Thursday, June 4, 2009

New Govt's agenda rural and urban poor oriented: HSBC

The new government's agenda spelt by President Pratibha Patil in her address to the parliament was mainly focused on rural and urban poor and political exercise not necessarily designed to appeal to the financial markets or business community, according to Robert Prior Wandesforde, Senior Asian Economist at the Hongkong and Shanghai Banking Corporation Limited (HSBC).

Listing out some of the measures pronounced by Mrs Patil, he said in a statement here that there was nothing to suggest that the government was about to embark on a series of important financial, business, labour market reforms or tackle the budget deficit on a structural basis.

He said it looked increasingly clear that the July budget would encompass a further fiscal easing, leaving it up to stronger economic growth to reduce the soaring deficit.

While it was suggested that ''prudent fiscal management'' would be ''steadfastly'' observed there was virtually nothing to suggest how this would be done (other than a plan to sell-off stakes in some companies, which, in any case, is normally treated as debt as opposed to deficit reducing measure).

'' Despite the government's good intentions to build out infrastructure, as reiterated today, our fear remains that it will be capital spending that eventually bears the brunt of any adjustment to the structural budgetary position rather than a politically unpopular widening of the tax net and/or cuts to government bureaucracy,'' he added.

He said the chances of a further interest rate reduction from the RBI is falling. This not only reflected the growing prospect of a net easing of fiscal policy in the budget but also soaring oil and other commodity prices, which would turn WPI inflation around sooner rather than later.

India is clearly aiming to build a bigger and better welfare system. This is also true of China and looks to a developing theme within Asia. The long-term economic implication of so-doing should be to reduce precautionary savings (to the extent they exist in rural areas) and boost consumption, he added.

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