The present situation of the Indian markets has been one of the hot debating topics around. Especially, following the recent tax-cuts in the Budget of 09-10, has left many open ended questions at the Ministry of Finance. Though, budget-deficits in a period of recession is understandable and perhaps a good strategy to provide liquidity in a market ‘in slumber’, the alarming growth rates in the fiscal deficits has attracted the attention of world-wide speculators and economists.
The Excise taxes were cut by 2%, (a drop form 10% to 8%), while the previously announced 4% reduction in excise duty was extended even to this fiscal year. The idea, obviously is to help the liquidity in the ‘dull’ markets, and to boost the investments in the economy. However, this decision has further steepened the anticipated fiscal deficit for the year. ‘Although the tax cuts will inject much needed support into the economy, they may heighten concerns about the country’s already large public debt. The fiscal deficit is set to end up much larger than the official projection,’ said Sherman Chan, economist with Moody’s Economy.com. She added, “The alarming fiscal position will put upward pressure on funding costs. Investor confidence, which has already been hurt by the global financial turmoil, is set to further weaken as the government struggles to manage the fiscal imbalance.” The warning bells are up against the possible sustainable growth rate with the increasing fiscal deficits.
Even Mr.Pranab Mukherjee has admitted the same, after presenting the interim budget for 2009/10. India’s fiscal deficit is forecast at 5.5 per cent of gross domestic product in the next fiscal year starting April, compared with 6.0 per cent in 2008/09. However, the speculations reveal much higher deficits in the economy. According to Mr.Arun Shourie, the ministry of Finance has tried to ‘cover-up’ the deficits, and this gross mismanagement of fiscal affairs is but a symptom of general economic mismanagement by the ministry, since the major reason for this deficits being the unchecked expenditures rather than capital asset creation. He also adds that, the borrowings from the Government which is about two and half times more than the actual predicted values, would only devastate the Small and Medium Enterprises.
However, the scenario is not all that gloomy. Though the major market research firms have expressed mixed opinions on the market stability and sustainable growth of India, a few of the signals have been positive. Credit Suisse analysts still believe that Indian markets can be attractive, due to the low P/BV and ROE Ratios. They also claim that shares in the Indian market are going ‘low’, compared to their other Asian counter-parts. The Indian Tech-companies seem to have about 46% lesser than that of the markets in Singapore and Thailand. Though there is no aggressive optimism, there is an under-current bullishness in the rise about the market.