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March 2011

Given the macro challenges and political compulsions, the finance minister has done a fine balancing job. Keeping deficit under check without imposing additional tax burden and staying away from any populist largesse is a big positive. The budget can be termed as growth oriented and has taken incremental measures to boost investment into housing, infrastructure and social sector. Firm targets on roll out of GST, DTC, issuance of new bank licenses and move towards cash subsidies are encouraging. Quantum increase in limit for FII investment in infrastructure bonds and allowing foreign investors to invest in domestic mutual funds are bold moves towards liberalizing the capital account. 

Fiscal deficit at 4.6% of GDP and net market borrowing number for the next year are better than market expectations and will sooth fears of crowding out and sharp spike in interest rates. 

Measures on the taxation and spending in key programmes would keep the consumption story intact while some visible moves have been made to push infrastructure build up. The long ranging reforms like roll out of GST, Direct tax code, financial sector reforms, subsidy reforms with better targeting through Unique identification Number will all assist in increasing the growth potential of Indian economy. Though no major surprise, budget should be taken positively by both equity and the bond market. As the event is behind us, the market would now focus on cues from global markets and incremental economic data and corporate earnings.