MUMBAI (Reuters) - Finance Minister Arun Jaitley said the country will stick to the fiscal deficit target of 4.1 percent of gross domestic product (GDP) set by the previous government for the year ending March 2015.
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Jaitley added the fiscal deficit would narrow to 3.6 percent of GDP by fiscal 2015/16 and to 3 percent by 2016/17.
Below are analyst comments on the budget.
ARVIND CHARI, HEAD OF FIXED INCOME AND ALTERNATIVES, QUANTUM ADVISORS, MUMBAI:
“The intention to retain the fiscal deficit at 4.1 percent is a big positive for the bond markets. Although, it looks challenging to meet, especially with a large increase in non-tax revenues. Extension of withholding tax; treatment of income as capital gains and the introduction of safe harbor rules for foreign investors is a good step and will provide further comfort for FIIs investing in India.
“Although we need to study in more detail; but the mention on international debt settlement of Indian bonds would mean that the government is going ahead with plans of listing Indian government bonds under the Euro clear system, which will attract further foreign investment in Indian government bonds.”
MURTHY NAGARAJAN, HEAD - FIXED INCOME, QUANTUM AMC, MUMBAI
“The finance ministry has indicated its will to maintain the fiscal deficit of 4.1 percent for the financial year 2014-2015, 3.6 percent in 2015-16 and 3 percent in 2016-17. The government has also stated it will better target food and fuel subsidies. It will introduce GST to increase the tax-to-GDP ratio to make doing business simpler. These measures are very progressive and good for the bond and equity markets. It would lead to reduction of inflation in the coming years due to lower fiscal deficit.
Overall, the government has given a roadmap which it intends to work on over the next 5 years and increase the supply of goods and services in the economy.”
RAHUL GARG, LEADER DIRECT TAX, PWC INDIA ON DIRECT TAX, MUMBAI
“The government seems to be committed to strengthening investor confidence in the economy. The announcement that the government will not introduce any retro amendment and (a) mechanism to issue clarification on grey areas will certainly go a long way to bring clarity and certainty on such issues and reduce tax litigation.”
“Overall, the budget seems to have delivered in line with market expectations, with adequate focus on infrastructure and measures to boost financial savings. Though, more clarity on the roadmap to GST would have been welcome.”
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI:
“The same set of problems continue from the past two years. The tax numbers look very optimistic, the spending numbers look very high. So we will have to see how they go about managing it.
The range is to keep the fiscal deficit the same as the interim budget. The numbers appear to be unrealistic but we have to give the benefit of doubt since it’s a new government.”
MURTHY NAGARAJAN , HEAD - FIXED INCOME, QUANTUM ASSET MANAGEMENT, MUMBAI.
“These measures are very progressive and good for the bond and equity markets. It would lead to reduction of inflation in coming years due to lower fiscal deficit. The government has increased FDI in defence to 49 percent to increase local indigenous production and save precious foreign exchange. These measures will reduce current account deficit in the long run. This should lead to the currency remaining relatively stable in the long run as current account deficit will be at manageable levels. Overall, the government has given a roadmap which it intends to work on over the next five years and increase the supply of goods and services in the economy.”
RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI:
“Contrary to almost everybody’s expectations, the government intends to meet the fiscal deficit to GDP target of 4.1 percent in FY15 despite two years of very low growth, huge subsidy arrears and lingering threats of monsoon failure and oil price shock. It shows the government’s firm commitment to support the RBI in inflation control and management. However, the underlying dynamics of growth-inflation trade-off suggests that we may not see much elevation in growth during FY15. This message was also loud and clear in yesterday’s Economic Survey that has suggested a period of at least two years before the nation attains a growth trajectory of 7.0 percent plus.”
R. SIVAKUMAR, HEAD OF FIXED INCOME, AXIS ASSET MANAGEMENT, MUMBAI
“Commitment to the 4.1 percent fiscal deficit target as well as the aim to bring it down to 3 percent in two years is hugely positive for bond markets. They have also announced a few important structural reforms including FDI liberalization in defence and insurance and some amount of manufacturing relaxation, tax benefits for REITs and commitment to no retrospective taxation going forward. I think these are very very significant steps from a larger macro as well as structural perspective.”
“The initial trickle of proposals under the FY15 budget accords priority to fiscal prudence and a wide-ranging developmental agenda laid down by the new government. Achieving this year’s deficit target might prove to be a challenge if the bullish revenue projections from the interim budget are maintained as well.
Higher FDI limits are encouraging, but will require an overhaul on the infrastructure and the regulatory framework. Specifics of the game plan laid out in today’s budget will be important to support the markets.”
NIRAKAR PRADHAN, CHIEF INVESTMENT OFFICER, FUTURE GENERALI INDIA LIFE INSURANCE, MUMBAI
“I think everything is better than expectations. FDI in defence and insurance have come which shows government is focussed on restarting the investment cycle. Fiscal deficit target at 4.1 percent is also a positive surprise. The finance minister has a comprehensive package for all the issues and economic challenges that India is facing. I will look at increasing exposure to shares now. Equity is falling just on event-based profit-taking but will catch up in the near term.”
“Fiscal consolidation is a strong takeaway. The FDI in insurance and defence and the plethora of schemes for improving the rural economy with all round focus on development programmes, are a key thrust. It’s a good beginning.
For the 4.1 percent target of the fiscal deficit, the heavy lifting may be done by PSU disinvestment and non-tax revenue streams.”
“It seems to be a neutral budget with positive light on key economic variables to tackle the current stagflation. Though targeting the earlier fiscal deficit of 4.1 percent is a surprise favour to the market, the conviction of fiscal management in revenue and expenditure sides is being awaited.”
Reporting by Mumbai markets team; Editing by Sunil Nair, Prateek Chatterjee and Anupama Dwivedi