The announcement of growth figures for 2009-10 at 7.2 percent where all sectors are expected to be growing at above 8 percent (barring agriculture at -0.2 percent and construction at 6.5 percent), reveal that the Indian economy has held up remarkably well in face of a severe deficiency of rainfall and the international economic and financial meltdown. These figures augur very well for future growth which, as we have maintained elsewhere will enter the 9-10 percent long term trend in the next decade.

Already macro figures indicate that investment levels have not been affected too much over the last two years, and we believe will continue to be healthy in coming quarters and years. Moreover, after a long gap investment in agriculture related infrastructure will start to show an increase – though a large part of it will be coming from private entities and may not show up in the budget figures.

Currently all eyes however are on the budget for 2010-11 - to be unveiled this month as the government will put forth its plan to wean the economy off the stimulus granted during the global crisis. We expect the government to increase the excise levels somewhat but not totally to the pre-stimulus-package levels, minor increases in social sector expenditure spending, and a minor movement in arresting the petro price related deficit. Beyond this, there is little the FM will do.

This stimulus has come at a large cost, as we had been warning in our newsletters earlier. In our May 2009 newsletter we had written about the upcoming dangers, that are clear to all now: ‘ The main problem however will come up later this year, or may even surface next year when the high fiscal deficit will combine with rising demand to raise inflation levels substantially. Even now, the WPI which had been forecast by many to hit negative numbers, is still reluctant to oblige; even with the high base effect, large positive week on week rises have kept the WPI inflation in the positive zone. …Worldwide, as prices reflect the expectations of demand, we can expect higher levels in basic commodities like crude, copper, steel etc. as news of recovery in emerging economies impacts these markets. Again, we caution that this does not mean a hike into levels above $100 a barrel for crude, for instance, but the range of $40-50 of the past 3 months will move to higher levels of $60-70, consumers, the government and the firms must be prepared for this.’ Over and above this, the news from Europe is not good and will impact international financial markets adversely – this will occur over the next few weeks if not months and India needs to be prepared for it.

Meanwhile, the RBI has also effectively announced that it will not take a hawkish stance on interest rates or liquidity and expects the government to announce some withdrawal of the stimulus package and reduce deficit levels. We expect that that would be in the 5 to 5.5 percent range for 2010-11 budget. But we continue to maintain, this will not be good enough, and the FM should try harder at curtailing the deficit.

Inflation levels for March end have been estimated by the RBI at 8.5% against the 6% earlier, even as the CPI inflation has been afire the last few months. While part of this is due to the rise in food prices, prices of crucial inputs like steel have been on the rise the last three months as well. As crude has moved in the range we had forecast, there is talk again of the need to free petrol and LPG prices, talk of under-recoveries in OMCs to the tune of Rs. 43,000 crores this year. How long will the govt. continue to push real issues under the carpet?

It’s all very well to laud ourselves on an economy that has ‘recovered’ but growth that is fuelled by fiscal profligacy is hardly an achievement. So this year, surprise us, Mr. Finance Minister. Get a move on the real reforms, shake the economy up and let’s see the forces that will let loose real, inclusive, sustainable growth.