No Viagra, none was needed. Good show: Rakesh Jhunjhunwala

by Rakesh Jhunjhunwala/ DNA Money

One must look at this budget in the context of present realities viz. a resurgent India growing at 8%+ and the political compulsions of coalition. India surely needed a burst of reforms (like oil sector rationalisation, labour law reform, etc.) to move to the next level of growth.
However, such radical reform was not feasible given the political constraints. The next best course of action was fiscal discipline and policy continuity. The finance minister has followed the next best course of action, and he has achieved his objective handsomely.

I cannot overemphasise the importance of fiscal prudence to the long-term interest of the economy. The improvement in the consolidated fiscal deficit including state government finances will result in lesser pre-emption of valuable and productive financial resources in the economy.

Such unlocking combined with our superior incremental capital-output ratio will yield significant long-term dividends to India’s economic prospects. A more robust fiscal situation will also nudge India closer to the holy grail of capital account convertibility. Lower deficits will also lower the pressure on interest rates, which, in turn, will have a continued benign impact on most asset classes besides benefiting India Inc in its growth plans. Given the robust economic circumstances and the healthy capital markets, what was needed was not a Viagra pill, but something that would not cause a headache.

I believe the finance minister has done just that, and has put in place a conducive environment that can be leveraged for more radical reform when the time comes. Hence, I expect the capital markets to welcome the budget in a positive manner.

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