Expert Zone

Straight from the Specialists

India Markets Weekahead: Prudent to wait for the budget

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After showing promise early in the week, the markets turned gloomy on Thursday with a sharp correction, ending the week with a 0.63 percent fall at 5850 – close to the support levels of 5840 which hasn’t been violated on a closing basis.

FII buying dipped considerably during the week, estimated at about $90 million. Worries that U.S. Federal Reserve may taper off bond buying led to a crack in the world markets on Thursday, and the Nifty fell 91 points, with most of the mid-caps breaking recent lows. The only silver lining was lower-than-average volumes, thus some buying support on Friday saw the markets holding steady.

The much-awaited banking license guidelines were announced by the Reserve Bank of India on Friday. On the face of it, it seems anybody having a 10-year track record and ability to come up with 5 billion rupees in equity capital can set up a bank. But with the RBI having sole discretion on approvals, very few unblemished names from “acceptable” sectors will be able to pass muster.

Budget 2013: Time for a responsible budget

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Finance Minister P. Chidambaram has promised a “responsible” budget this time around. According to Webster’s dictionary, “responsibility” is associated with a legal or moral accountability, reliability, trustworthiness in relation with some burden.

Budget 2013: Eye on short-term and long-term objectives

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India’s annual budget always attracts a lot of interest and this year’s edition will be especially important. Budget 2013 is not just significant because it’s the last to be tabled before parliamentary elections due next year but also in light of economic headwinds.

Areas that require immediate attention include the need to invigorate investment, pacify rating agencies, lower subsidies, address structural bottlenecks and jump-start domestic growth. This will require the administration to make tough choices. A turnaround in investment, in particular, is unlikely in the short term.

Budget 2013: What the oil and gas sector expects

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India’s oil and gas sector, often regarded as the country’s growth engine, has grown by leaps and bounds over the past decade, but the quest to reach the top of global league remains a challenge because of rising under-recoveries and lack of policy incentives.

The sector is a key revenue earner for the central and state governments. In 2011/12, it contributed 2,327.69 billion rupees to central and state governments in taxes, accounting for 20.6 percent of total indirect taxes.

Budget 2013: Reduce fiscal deficit, make poor richer

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A lot of expectations are riding on this year’s budget. And it’s not difficult to see why.

The last 18 months or so have been poor for the Indian economy with decelerating growth and a relatively weak currency reflecting the widening current account deficit. The persistence of inflation had kept the RBI on hold and this did not help the stock market. Financial scandals and seeming political indecision as far as deregulating the economy, at least till recently, were not conducive to confidence.

Pension plans are making a comeback

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Life insurance companies had all but exited the pension sector after tough regulations were put in place to guarantee returns for the investor. This is a vital sector for insurance companies and hit overall business.

In 2010/11, new business of 122 billion rupees was added in the pension sector. This fell to 111.7 billion rupees in the following fiscal year. Worse, deletions in the business increased from 68.9 billion rupees to 195.2 billion rupees last year — surely that would have hurt.

Budget 2013: Consistent reforms, effective execution is the key

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In what is widely perceived to be the UPA government’s final budget before polls due next year, Finance Minister P. Chidambaram is likely to continue with the economic reforms he introduced in recent months.

Although these policy announcements may have boosted sentiment, the key to long-term economic growth is consistency, transparency and speed, followed by effective execution on the ground.

Budget 2013: Chidambaram’s chance to bell the cat

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This year’s budget will be an interesting one and it will hopefully be more pragmatic than populist.

Not much has changed since Pranab Mukherjee presented the budget in 2012. At the time, India was battling high inflation at 9 percent, fiscal deficit at 5.9 percent of GDP and a current account deficit (CAD) at 4.2 percent of GDP.

Time for a shift in the tax incentive regime?

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The Indian economy is currently on the path of reform with the government liberalising FDI policy and relaxing overseas debt funding. And with the union budget just around the corner, investors are hoping for incentives on the tax front as well.

Traditionally, the government provides profit-linked tax incentives to promote investment in specified industries/states. However, considering the increasing need for investment in developing economies like India, the government is considering a shift from profit-linked tax incentive schemes to investment-linked tax incentive schemes. The desire for such a shift was clear under the proposed Direct Tax Code Bill.

Budget 2013: India has no room for a populist budget

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It is still a good year into the next general elections, yet India’s two main political parties have already set the stage for a showdown. The opposition Bharatiya Janata Party is closing in on the Congress party, according to opinion polls. Even though it is still early days, this puts even more pressure on the ruling party.

Last autumn, the Congress had a change of heart with its policy priorities, having realized that dithering on industry reforms would be a safer way of losing votes than pushing ahead with unpopular measures. It ploughed through opposition to liberalize foreign direct investment, and it mainly succeeded, although progress on fiscal housekeeping, such as raising power tariffs and cutting diesel subsidies, has come at a much slower pace. Other potential measures did not happen at all. Nonetheless, the party has raised hopes and expectations that it can get India’s act together.

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