More reports on: Economy - general
Pranab's promises must be delivered: Templeton news
01 March 2011

Most observers have read finance minister Pranab Mukherjee's budget, presented on Monday, as high on intentions but low on urgency. Mark Mobius, chairman, Templeton Asset Management, seems to agree.

In newspaper and TV interviews, Mobius suggests that while in recent years India has been one of the fastest growing economies and navigated the global financial crisis, it faces challenges such as high inflation and heavy deficits on the domestic and export-import fronts. Also, the series of corruption scandals have raised questions about governance.

India's high growth rate means that consumption in some sectors has risen faster than output, resulting in higher inflation. Inadequate supply has pushed up food inflation as the focus on farm income was not accompanied by increased farm productivity. In response, the government has made removal of bottlenecks in the food sector as a key priority area for 2011-12 and announced new measures such as infrastructure status for cold storage chains to address logistics issues.

Managing inflation without endangering economic growth remains the chief task of the government and the Reserve Bank of India, Mobius suggests. In the current cycle, the RBI was one of the first central banks to take up monetary tightening, but recently indicated that fiscal stimulus control is required as well to contain inflation.

The fiscal deficit situation had become manageable in the current fiscal year due to the successful 3G spectrum auction, divestment and strong GDP growth leading to buoyant tax revenues. The projection of the centre's fiscal deficit at 4.6 per cent of GDP for the next fiscal year is clearly a positive and the market borrowings estimate for the next year has come in lower than market expectations, despite the hike in social spending. Also, the budget exercise hinges a lot on keeping fuel subsidy to a minimum and that could be a challenge in the current environment.

The introduction of the food security bill may add further pressure on the expenditure side. The implementation of the direct taxes code and the proposed goods and services tax could help raise tax revenues over the medium to long term, he feels.

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Pranab's promises must be delivered: Templeton