It is budget time again. And sure enough, expectations and speculation have started doing the rounds about the budget proposals. Various industry bodies and chambers of commerce have submitted their wish lists of desired policy action and expect that some of them, at least, will actually form part of the budget proposals. For instance, the textiles sector has justifiably some genuine grievances highlighted ahead of the budget for redress.

What's missed in all the hype is the fact that the budget is just a statement of the annual financial affairs of the government, much like the revenue statement of a company. Sure enough, the annual financial statement of the country's government is immeasurably more important than that of a corporation’s. Still, the technical status of the budget as a financial statement cannot be disputed.

Focus on long term policy…

Far more critical for the well being and development of specific industries – such as textiles – are the overall macro economic policies which are followed. Such overall policy stances have a far more enduring impact on the sustainability and profitability of any industry.

For instance, as far as the textiles sector is concerned, given its export orientation, the exchange rate policy followed by the government / Reserve Bank of India is a structurally critical parameter affecting its viability / profitability. But, how much is debated about the exchange rate policy ahead of the budget or even outside of the budget?

Similar is the scenario with respect to the real estate / housing sector. Here too, various representative bodies are looking forward to proposals which can give a 'fillip' to the real estate / housing sector in the country. As if the budget is the be-all and end-all of economic policy which can affect the real estate / housing industry.

The real structural impact on the real estate/housing industry though emanates from the combination of fiscal / monetary policies which Govern-ment follows. In the instant case in India, this combination of fiscal / monetary policies resulted in a strong house price and real estate boom from earlier on in this decade to early 2008. That boom in housing prices (which was even speculative in several segments) effectively rendered decent housing out of the reach of large sections of the population. Affordability came under immense strain even for those who had borrowed to buy their houses as the sharp increases in interest rates from mid 2007 pressured household budgets.

The phase of boom and strong rises in prices up to early 2008 was then followed by a notable correction in prices as demand slackened considerably in the face of the high prices. Now, the real estate sector is looking to the government to give some fillip in the budget.

The real structural issue here, though, is the type of fiscal / monetary policy mix to be adopted that will arrest these boom and bust situations in the real estate or any other market for that matter. Those are the real issues to be debated before policy is formulated. Unfortunately, as we have noted, that does not seem to be happening.