Will leap year budget help the Indian economy take a big leap?

The Finance Minister, Arun Jaitley will read union budget related to the major emerging economy on Monday February 29 as the one for the leap year. Earlier P. Chidambaram presented the union budget during leap year 2012. The Finance Minister relaxed the fiscal commitments made by the central government by setting a fiscal deficit target of 3.9 per cent for 2015-16 and 3.5 per cent for 2016-17. 

Indian equity market reacted in a different manner during various leap year union budgets out of pure curiosity. Since the Indian economy is facing situations like an ardent global turmoil, Union Budget of the year 2016-17 will be of utmost importance, directed  towards tackling the depression spanning the globe.

Taking a look at leap year budget presented from year 2000 

During year 2012 union budget, Indian equity market witnessed 7.68 per cent boost and quite a better improvement in the leap year. Meanwhile on budget day, market declined by about 1 per cent on an intraday basis. The foreign institutional investors along with domestic institutions invested around USD 8.89 billion and USD 4 billion respectively within first three months of year 2012.

Due to the once in a while situation arising out of recession, which occurred during the year 2008-2009, the budget presented in the leap year 2008 made the markets take a deep downward leap. During union budget day, Indian equity dropped by almost 3.5 per cent on an intraday basis. Over the period of one year, Indian equity market contracted about 50 per cent and most of the investors’ money was lost. The huge sell off resulted in long term bearishness on overall economy and world.

To the union budget presented for the year 2004-2005, the Indian market reacted positively. This was the UPA government’s first budget after replacing NDA government in the center.  The Indian markets were boosted by around 13.28 per cent in a period of one year from the declaration of budget.

On entering 21st century, the Indian markets surprised investors in line with the global economy. One more leap year was an important one, as the dot com bubble burst, and this was the year 2000 union budget. The Indian markets too tumbled by 26.7 per cent in one year period.

This is also leap year, 2016 budget, and the global economy is in a turmoil. The commodity market experienced down trend due to Chinese metal dumping situation across the globe. Crude oil is at its multi year low, and brent crude oil is settling at USD 30 due to over supply of oil.  The accomplishment of government’s fiscal deficit target for the country should be easier. Further, money could be utilized for development of various aspects of the economy. The banking sector of India is facing a bad loan situation, and the capitalisation required to resolve Non Performing Assets (NPAs) stands at about 1.8 lakh crore. Meanwhile, RBI governor Raghuram Rajan has expressed his view on banking sector saying that it needs surgery, and not just bandaid as a solution. On the other hand, crude oil reduction may boost government’s income.

Therefore the union budget will provide direction to the Indian economy in terms of the future. Keep your fingers crossed till the Finance Minister opens his suitcase in the parliament on February 29.