Budget 2013: A run-of-the-mill affair
(Any opinions expressed here are those of the author and not of Reuters)
After the sustained hype of a game changer budget, Budget 2013 was a totally run-of-the-mill affair with no announcements of any kind of deregulatory or growth propelling initiatives.
True enough, some of the more promising measures taken in the last 12 months were not related to budgetary statements. Not surprisingly, the Sensex greeted Budget 2013 by falling.
Going forward, what may sustain the equity market is further improvement in inflation which may allow the Reserve Bank of India (RBI) to cut rates again.
Rather than recount the usual mix of tax rises (surcharge on high incomes) and minutiae such as removing excise duties on handmade carpets but adding an extra 3 percent excise on SUVs because “they occupy more parking space”, here are some points of more macro substance:
- Total expenditure will go up by 16.7 percent and gross government borrowing up by 13 percent to a record level of 6.29 trillion rupees (about $116 billion). Currently, India spends more than 20 percent of all its revenue on interest rate payments, a shame for a poor country where every penny should be going to infrastructure investment and income generating projects.
- Privatisation of state-owned enterprises is expected to yield about 3.3 percent of all revenues so not much excitement there.
- The fiscal deficit for FY2012/13 stood at 5.3 percent of GDP and is projected to fall to 4.8 percent in 2013/14. Sadly the finance ministry has a long record of missed targets and there was nothing specific here to ensure that this target will be met.
India is a true and vibrant democracy and critiques of its politics and policies by outsiders are unwarranted. It is worth noting, however, that by simply reading the Indian press and questions raised in the Indian media, the expectation within India was for something different which would have helped to release the enormous potential of the economy.
Poverty alleviation through the admittedly inefficient state food distribution system misses the point completely and wastes more resources. You do not make poor people less poor by giving them free food. Food subsidies did go up by a modest 6 percent but overall, money spent on all subsidies declined 11 percent in general and 33 percent in oil.
Elections will be held in 2014 and this undoubtedly influenced the absence of any daring or innovative policies.
To the extent that the finance ministry may try to keep on the path of deficit reduction, the RBI may keep its promise to cut rates again if inflation keeps falling. To the extent that India is growing between 5.5 and 6.5 percent, one of the faster rates in Asia, earnings could be impacted.
For now, with the likelihood that India will not be downgraded and that the RBI will cut rates again, there is no reason not to recommend Indian equities, while expressing disappointment with an unimaginative budget.