Budget 2012: Investors, markets keenly looking at govt's fiscal consolidation road map

Budget 2012 may see Finance Minister Pranab Mukherjee attempt to nudge entrepreneurs to invest more by unveiling major investor-friendly policies. Will the Finance Minister announce easing of norms governing foreign investment in infrastructure, aviation?

Policymakers have begun talks on raising indirect taxes and withdrawing the last remnants of the 2008 stimulus, as the government comes under fire for not tackling the rising fiscal deficit.

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The fiscal stimulus measures had pushed the deficit to a 16-year high of 6.8% in 2009-10. The government managed to bring it down to 4.7% in 2010-11, following the over Rs 1 lakh crore bonanza from 3G and broadband auctions. But the government will miss its 4.6% fiscal deficit target in 2011-12.

Three years after the financial crisis derailed the Centre"s finances, the government is still struggling to rein in expenditure as promised in the 2009-10 Budget. As focus shifts away from inflation, investors and markets will be keenly looking at the government's fiscal consolidation road map.

What the Budget Could do

SET CLEAR GOAL POSTS
Lay down clear goals for fiscal consolidation and the measures that the government proposes to take to ensure those goal posts are reached.

MAKE SUBSIDY TRANSPARENT
Bring more transparency in provision for subsidies in the Budget, clarity on pricing of petro products, and put urea under the nutrient-based subsidy regime.

TONE DOWN FOOD SECURITY LAW
Avoid an overly ambitious food security law that could balloon the subsidies and offer some solution for mounting losses of state electricity boards.

SET FRAMEWORK FOR SHIFT TO GST
Increase indirect taxes to at least the pre-financial crisis levels and spell out a framework for shift towards the Goods and Services Tax, or GST.

PLAN BETTER SUBSIDY TRANSFER
Design framework for cash transfer of subsidies through the AADHAR number for better delivery and efficiency in subsidy management

AVOID WASTING BETTER DAYS
Provide a counter-cyclical fiscal consolidation framework that imposes greater discipline on the government of the day when things are going well