooned to 6.2 per cent in the financial year that ended in March, with the bond market pricing in expectations that the figure could creep higher this year to as much as 6.5 per cent. Including off-balance sheet items like subsidies for fuel and food, as well as state-level shortfalls, country's overall fiscal deficit for the year that ended in March was about 10 per cent of GDP.
9. That compares with less than 3 percent of GDP for China and more than 12 per cent of GDP for the United States in the latest fiscal years.
10. Country's economy grew at 6.7 per cent in the most recent fiscal year, held back by the global downturn, after expanding at least 9 per cent for three straight years.
11. The finance ministry said on Thursday that growth could rise to 7 per cent this year -- towards the high end of the range of private forecasts -- and subsequently increase to 8.5 to 9 per cent if the government adopts sweeping reforms and speeds infrastructure development.
12. With the developed world mired in recession, big emerging economies led by China, which is on track for 8 per cent growth this year, and India account for a rising share of global output and are expected to help drive global recovery.
13. Both economies have been fuelled by stimulus spending to spur domestic demand.The run-up to annual budget announcement, always subject to fierce jockeying by ministries, industries and other interest groups, was especially frenzied this year given the ruling coalition's decisive electoral win.
14. Anticipation that the government would unleash sweeping market-oriented reforms sent Indian stocks surging 17 per cent on the first trading day after the election result in May. But that has led market watchers to warn that expectations for the administration's first budget may be unrealistically high.
15. Stocks jumped by nearly half in the April-June quarter.
16. Last week, the government unexpectedly raised fuel prices by as much as 10 per cent, passing part of the recent surge in global oil prices on to consumers. Friday's railways budget, however, included improved services and fare cuts for the poor.

****

Headlines

Corporate News Headline

• JSW Steel announced that its production rose by 45% to 1.4 MT in the first quarter of this fiscal year following robust demand in sectors such as Automobile, Construction and White Goods. (BS)
• DLF has raised around Rs. 10 bn through the sale of land parcels across four cities in the past 4-5 weeks and is currently in the process of closing more such deals worth another Rs. 5 bn in the coming weeks. (ET)
• SBI has offered a loan of up to USD 1 bn to Bharti Airtel to partly fund the Indian telecom firm's plans to buy a stake in South Africa's MTN. (ET)

Economic and Political Headline

• In the Railway Budget for 2009-10, the Indian Railways (one of the largest profit-making industries in the country) has proposed to invest Rs. 407.45 bn in the current fiscal, up from Rs. 367.73 bn in the previous financial year. The Budget did not increase the passenger fares and freight tariffs.(BS)
• Six banks in Illinois and one in Texas were seized by the US regulators as the deepening financial crisis pushed the toll of failed US lenders this year to 52, the highest since 1992. (Bloomberg)
• The UK service industries from law firms to consultancies grew to 51.6 in June for the second month, suggesting that Britain may be on it way to emerging from the recession. (Bloomberg)

****