Post Budget Comment by Mr. Anoop Bhaskar, Head Of Equities and Fund Manager, UTI MF

The Finance Minister unveiled the economic vision of the Modi Government.  While the budget had several key announcements, the measured pace with which the Government aims to convert them into action reflect the current economic realities.  GST, is clearly, the centerpiece of this budget, The Minister believes, rightly so, the positive impact of rolling out GST on the economy.  Hence, the focus and attention would be to enable its roll out by April 1, 2016.  The other focus area was kickstarting the investment cycle.  Road and to a lesser extent railways have been earmarked for a significant increase in plan outlay.  Clearly, the multiplier effect of connectivity appears to have been accepted by the Modi Government as a critical weapon to rejuvenate the economy.  A sensible one, given the “lack of any entanglements” which other sectors like power, coal etc appear to be embroiled in.

On the fiscal side, the Government’s arithmetic is aimed to making it more credible with investors.  Despite pressure of fiscal consolidation from various quarters, the fiscal deficit for Fy 16 has been raised to 3.9%, however, Government debt will be raised more moderately based on the expectations of rejuvenating small savings to keep the overall debt within manageable level and humor the bond market.   With lower inflation expectations, nominal GDP growth will pick up marginally from Fy 15 levels, hence the room for growing tax collection is limited, thus the fall back on additional cess on corporate profits, as a short term measure.  To balance this short term pain, the corporate sector, has been promised a more moderate tax regime post Fy 17, with tax rate falling to 25%!  Direct tax regime will come for an overhaul post Fy 16.  Divestment proceeds have been estimated at rs.69.5 bln, as compared to Rs.43 bln in the previous year, this includes possibility of strategic stake sales in Hindustan Zinc, Balco and the holdings of SUUTI, the pace at which the Government undertakes these would be interesting to watch.  On the banking frot, it has taken an incremental, though critical step of professionalizing the Boards of PSU banks as the first step towards creating an independent holding company for these banks.

Overall, the second budget of the Government appears to be a more comprehensive exercise to kick start the Indian economy as compared to the more hurried Budget last July.  It lays down the path on which Modi government wants to traverse over the medium term.  It has not been tempted to play to the galleries and announce “big bang” reforms.  This measured approach should bring in a more longer lasting rejuvenation of the economy.  However, it may appear to less exciting to a “Dream” Budget, it is more “sure” footed!