Given the feelers that were sent by the government before 28th February, the Budget should have been considered to be a non-event. However, given our tendency to hype such occasions, a lot was expected from the FM today with some even expecting it to be a game changer, which is the term now in vogue. It is not surprising that one could have ended up feeling disappointed to a large extent as aspirations have not been met. The market has definitely not taken positively to the content as seen by a fall of nearly 300 points in the Sensex. But we need to be realistic when judging the budget and the situation in which it was presented.
Let us look at households. With inflation around 10%, logically an increase in the exemption limit was called for. In fact, this should be automatic as individuals should be compensated for inflation or else price rise cuts into one’s consumption and savings. However, the Budget helps people out in one income bracket, which makes the move look half hearted. Therefore, individuals have reason to be disappointed. Also the so called thrust on savings is more an extension of the existing schemes. There is some talk on having inflation indexed deposits or bonds, which though sound interesting, may not be attractive especially since there is also a downside, which savers would not like to accept.
Tax rates otherwise were not supposed to change in any big way and hence the measures announced are more peripheral in nature. The positive is that there appears to be some conviction that the GST will be on soon so that the system becomes simpler, though we may not be paying lower prices.
How about the market? There are several measures which would enthuse players in this segment, especially foreign investors. FIIs in the forex derivative segment will provide a further boost to a growing market. But at the individual level, the restoration of the infra tax bonds would have helped. In fact, given the problem of falling financial savings, it was very much expected that the budget would have provided incentives through higher limits for tax emption for savings in deposits, insurance, provident funds etc. In the absence of this mention, households have reason to feel let down considering that there is no guarantee that inflation will come down. So both ways, this constituency has reason to feel let down. The reduction in STT is beneficial but is unlikely to turn the tide for the stock market.
How about industry? The government has fairly comprehensive plans to speed up spending in areas of social development and infrastructure. This sounds good for the related industries. With more IDFs coming up and IIFCL playing a larger role in the debt market, one can expect movement in the infrastructure space. This in turn should help connected industries such as steel, cement, electric cables, glass and so on to grow when conditions are otherwise unstable. Add to this the sops given on interest on housing loans, and the overall impact would be positive for the housing and construction segments. The only apprehension is that in case there are threats of fiscal slippage along the way, the FM would cut back on such expenditure. Last year, the FM has cut back on capital expenditure around 18% as revenue expenditure got out of range. This has affected a number of projects in the private sector too. Therefore, while the present budget does have sound plans for the year in terms of government expenditure, one should look at it with caution.
So how can we rate this Budget? If one were not too optimistic the budget is a reasonable one that does not promise too much and channels funds in priority areas. It does not stoop to populism as was suspected by some on account of the oncoming elections. True there are allocations on subsidies and the NREGA programme, but appear to be within limits and cannot really be questioned as governments have to look at the concerns of the poor. The projections of income are realistic though the growth assumption made is the only one that can be questioned. It is based on growth of upwards of 6.5% for FY14 and the entire edifice will get shaken in case it does not materialize. Otherwise, it is a convincing document that moves along cautiously – reminding us constantly that fiscal prudence is our primary goal which will be adhered to at any cost-even if it means pruning project expenditure at the end of the day, if so warranted.
Madan Sabnavis
(Chief Economist of CARE ratings)
(Views are personal)
