Will Budget 2012 push through reforms in power and energy?

It looks increasingly likely that the government will miss its fiscal deficit for the financial year ending March 2012 by a wide margin - a full percentage point. The government had estimated the fiscal deficit at 4.6 percent of GDP; now it looks like it will be closer to 5.6 percent.

It's certainly causing a lot of embarrassment to the government, and in an effort not to repeat the same mistake, this year, finance ministry officials will be focusing on coming up with a more credible fiscal consolidation plan, according to an Economic Times report.

Given that fiscal consolidation is the key issue facing the economy, the government is considering a fresh plan while keeping in mind extra costs from spending on additional items. Reuters

Given that fiscal consolidation is the key issue facing the economy, the government is considering a fresh plan while keeping in mind extra costs from spending on additional items like the Food Security Bill.

In terms of spending, the government has grossly overshot its estimates and consequently, announced borrowings of an additional Rs 90,000 crore. Making matters worse, the tax take has also been lower, which has pulled the difference between government spending and expenditure wider.

In an interview to CNBC Tv 18, Montek Singh Ahluwalia, chairman, Planning Commission, had also mentioned that fiscal consolidation would be the chief focus of the government for the budget. Even the Reserve Bank of India has said that fiscal consolidation is absolutely essential to stimulate growth.

Not everyone thinks that the government will get its finances in order this year. As renowned economist Jim Walker told The Economic Times in an interview, while the fiscal deficit is India's biggest problem, it could actually get worse next year rather than better.

Walker's view carries some weight given that the government is already heavily burdened with subsidies and doubts linger over how much he will be able to cut down in the forthcoming Budget. The extra expenditure on the Food Security Bill will also exacerbate the problem.

Given that 2014 is the year before Lok Sabha elections, 2013's Budget will most likely be littered with political giveaways and freebies. This is the last year the government has to implement unpalatable reforms in the coal, energy and power sectors before heading for elections.

The question is, will it bite the bullet?


Published Date: Feb 13, 2012 02:28 pm | Updated Date: Dec 20, 2014 08:29 am


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