'Budget may focus on divestment, tax reforms'

The government may announce measures on tax reforms, divestment in PSUs and push infrastructure investment, besides stepping up efforts for fiscal consolidation in the forthcoming budget, a top economist said.

"You may see encouraging signs of fiscal consolidation, tax reforms, disinvestments and a further push on infrastructure investment (in the budget)," Morgan Stanley's chairman, Stephen S Roach, told reporters in Mumbai on Tuesday.

Finance Minister Pranab Mukherjee is slated to present the Budget on February 26. Roach also said that he expects some steps in the Budget to support a struggling farm sector.

Noting that the Government has already initiated steps on PSU divestment to mobilise funds through share-sales of state-owned entities, Roach said there was likely to be more such initiatives moving ahead.

"We will see more of such announcements coming (on PSU divestment)," Roach said.

Fiscal consolidation is also likely to be a major priority of the Government and measures to hold-off the huge fiscal deficit, which is estimated at 6.8 per cent in FY 10, are also widely expected.

Referring to the continuing infrastructure constraints in the country, Roach said India would have to steadily up the share of investments to develop roads, ports and railways to improve the nation's growth prospects.

"The share of investments (in infrastructure) has gone up. It needs to go up further," Roach said.

According to the government estimates, India requires new infrastructure investment of $500-billion over the next five years.

Roach was optimistic about the increasing share of the services sector to national growth but said the IT-enabled services segment still remained small and needed to be scaled-up.

On the global economy, he said markets are expected to remain shaky on account of the global financial turmoil. He observed that unemployment continues to be a major concern in the US.

Noting that Asian markets were heavily dependent on external capital flows, he termed the excessive dependence on foreign fund flows as a risk to the domestic economy.

The government and RBI had announced several steps to support the economy which was severely hit by the global economic crisis. While the Government rolled-out two stimulus packages, the RBI slashed its key rates several times since October 2008.