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The financial sector and the budget

THE BUDGET proposals impact on the financial sector both directly and indirectly. As the stock market's immediate reaction — captured in `real time' — makes for such good copy and, as was the case this year, sensational headlines, there is an exaggerated belief that the `success of the budget' depends, above all, on the ways stock indices move. That of course is far from the truth. Even experts have difficulties in understanding the full implications of the budget, even days after poring over the fine print. It is too much to expect the financial markets to react instantaneously on the basis of informed reasoning.

The bigger problem has been the failure of the stock market apparatus in India to evolve into a suitable barometer to gauge economic policies.

Yet the myth of stock prices giving a swift verdict on the budget has remained and will most likely endure.

However, the budget, being the most important economic policy statement, has messages for all, the financial sector included.

CRL

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