Expert Zone

Straight from the Specialists

Tough to get the math right in 2014/15 interim budget

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Finance Minister P. Chidambaram went more by economic considerations than political ones in manoeuvring his pre-election budget, the focus being on fiscal consolidation with an eye on rating agencies.

The 2014/15 interim budget did not have any new populist measures. The minister may have been convinced that such gimmicks just before elections do not yield votes. Also, there was hardly any time to effectively roll out a new scheme.

The long-term policy target Chidambaram had set himself was to reduce the budget deficit to 3 percent of GDP. This is necessary to bring about price stability, reduce government borrowing, prevent overcrowding in the market and leave more financial resources with the private sector for investment. Although the budget engineering was on these lines, the way deficit has been restrained would not amount to fiscal consolidation.

For the current year, the deficit has been reduced to 4.6 percent from the budgeted 4.8 percent. This was possible in spite of an excess 49 billion rupees of non-Plan expenditure, which admittedly was not much in a 15.9 trillion rupee budget.

Slow pick-up in India’s GDP growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

GDP estimates by the Central Statistics Office for the 2013-14 fiscal year show an improvement over the previous year. But the extent of improvement is too small for comfort. Possibly, in the final revision, that small margin may disappear or even turn negative.

This year, India’s GDP is expected to be up 4.9 percent from 4.5 percent the previous year. This additional growth has come mainly from agriculture, due to a favourable monsoon. Agricultural growth was three times the previous year. Production of non-food grains (like vegetables and fruits), and animal products (like meat and eggs), did not increase adequately in spite of the inflated demand and will continue to be the main source of inflation.

Managing India’s budget deficit

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The budget deficit has been a concern for India, but Finance Minister P. Chidambaram has assured that the government will not deviate from the target of 3 percent deficit in 2017. In the very first year, however, it has become almost obvious that the target will be missed.

Budget deficit is not the privilege of government alone as even corporates and households borrow like the government to fund deficits. However, they ensure that the money is used in a manner that it is repaid in time. With the government it is different — it can borrow more in order to repay old loans and it can do so with impunity because banks are a captive market for the government securities. That results in mounting public debt which stood at 56.5 trillion rupees at the end of March 2013. Of this, 40 percent is held by banks.

The stock market’s delayed response to Budget 2013

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(Any opinions expressed here are those of the author and not of Reuters)

Finance Minister P. Chidambaram tried to humour the market in his budget by cutting the Securities Transaction Tax (STT) which had been one of its sore points. But the market was not amused. The Sensex continued to slide, indifferent to the budget which was presented with a lot of expectations.

This appears to be rather strange because the budget was well received by the industry, in spite of the increase in surcharge from 5 to 10 percent. It was possibly the realization that the finance minister lived up to his promise of cutting fiscal deficit to 4.8 percent which created an infectious confidence in growth revival.

Budget 2013: Balancing fiscal prudence and populism

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(Rajiv Deep Bajaj is the Vice Chairman and Managing Director of Bajaj Capital Ltd. The views expressed in this column are his own and do not represent those of Reuters)

With a four-month equity rally showing signs of fatigue, the focus is on Budget 2013 to provide further impetus.

Budget 2013: Chidambaram’s chance to bell the cat

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(Any opinions expressed here are those of the author and not of Reuters)

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.

Budget 2013: India has no room for a populist budget

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(Any opinions expressed here are those of the author and not of Reuters)

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.

Budget 2013: Getting the wow factor back

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(Any opinions expressed here are those of the author and are not of Reuters)

Gone are the days when Indians used to wait for the budget in February to buy new things. In the 1990s, capital market investors also waited with bated breath for the annual budget to spell out tax and policy measures that affected the fortunes of sectors and companies.

But over the years, the budget lost its wow factor, becoming more of a ritual presentation of the government’s finances, resource allocation, fundraising and spending. This is because most taxes have been rationalized (although some scope still exists) by successive governments and different ministries announce various policy measures throughout the year.

Budget 2013: Need to review tax incentives

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(Any opinions expressed here are those of the author and not those of Reuters)

It’s going to be a tight budget this year and Finance Minister P. Chidambaram will be looking to save every rupee in revenue to reduce the budget deficit, to which he has committed. One option would be to withdraw tax incentives which have outlived their purpose.

The finance ministry is only too aware of revenue lost from tax incentives. In 2011/12, it was a loss of 5.29 trillion rupees. If tax incentives are withdrawn, the 2013/14 budget would be in surplus. Nothing would amuse the finance minister more.

Budget 2013 should trim expenditure

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(Any opinions expressed here are those of the author, and not necessarily of Reuters)

Finance Minister P. Chidambaram is only too aware of the damage done by the last budget and has to an extent repaired it to unleash investment. The next budget should confirm his commitment to growth.

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