The much-anticipated Interim Budget turned out to be a perfect non-event for an economy which is showing clear signs of a major slowdown. As a result, markets fell and the benchmark Sensex lost 3.42 per cent in the trade during the day.

Markets were expecting some kind of boost, either through exemptions or enhanced expenditure, to revive the economy. But the government decided to maintain a status quo on the revenue side, while the revised estimate of tax collection falls short of budgetary estimates to 6,27,949 crore against Rs.6, 87,715 crore.

The total revenue deficit is estimated to be at   4.4 per cent of GDP instead of 1.0 per cent in the Budget estimates while the fiscal deficit stands at 6 per cent against the budgeted figure of 2.5 per cent.  

For the fiscal 2009-10, the revenue deficit and the fiscal deficit are estimated to be at 4 per cent and 5.5 per cent of the GDP with major subsidies including food, fertilizer and petroleum estimated to cost Rs.95, 579 crore.

The challenge

The finance minister noted that when the major economies are struggling to stay float, a 7.1 per cent growth estimated in the current fiscal still makes India the second fastest growing economy in the world. He however also noted that the situation will not remain normal in the year ahead which means the incoming government will be in a difficult situation in terms of managing growth and deficits. The estimated fiscal deficit figure of 5.5 per cent of the GDP, economists believe, is bound to overshoot because tax revenue will also see significant pressure, signs of which are already visible. 

Small Steps

The government plans to spend of Rs.40, 900 crore on the Bharat Nirman which has six components namely, rural roads, telephony, irrigation, drinking water supply, housing and electrification.

National Rural Employment Guarantee Scheme, which now being extended to all districts will have the allocation of Rs.30, 100 crore. 

Under Jawaharlal National Urban Renewal Mission, which focuses on improving urban infrastructure, 386 projects amounting to Rs.39, 000 crore have been sanctioned as of December 31. Rs11, 842 crore allocated for the year 2009-10. 

The government also plans to infuse capital and recapitalise the public sector banks Capital to Risk Weighted Assets Ratio (CRAR) of 12 per cent 
 
For now, it has been left for the next government, but the compelling question to be asked is: Can the Indian economy afford to wait for 4 months before its gets some stimulus from the government? In the meanwhile, economists will also find themselves surrounded by questions on what can be done to revive demand where the deficits are already mounting and revenue is slowing.