Budget 2012: What it means for the economy

Boosters For Investors

Indian companies get access to cheap overseas debt through the ECB route. Qualified foreign investors are allowed into corporate bond markets and infrastructure companies get more tax holidays. All these measures will increase liquidity in big projects, and offset the crowding out due to high government spending.

Prices Could Flare Up Soon

An expected hike in excise duties has come. The fi nance minister has also expanded the list of services that are covered under service tax and increased the rate of taxation. These will give him plenty of additional revenues, but will also push up prices across the board. He has also budgeted for very low oil subsidies, which could mean a fuel price hike soon. The only hope: some cuts in input customs duties that could cool prices.

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Stimulus Gone, Belt Tightening Starts

The fi scal stimulus is over. The government has started reining in fi scal defi cit. It has begun by slashing some spending and projects. Targets to cut subsidies from 1.9% of GDP to 1.75% of GDP by 2014-15. Indirect taxes hiked. Looking to revive disinvestment.

A Stronger Rupee, Greater FDI Flows

Opening the debt market to qualifi ed foreign investors will attract lots of funds to this nascent market. Companies are also free to borrow liberally from overseas markets and refi -nance rupee loans. Higher fl ows in equity markets and greater FDI infl ows also likely. All these measures could strengthen the rupee. That won’t be good news for exporters, but India’s oil import bill would fall.

End of Policy Paralysis Fuels Growth Talks

A focus on sectors like power, mining, coal, farming, railways and aviation, which have high growth potential, are vital for growth but are in some trouble in the current Budget. Finally, the government is coming out of its shell and driving policies. Policymaking is back, will growth follow?