Trend of Industrial growth (%) :

There is a perceptible slackening of the above average growth in the consumer goods (notably consumer durables) segment seen during the first half of the current fiscal. This is likely to accentuate in the latter part of the quarter due to the perceptible slackening in the business confidence and the likelihood of stalling of fresh commitments in anticipation of price reductions in the Budget. It would be imperative for the FM to take specific measures for boosting consumer demand as software exports could come under pressure during the first half due to the slowdown in the US economy (a market on which the IT sector is greatly dependent). Considering that software exports play a large role in shoring up the BoP position, efforts would also need to be directed to provide a fillip to other export avenues to seal the gap likely to be left open by a dip in software exports.

Disinvestment track record (Rsbn) :

The latest problem area that the FM would have to contend with and make provisions for is the earthquake. Though the FM claims that it would not have much bearing on the Budget, the revenue expenditure is bound to increase substantially. Even if the government were to get multilateral assistance of $1.5bn that it has been lobbying for, there would still be a gap of Rs100-150bn (after factoring in estimated inflows of Rs13bn from the recently announced 2% surcharge).

Some near-certainties :

· The most likely measure in the forthcoming Budget is the likelihood of a cut in the small savings rate. Our confidence emanates from two facts - one, the yields on these instruments have been used as a benchmark which has in turn led to the high cost of government's market borrowings and two, because state governments are increasingly misutilising these funds by deploying them for revenue expenditure.

· Hence, in one fell swoop, the Centre may ensure a reduction in the marginal cost of funds and also coerce the state governments to devote more attention to restructuring bureaucracy and raising revenues. This would put the Central government's Fiscal Responsibility Act in proper perspective. Fiscal responsibility, as enunciated in the previous Budget, is a core focus area as increasingly, attention is being diverting from fiscal deficit to gross fiscal deficit (inclusive of the states and local bodies which is in excess of 12% of GDP).

· The FM is likely to take for granted enhanced inflows in the power sector. This is due to an improvement in the financial position of the SEBs owing to the likely promulgation of an ordinance making power theft a cognizable offence. We are convinced that the FM would resort to such pressure tactics based on the tough stance adopted against states in the recent past, like the slowdown in Central assistance.

· Reforms of the judiciary for quicker processing of insolvency cases are admittedly on the top list of the Union minister for law, justice and company affairs. This, and a likely amendment to the SICA Act, would go a long way in improving productivity of the manufacturing sector while inducing greater investments due to the resultant rise in business confidence.

· An exit policy seems to be on the anvil considering that the process has been initiated even at the state level. The Centre could set an example in this regard by allowing for re-location of workers in PSUs.

· Improving the delivery of social services in order to improve the facilities at the grassroots level should be on the top of the agenda of the FM. In this regard, many experts have suggested a voucher system. For instance, if a farmer is given a voucher for Rs3,000 per annum per child for primary education (the actual cost incurred by the government currently), the quality of education would improve thus putting pressure on state-sponsored schools to keep up with competition. The same could hold true for such measures as irrigation facilities, which would cut through the clutter (middlemen) and allow the farmer access to his entire quota of funds, thus avoiding the diversion of funds to the parallel economy.

· A recast of the MAT on the lines of the Shome panel seems imminent. The panel has suggested a reconstitution of the MAT as a tax equal to the aggregate of 0.75% of the adjusted net worth at the year-end plus 10% of the dividend distributed. Such a move would have the dual benefit of enhancing corporate tax collection while simultaneously reducing dividend burden, thus improving yield on investments.

· The likelihood of the equivalent of the much-fancied 401K scheme (USA) being allowed is high. This is basically an individual retirement plan with tax deferment benefits to be floated by mutual funds. This would once again have the double advantage of providing a more productive avenue for deployment of funds that have been released through the recent VRS scheme offered by public sector banks, giving an impetus to the stock market.

· A disinvestment policy clearly indicating companies that are on the block along with the details of the timeframe and the options being contemplated would need to be clearly highlighted in the Budget.