Foreign investors seem to have gone back to their past mindset of scepticism and 'wait and see if miracles can happen' when it comes to placing their bets on India, writes Claude Smadja.
In the last few years, India seemed determined to show the world how it had perfected the art of snatching defeat from the jaws of victory when it came to economic policy.
Even the most cynical and battle-hardened observer of the Indian economic scene could not but despair at the accumulation of missed opportunities to secure the momentum that would have locked India's economic trajectory into the kind of sustainable high growth that would have secured its status as a peer to China.
The fiery 'India Shining' and 'India Everywhere' slogans of a not-so-distant past may have been empty bluster, as the bravado has been replaced by a mood of despondency in the Indian business community.
Foreign investors, meanwhile, seem to have gone back to their past mindset of scepticism and 'wait and see if miracles can happen' when it comes to placing their bets on India.
Even Jim O'Neill, the inventor of the famous BRIC acronym -- which sounds more like a marketing slogan than a true economic concept -- declared his disappointment with an India that had 'exploded' according to the exaggerated (and unwarranted) catastrophist tone of a recent UBS analysis.
So it is no wonder that there was a build-up of expectations before the presentation of the 2012-13 Budget.
Let's say immediately that there are definitely positive elements to be highlighted in what Finance Minister Pranab Mukherjee has announced.
The emphasis on fiscal consolidation can only be most welcome as a much-needed policy priority, in view of the slippages of the last two years that had returned India to its addiction to fiscal intemperance.
Although the expected deficit is way too high for comfort, it would have been illusory to expect a target of less than five per cent of deficit to GDP after the bad performance of the ending fiscal year, and given the present economic environment.
Even this target will require a lot of discipline and strong political will from a very enfeebled government.
The decision to cut the amount of subsidies from 2.5 per cent to 1.7 per cent of GDP is just basic rationality -- given the well-known reality of the waste and fraud that chronically inflate subsidies expenses.
In the same way, the increase of some duties can make sense in the present economic and fiscal context.
However, what is sorely missing in the Budget presentation is the expression of a strong political will to begin a broader reform of government bureaucracy that would cut costs and increase efficiency.
The push for infrastructure development -- especially in railways, road and air transport as well in the power and housing sectors -- is also to be welcomed, although one can only regret the lack of a much stronger emphasis on boosting overall infrastructure expansion.
The biggest disappointment lies, however, in the weakness of the reform section of this Budget.
Apart from a commitment to renew efforts to liberalise the retail sector and allow foreign supermarket chains, after the disastrous U-turn of the government last November; some fiscal incentives for investment, especially in manufacturing and power; and a list of further measures to open up and liberalise the financial sector; there is not much more to show for economic reform in the Budget, even though the finance minister pledged to accelerate reforms.
Of course, foreign investors as well as their domestic counterparts realise only too well the political constraints under which this besieged government -- further weakened by the latest electoral setback in Uttar Pradesh -- had to operate in formulating what is meant to be the road map for economic and fiscal policy over the next 12 months.
This being said, an opportunity to confound critics has nevertheless been missed, and political expediency has prevailed on the need to show boldness.
In these conditions, can the target of 7.6 per cent GDP growth for this new fiscal year be attained?
A lot will depend, of course, on the global economic context; but it also remains to be seen how the measures described by Mr Mukherjee will be implemented.
For example, in view of the poor performance of previous years, one could be forgiven for expressing some scepticism as to whether the relatively ambitious targets for divestment from public enterprises will be reached.
Last but not least, will the announced measures be enough to reverse the sharp decline in manufacturing growth of this ending fiscal year?
True, this is an 'honest' Budget.
Is it up to the challenge that India is facing?
The answer to that key question goes between doubtful to negative, as one can wonder whether this will be enough to stir up the enthusiasm of investors in a tough and demanding economic environment. India's entrepreneurial dynamism, the 'can do' attitude of Indian business leaders, seemed until recently to be able 'to do the trick', to compensate for the government's very minimalist approach to reform.
But it is not certain that this Budget has fully internalised the fact that the era of 'growth on autopilot' has come to a close for India.
The writer is president, Smadja & Smadja
Union Budget 2012-13: Complete coverage