Pranab's 2011-12 Budget Should Check Inflation And Spending

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Every Union Budget is an excercise of hope and dashing of hopes. But what matters is that the Indian economy should move forward with every budget and its proposals. No doubt a complicated exercise, the 2011-12 budget presented by Finance Minister Pranab Mukherjee will have to deal with serious macro and micro-economic issues facing the nation.

The biggest macro challenge facing the economy today is inflation, which has eaten into coporate margins as third quarter financial numbers of corporates suggest. This becomes a critical area to address for macro and fiscal monetary and fiscal policy when it is as big as it is at the 8 per cent plus mark for a better part of last year or the last few months.

Inflation and the budget are closely linked. If one looks at numbers of the government’s fiscal deficit and what it means by way of borrowing, the fiscal deficit or India’s net market borrowing from the day of Lehman crisis approximately from from October 1, 2008 up to March 31, 2011, 30 months in all, the net borrowing of the government was Rs 9.2 lakh crore or Rs 9.2 trillion. This is net borrowing, not gross borrowing and that is just to return the old bonds that the government had raised.

The more the borrowing the more the money supply and higher the pressure on prices.

Indian companies will also look to Finance Minister Pranab Mukherjee to usher in pending reforms in the financial and infrastructure areas. Personal and corporate taxes, as always, would be at the centre of attention as far as common people are concerned, as would would be increase or decrease in duties on goods and services.

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