Expect 50 basis points cut: Meera Sanyal

There were expectations that the government may announce more measures to stimulate the economy. The revised estimates for fiscal deficit (which will overshoot by 3.5 per cent) and overall spending show significant stimulus has already been provided. The decision to keep the tax code unchanged is prudent. The economy will continue to need support. Sustaining a growth rate of 5.5-6 per cent will require more stimulus and easier monetary policy. Hence, the RBI and the government have retained some head room.

The fiscal deficit could escalate if the next government decides to cut direct taxes or increase spending. Government borrowings will increase 18 per cent next fiscal, which will be a challenge in maintaining low interest rates. The RBI will be required to maintain easy liquidity. The burden of supporting the economic activity remains with the monetary policy until the final budget and we could see a 50 basis points cut in policy rates soon.

Meera Sanyal, Country Executive, India, ABN Amro Bank