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Economy Feb 15, 2013

Budget is a reality show; it has to be judged properly

By Arjun Parthasarathy

The Union Budget for 2013-14 is to be tabled in Parliament on 28 February by Finance Minister P Chidambaram. This budget will be the last full budget of the UPA government before elections in 2014.

Budget presentations are like a reality show on TV. In the run up to the event, everyone-from media to experts-make a lot of fuss, in turn generating a lot of sound and fury.

Moneycontrol.com

The budget day is like a grand finale of a reality show, Moneycontrol.com

The budget day is like a grand finale of a reality show, where the participants perform their best to win votes. The participants in the budget are the government who is represented by the finance minister, the government's allies in Parliament and the Opposition. The speaker is the moderator of the event. The public are the viewers of the show.

The judges of the budget are the media, market experts, economists, professors, students and housewives who get to have her say on TV. Once the event is over and the marks are awarded, it is back to business the next day.

The budget is a necessary exercise to show the intentions of the government. One should not expect the budget maths to come out right. It never does. The minister cannot help the economy with just one budget, especially in a pre-election year. The minister can only guide as to what to expect from the government in the coming fiscal year.

Budget numbers are consistently off target both on the higher side and on the lower side. Last year's budget was off the mark by a wide margin on GDP growth for 2012-13.

The budget estimate for GDP growth was 7.6 percent and the actual number is expected at around 5.5 percent. The estimate for current account deficit (CAD) was 3.6 percent of GDP and the actual is likely to be around 4.6 percent. The estimate for fiscal deficit was 5.1 percent of GDP and the actual figure is expected at 5.3 percent. The government surprisingly got the inflation number right at 6.5 percent.

The government is like a listed corporate looking to increase shareholder value. A corporate when it throws out bad numbers will say the future looks bright and when it throws out good numbers will say the future looks brighter. It is up to the analysts and investors to forecast the future.

The same is the case with the government. The government will say growth is a priority, inflation management is a priority, deficits are a priority, FIIs are a priority, industry and agriculture are a priority and voters are a priority. Ultimately the political party that rules is interested in the voter and it will do whatever it believes is right to get the voter to vote it back to power.

The government will be optimistic on its forecasts for 2013-14 and it is left to the judges to analyse whether the forecasts will be better than budgeted or worse. The government will show higher GDP growth, lower fiscal deficit, lower CAD and lower inflation in its forecasts for the coming fiscal. The question the judges have to ask is whether the numbers are achievable or not.

The viewers of the reality show are interested on whether their investments will do well, whether they have to pay more or less taxes, whether their children can get jobs after college and whether prices will rise at a slower rate than it did last year.

The judges will have to give the right answers to the viewers leaving out any bias and this is what we will attempt to do in the Budget Reality Show series of analysis.

Arjun Parthasarathy is the Editor of www.investorsareidiots.com a web site for investors

by Arjun Parthasarathy

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