Over-expecting Markets Fall though FM Defends Budget

Fearing a higher fiscal deficit for the current fiscal following budget, the markets have suffered losses to the tune of over 4% with the Bombay Stock Exchange benchmark Sensex tanking over 900 points in late afternoon trade. However, Finance Minister has said that the markets had over-expectations.

Market players said that Mukherjee pegging fiscal deficit at a high of 6.8% of GDP for the existing fiscal is a cause of worry, actuating hectic sell-off. The stock markets dropped considerably in spite of the Fringe Benefit Tax, considered an irritant of corporate, having been abolished. Fiscal deficit in the previous fiscal was 6.2% of GDP.

In a TV interview, eminent stock broker Rakesh Jhunjhunwala said: “The markets are disappointed because the budget did not say anything on the policy front. Nothing on FDI (foreign direct investment) in retail, no announcement on land reforms. For example, how will businesses acquire land if there is no policy.”

At 1.00 p.m., the 30-share index Sensex lost 624.14 points at 14,288.91. Likewise, the wide-based National Stock Exchange index Nifty toppled 5.1%, at 4,197.80 at the same time.

In the meantime, Finance Minister Pranab Mukherjee, reacting to negative trends of the markets, said that the market may have expected too much from the country’s annual financial document.

Mukherjee said that a lot of expectation had built up in the last one month – “the budget can give a broad vision of what we intend to do, and we did that,” he said – and that the budget was not the only instrument to address economic issues.

“I had at the start of my speech said ‘One budget speech won’t address all the problems (that the economy faces),” Mukherjee said in an interview to Lok Sabha TV, adding that the budget was not the only instrument to address the economy’s issues.

In response to a query as to why no marquee was announced in the budget on major issues like divestment, Mukherjee pointed out that he had given a policy statement. “I have given the philosophy of the (dis)investment,” he said. “As and when it will take place — perhaps the market expected I would make any announcement on that, it is not possible. No finance minister can say I will disinvest in this or that company.”

The minister, however, pointed to the positive announcements that the budget had: scrapping of the fringe benefit tax (FBT), extension of sunset clause in income tax schemes to help exporters, etc.

On the country’s deteriorating fiscal deficit situation – the finance minister raised the FY10 fiscal deficit estimate to 6.8% from 6.2% earlier – Mukherjee said it was possible to improve the fiscal deficit target in the next budget. Mukherjee added that he was hopeful of achieving 7% gross domestic product (GDP) growth of 7% in the fiscal year.

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