"I expect a positive budget for the markets," says Lalit Thakkar, MD, Angel Broking

Lalit Thakkar
Managing Director
Angel Broking

To begin with, the policy actions taken by the government since September 2012 have been positive and have revived business confidence and investor sentiments. The government has taken some politically unpopular but economically sound policy decisions such as a hike in diesel prices, capping availability of subsidised LPG cylinders per household, deregulating diesel prices for bulk consumers and letting OMCs raise prices by 45 – 50 paise every month to eliminate under-recoveries and the hike in railway fares after a decade. These steps render me optimistic about the government’s focus on fiscal consolidation and the reform process.

I believe that a fiscal consolidation is expected to be the central focus of the budget this year and this stance is crucial, in my opinion, to avert a sovereign ratings downgrade and provide some headroom for the RBI to ease rates more meaningfully. So at the very least, I expect the government to stick to fiscally prudent policies. I also believe that the markets are likely to react positively if the government restrains the fiscal deficit closer to its revised deficit target. 
At the same time, revival of the investment cycle in the economy is a priority and I thus expect a boost to infrastructural investment in the economy. I also believe that structural reforms to remove supply-side bottlenecks in the economy, clarity on coal block allocations and removing hurdles to mining are crucial drivers to take the economy on a higher growth path. While our large import bill is to a good extent on account of oil and gas imports, it is unfortunate that in spite of our large coal reserves we are wasting precious foreign exchange on large coal imports too.

I also believe that our high current account deficit is surging to unmanageable levels. Although capital inflows are sufficient to meet the deficit right now, in the longer run it has to be brought to a healthier level. The increase in non-oil and non-gold imports indicates that cheaper manufacturing imports are contributing to the widening trade deficit and some sops for our export sectors are also likely to render manufacturing competitiveness in our labour surplus economy and help us in reversing the decline in exports.

The government, I suppose, is committed to protecting its flagship social sector programmes but as far as introducing the food security bill is concerned, it is likely to be introduced not during this budget session but closer to the elections which are still a good 15 months away. Further, this budget is likely to provide more clarity on the roadmap for introduction of tax reforms such as the GST and DTC and its much-touted direct cash transfer scheme.

The fiscal deficit has however remained elevated on account of the sliding tax revenue to GDP ratio and as growth recovers, revenues particularly tax revenues are expected to improve. The present FY2014 Budget will hopefully be a prudent one with fiscal consolidation at its core and overall I look forward to a positive budget for the markets. But the markets will keenly analyse the same to see if the budget sets credible targets, with clarity on the roadmap to achieve the slated targets.