MUMBAI (Reuters) - India must make tough spending choices, Finance Minister P. Chidambaram said on Thursday, even as he unveiled a bigger-than-expected outlay for the coming fiscal year in one of the most highly anticipated Indian budgets of recent years.
Total budget expenditure will hit 16.65 trillion rupees in the fiscal year that begins on April 1, Chidambaram said, despite expectations for cuts from current year levels, which are on track to hit 14.3 trillion rupees, or 96 percent of the budget target.
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”Prima facie, it’s positive for sentiment that FY13 fiscal deficit target has not only been met, but also undershot marginally, a first in many years.
Also the move to encourage more inflows and higher participation in the capital markets is a plus. The budget could be termed as neutral to mildly positive for fiscal consolidation efforts.
We are not surprised that the subsidies have not been rationalised in any significant manner, especially ahead of the general elections and need to maintain the flagship food security bill.
On the revenue mobilisation end, there is notable increase in tax rates for higher earners, alongside certain luxury categories.
Overall we are a bit sceptical on reaching the FY13/14 target at 4.8 percent with the assumed increase in plan expenditure.”
”This is a big picture budget making the best out of a bad situation. The direct priorities seem to be reining in the fiscal deficit and avoiding populist measures.
The outlays on the two main welfare schemes, cash transfer and food security are lower than expected. The fiscal deficit numbers look doable. The higher market borrowing shows that the Finance Minister has been pretty realistic.”
”Overall, it is a good budget. It has taken small steps to address infrastructure bottlenecks, stalled investments and fuel supply issues, and these are the measures we need to focus on.
“We are unlikely to see a very strong inflationary trend because of the proposed tax structure. Coming out of a difficult year, it is not an over ambitious budget, and it is do-able.”
”The finance minister has painted a very encouraging macro picture but with a 30 percent growth in planned expenditure it would be extremely challenging to contain the fiscal deficit at 4.8 percent.
”Prima-facie the budget has addressed most of the sectors under stress such as infrastructure, capital goods, housing, etcetera, but how these measures are actually implemented and the resultant outcome will depend on the evolving growth-inflation dynamics.
“The high gross borrowing and the higher spending is going to be inflationary and RBI would rather think of slowing the pace of monetary easing rather than increasing it.”
A. PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP, MUMBAI
“The gross borrowing is higher than market’s highest expectation. The assumption on growth and tax numbers does look a bit difficult to achieve. But the government has shown resolve and if the tax revenues are lower, the government can ultimately cut spending like it did for this year.”
“The bond market reaction could have been subdued if they knew about the 500 billion rupees of buyback. Immediately, the yields are likely to recoup marginally, but eventually the gross supply will hit. I expect the 10-year yield to be around 7.80-7.90 percent before the RBI policy. Prima facie, looking at the budget, it seems unlikely that the RBI will cut rates in March.”
NAGARAJ KULKARNI, SOUTH ASIA SENIOR RATES STRATEGIST, STANDARD CHARTERED
“The market borrowing numbers are higher than our estimates, and it is negative for the market. There will be upward pressure on yields. However, interest rate cuts by the Reserve Bank of India need not be related to market borrowing. They will focus on the quality of the fiscal consolidation.”
SHAKTI SATAPATHY, FIXED INCOME STRATEGIST, AK CAPITAL, MUMBAI
“Total expenditure for FY14 is higher than revised estimate for the current fiscal year. Fiscal prudence would now be dependent on the quality checks on the non-plan expenditure side, especially the subsidy front.”
The 10-year yield was up 3 basis points at 7.82 percent from levels before the finance minister began his budget speech.
The mains stocks index .BSESN was down 0.21 percent as of 0706 GMT on proposed increases in some corporate and individual taxes, after earlier gaining as much as 0.88 percent.
The rupee weakened against the U.S. dollar, trading at 53.99/54.00 from levels of around 53.70 before the budget.
- The budget comes against the backdrop of the slowest economic expansion in a decade, strong inflation pressures and high interest rates. Large fiscal and current account deficits have pushed India to the brink of sovereign ratings downgrade.
- Central bank officials have warned that curtailing capital investment on projects with strong multiplier effects like building roads and bridges would hurt growth. They also worry that maintaining populist spending on subsidies for food, fuel, fertiliser and cooking gas will push up prices.
Reporting by India Treasury, Companies, Markets teams; Editing by Ranjit Gangadharan