Annual Budget Financial Budget 2010 - 2011

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Budget 2010-2011
Speech  of Pranab Mukherjee 
Minister of Finance
February  26,  2010

Madam Speaker,
I rise to present the Union Budget for 2010-11.
In 2009, when I presented the interim Budget in February and the regular Budget in July in this august House, the Indian economy was facing grave uncertainties. Growth had started decelerating and the business sentiment was weak. The economy's capacity to sustain high growth was under serious threat from the widespread economic slowdown in the developed world.

2. It was not clear to us, as also to the policy makers in many other countries, how this crisis would eventually unfold. What would be its impact on the growth momentum of the Indian economy?  How soon will we be able to turnaround the fortunes of our economy? The short term global outlook was bleak and the consensus was that year 2009 would face the brunt of this crisis across the world.

3. At home, there was added uncertainty on account of the delayed and sub-normal south-west monsoon, which had undermined the kharif crop in the country.  There were concerns about production and prices of food items and its possible repercussions on the growth of rural demand.

4. Today, as I stand before you, I can say with confidence that we have weathered these crises well. Indian economy now is in a far better position than it was a year ago. That is not to say that the challenges today are any less than what they were nine months ago when UPA under the leadership of Mrs Sonia Gandhi was elected back to power and Prime Minister Dr. Manmohan Singh formed the Government for the second term.

5. The three challenges and the medium term perspective that I had outlined in my last Budget Speech remain relevant, even today. These would continue to engage the Indian policy-planners for the next few years.

6. The first challenge before us is to quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the 'double digit growth barrier'. This calls for imparting a fresh momentum to the impressive recovery in growth witnessed in the past few months. In this endeavour, I seek Lord Indra's help to make the recovery more broad-based in the coming months.

7. Growth is only as important as what it enables us to do and be. Therefore, the second challenge is to harness economic growth to consolidate the recent gains in making development more inclusive. The thrust imparted to the development of infrastructure in rural areas has to be pursued to achieve the desired objectives within a fixed time frame.

8. We have to strengthen food security, improve education opportunities and provide health facilities at the level of households, both in rural and urban areas. These are issues that require significant resources, and we have to find those resources.

9. The third challenge relates to the weaknesses in government systems, structures and institutions at different levels of governance. Indeed, in the coming years, if there is one factor that can hold us back in realising our potential as a modern nation, it is the bottleneck of our public delivery mechanisms. There have been many initiatives in this regard, in different sectors, at different points of time. Some of them have been effective in reforming the way the Government works in those areas. But we have a long way to go before we can rest on this count.

10. The Union Budget cannot be a mere statement of Government accounts. It has to reflect the Government's vision and signal the policies to come in future.

11. With development and economic reforms, the focus of economic activity has shifted towards the non-governmental actors, bringing into sharper focus the role of Government as an enabler.

12. An enabling Government does not try to deliver directly to the citizens everything that they need. Instead it creates an enabling ethos so that individual enterprise and creativity can flourish. Government concentrates on supporting and delivering services to the disadvantaged sections of the society.
13. It is this broad conceptualization of the Budget that informs my speech today. I would now begin by presenting a brief overview of the economy.

Overview of the Economy
14. Yesterday, I laid on the table of the House the Economic Survey, which gives a detailed analysis of the economic situation of the country over the past twelve months.  I intend to highlight only a few salient features that form the backdrop of this Budget.

15. The fiscal year 2009-10 was a challenging year for the Indian economy. The significant deceleration in the second half of 2008-09, brought the real GDP growth down to 6.7 per cent, from an average of over 9 per cent in the preceding three years. We were among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. It included a substantial fiscal expansion along with liberal monetary policy support.

16. The effectiveness of these policy measures became evident with fast paced recovery. The economy stabilised in the first quarter of 2009-10 itself, when it clocked a GDP growth of 6.1 per cent, as against 5.8 per cent in the fourth quarter of the preceding year. It registered a strong rebound in the second quarter, when the growth rate rose to 7.9 per cent. With the Advance Estimates placing the likely growth for 2009-10 at 7.2 per cent, we are indeed vindicated in our policy stand. The final figure may well turn out to be higher when the third and fourth quarter GDP estimates for 2009-10 become available.

17. This recovery is very encouraging for it has come about despite a negative growth in the agriculture sector.  More importantly, it is the result of a renewed momentum in the manufacturing sector and marks the rise of this sector as the growth driver of the economy. The growth rate in manufacturing in December 2009 was 18.5 per cent� the highest in the past two decades. There are also signs of a turnaround in the merchandise exports with a positive growth in November and December 2009 after a decline of about twelve successive months. Export figures for January are also encouraging.  Significant private investment can now be expected to provide the engine for sustaining a growth of 9 per cent per annum. With some luck, I hope to breach the 10 per cent mark in not-too-distant a future.

18. A major concern during the second half of 2009-10 has been the emergence of double digit food inflation. There was a momentum in food prices since the flare-up of global commodity prices preceding the financial crisis in 2008, but it was expected that the agriculture season beginning June 2009 would help in moderating the food inflation. However, the erratic monsoons and drought like conditions in large parts of the country reinforced the supply side bottlenecks in some of the essential commodities. This set in motion inflationary expectations. Since December 2009, there have been indications of these high food prices, together with the gradual hardening of the fuel product prices, getting transmitted to other non-food items as well. The inflation data for January seems to have confirmed this trend.

19. Government is acutely conscious of this situation and has set in motion steps, in consultation with the State Chief Ministers, which should bring down the inflation in the next few months and ensure that there is better management of food security in the country.

CONSOLIDATING  GROWTH
20. Managing a complex economy is a difficult task, more so when it is a growing economy in a globalised world. And yet, choices have to be made and they have to be well-timed.

21. After successfully managing the effects of the global slowdown, we need to strengthen the domestic macroeconomic environment to help consolidate the rebound in growth and sustain it over the medium term. We need to review the stimulus imparted to the economy and move towards the preferred path of fiscal consolidation that facilitated the remarkable growth in the pre-crisis five year period.  We need to make growth more broad-based and ensure that supply-demand imbalances are better managed.

Fiscal Consolidation
22. The success of the fiscal stimulus in supporting domestic demand could be traced to its composition. The approach of the Government was to increase the disposable income in the hands of the people by effecting reductions in indirect taxes and by expanding public expenditure on programmes like the Mahatma Gandhi National Rural Employment Guarantee Scheme and rural infrastructure. Now that the recovery has taken root, there is a need to review public spending, mobilise resources and gear them towards building the productivity of the economy.

23. In shaping the fiscal policy for 2010-11, I have acted on the recommendations of the Thirteenth Finance Commission. It has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years. The Commission has recommended a capping of the combined debt of the Centre and the States at 68 per cent of the GDP to be achieved by 2014-15.

24. As a part of the fiscal consolidation process, it would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio. I intend to bring out, within six months, a status paper giving a detailed analysis of the situation and a road map for curtailing the overall public debt. This would be followed by an annual report on the subject.

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