Budget...big bets belied; markets tumble

Much was riding on Finance Minister Pranab Mukherjee, but he seemed to have other ideas. May be the back-to-back election wins for the UPA on the "Aam Aadmi" formula inspired him to base the budget on the same theme. Expectedly, the UPA's pet social schemes received generous giveaways even as the fiscal deficit target was revised much higher. India Inc. was happy that FBT was scrapped, but on the flip side the Finance Minister hiked the MAT substantially.

For the markets, there was nothing much to cheer about, barring the shelving of commodity transaction tax (CTT). The Rs11bn disinvestment target left a lot to be desired though there were reports that something concrete should be announced in a few months. Mukherjee also chose to remain silent on what the UPA's plans are on the FDI front. However, here too there is hope that something could materialise over the next few months.

Among the positives included reiteration of April 2010 timeline for the rollout of GST. A new tax code is to be ready in the next 45 days. Removal of tax surcharge on income above Rs10 lakh and increase in the Income Tax exemption limit were also welcomed. Extension of tax benefits for EOUs and STPI units coupled with investment-linked incentives for cold storage, gas pipelines, etc. were also well received.

In a nutshell, the trend of boosting domestic consumption through fiscal stimulus was extended to the budget as well in light of the tentative global recovery. But, it remains to be seen if the gamble pays off without any commensurate improvement in the investment scenario. The biggest concern of course rests with regard to the ballooning fiscal deficit and revenue deficit. There are apprehensions that even these seemingly uncomfortable targets could be overshot.

The markets were not amused, with the Sensex suffering its biggest budget day collapse. The Sensex and the Nifty lost about 10% each, the biggest weekly loss since October 2008. It may be recalled that on the day after the election result, the market soared with the key indices getting frozen at the upper circuits not once, but twice. That exuberance was due to expectations that the UPA, sans Left front, would now be able to push ahead with key reforms.