The budget for fiscal year 2011/12 (April-March), which was unveiled on February 28th, focused on maintaining momentum rather than implementing any radical policy changes. Three themes dominate the government's spending proposals: support for the farm sector, increased funding for infrastructure and measures intended to damp down inflationary pressures. Public expenditure is expected to continue to rise rapidly, as the government has announced substantial increases in spending on health, education and rural infrastructure. However, a schedule of progressive reduction of the budget deficit was outlined in the previous budget (for 2010/11), projecting that the deficit would narrow to 5.5% of GDP in 2010/11, 4.8% in 2011/12 and 4.1% in 2012/13. The 2011/12 budget retains the commitment to improving the public finances, promising, for example, the establishment of a debt-management office within the Ministry of Finance charged with enforcing fiscal responsibility.

The improvement in the fiscal position will be partly a function of rapid economic growth. The other main factors contributing to the shrinking of the deficit will be the proceeds from the government's divestment of shares in state-owned firms and auctions of third-generation (3G) telecoms licences, together with reforms to the fuel subsidy programme. The Ministry of Finance now expects the budget deficit for 2010/11 to come in at only 5% of GDP, given the success of the 3G auction and the strength of tax revenue in the first half of 2010/11. We believe that, at 4.9% of GDP, the budget deficit will miss the government's target for in 2011/12 by a narrow margin. However, rapid economic growth will cause the deficit to continue to contract steadily as a percentage of GDP during 2011-15.