For the first time in 19 years since the winds of liberalization blew across the Indian economic landscape, government seems serious about reducing the fiscal deficit. The state of affairs was brought to a head by the stimulus packages inducted into the economy to help it tide over the global economic slowdown.

The Finance Minister in a rare show of commitment towards the cause, brought about measures like scaling down subsidies, tax increases and state asset sales to narrow the deficit gap from 6.9% of GDP to 5.5%. Both fertilizer and fuel subsidies were brought under the ambit of Budget and the subsidies cut down to bring in additional revenue.

By raising the tax rates and restoring the excise duties to pre-recession days, the Finance minister is eyeing for more revenue. By selling the state assets in PSUs, the FM plans to bring in an extra 400 billion rupees. All these measures are expected to reduce the debt burden to 82% of the economy.

These calculations are based on certain assumptions, which may fall through in adverse economic climate. In fact, Indian economy was cruising along well on recovery path in 2007-08, when the deficit decreased to 2.7% of GDP. The strong gale in the form of global recession forced the economy away from its path. The government was compelled to introduce stimulus measures to save economy, which did serious damage to the burgeoning fiscal deficit. And, there is no guarantee that this will not happen again.

The Finance Minster has juggled figures to make it appear attractive as of now. How much of these measures are practically possible remains to be seen. If government is serious in tackling the deficit issue, it should have a stand-by plan to cushion the economy in case of failure of present steps.

Thursday and Friday saw fluctuations in the Indian stock market for the first time since New Year. The stocks had a dream run for the past few days, taking the index to pre-recession figures.

The major reasons for the slump are the imminent quarterly results of corporates and  strengthening of rupee against a weak dollar. The most affected are the technology companies. A few banks and automobile shares are also among the wilted lot.

Thursday saw the Bombay Stock Exchange’s Sensitive Index fall 0.5% to close at 17,615, while National Stock Exchange’s Nifty fell by 0.35% to 5263.10.

Friday again was a day of volatile trading with Sensex closing 0.43% lower at 17540.29 and Nifty 0.35% less at 5244.75.

Infosys Technologies Ltd., the IT giant, led the losers, followed by its rival Tata Consultancy Services Ltd. Being software exporters, that too mostly to the US, IT companies suffered the most from the continuous gaining of the rupee against the dollar. A strong rupee will bring in less value to IT companies for overseas sales, when the earned dollars are converted into rupees.

The quarterly results of companies due in the coming days also seem to make investors a nervous bunch.

The slow and steady climb of the index since New Year was too good to last for long. A correction was overdue and that is just what is happening. The market might stay uneasy and fickle for a while before picking itself up once again.

With the strengthening of the economy, the Indian Rupee is also seeing green. The Rupee has reached its highest in the last fifteen months, against the US Dollar. This increase in the position of the Rupee has come because of both the offshore and the capital inflows. It is estimated that in the coming months, the capital inflows will only increase, causing the Rupee to strengthen even more.

The dollar, which is now close to about 45.68 Rupees, had last reached this position in September 2008. This strengthened position has led the offshore markets to place their faith in the Rupee, placing their bets on the Indian currency. What is even better is that the Rupee continues to gain amidst weak stock markets at the local level. The Dollar is also not falling down. In fact, the US Dollar continues to maintain its strong position against other currencies.

With the approaching stake of sales in public sector companies, there is an expectation of even more foreign exchange flowing in.

The Life Insurance Corporation of India is the largest life insurance company in India and also the country’s largest investor.; it is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government’s expenses.It has assets estimated of 5 Trillion Rupees. It was founded in 1956.

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