Govt track record says Budget 2012 will be bad: Jim Walker

The government’s ability - and willingness - to live within its means will be on stern test in Budgtet 2012, but going by its track record, the budget will disappoint, says Asianomics founder Jim Walker.

“The government has boxed itself into a corner, where the only priority is fiscal consolidation,” Walker told Firstpost in Hong Kong. And if fiscal consolidation is not the No. 1 priority in this budget, the RBI will not deliver the growth stimulus that is required - interest rate cuts - and the government can forget about economic growth, he adds.

In particular, the government has to address the mounting burden of subsidies in this budget, reasons Walker. “It has become central to whether or not this government is serious about fiscal consolidation.”

But in his reckoning, going by the government’s “appalling” track record on this front, it will not deliver. “The likelihood is that they are going to disappoint again in the budget by making assumptions that are not going to be fulfilled,” fears Walker. “People will look at the assumption and say: ‘is this realistic?’”

The government has already lost credibility from last year’s unrealistic assumptions, and if it doesn’t do much better this year, “we could see a pretty significant market selloff,” says Walker.

Walker acknowledges that India’s 7 percent economic growth is good, particularly from the perspective of a contracting eurozone economy and slow-paced US growth. “But combine that with an incontinent government that can’t stop spending, and the 7 percent growth isn’t enough to stabilise the debt, or control the fiscal deficit. "

Any country that doesn’t control its debt and deficit will be downgraded, and with that, the borrowing costs offshore will go higher - and the stock market will go lower, he cautions.