Monday, March 2, 2015

SUPER BUDGET 2015

The first full budget of the Modi govt was presented by FM Arun Jaitely on 28th Feb.As usual there was huge expectations from the budget .More so because this was the first full budget of Modi govt which has won a landslide victory last year on the plank of development and they have a clear majority in the lower house, a privilege which none of the previous govts had.

So was it a SUPER BUDGET ?? Were there BIG BANG REFORMS ?? Was it something that would propel India to a new growth path??

Well the answer to these question may not be a thumping yes. But a lot of steps has been taken which will make India investor friendly country. Currently India ranks above 150 in the index of ease of doing business in a country. But steps taken in this budget will definitely improve the investor sentiments and bring down India's rank to around 100 -110 in the index

  Lets understand one thing first , that budgets are mere allocation of funds and all policy decision does not necessarily be taken in the Budget statement only. But be as it may, the budgets in India is still given way too much attention and we will take a look at this year budget.

One thing that is very much clear about this year Budget is the thrust on Infrastructure.The very fact that INFRASTRUCTURE found as many as 15 mentions in the budget speech so did MAKE IN INDIA as many as 10 times.We all know that with around 9 lakh crore of investment in infra sector is stuck due to various reasons,there is an urgent need to look at the PPP model itself.This model has not yield the result which was expected . So there seems to be an pressing need to invest public money in to the sector. The budget allocates $11 billion more this year for this very purpose.Also pushing the fiscal deficit target by 1 year (they were to achieve fiscal deficit target of 3%  by 2016-17) the govt has got the elbow room to increase its public spending which they intend to use on infrastructure building. It also intends to create a NATIONAL INVESTMENT AND INFRASTRUCTURE FUND(NIIF) which will enable to raise the debt .They also intend to set up 5 UMPP(ultra mega power projects) which will augment the power generation in the country. Making roads of 1 lakh km in a year in addition to the already sanctioned 1 lakh km has been announced.Also custom duty was reduced on 22 items which will make it cheaper for indian companies to imports parts to manufacture .

These measures are definitely commendable. But the problem lies in the execution.All these measures are not new. UMPP were announced earlier also but they have stuck due to land allocation issues or financial issue . NHAI has already sanctioned creation of many thousand km of roads but they have not been created . So the problem lies in the execution of these budgetary allocation.Simplification in PPP policy is also something that was very much required.I have read somewhere that the govt now intends to adopt a new model called PLUG n PLAY where all the clearances will now be done by govt and the parties can straight away start developing the port,road,etc .Thats a good policy to start with.

Another great expectation from the economists was on the front of fiscal prudence.Well this year govt decided that they will let go the fiscal target mainly for the spending on infrastructure.Though  the fiscal condition is much better than lets say 12 to 15 months ago thanks to decreasing crude prices, a $50 Billion gift for the govt as famously said by Raghuram Rajan ,RBI Gov .Still fiscal responsibility is something the govt can not ignore. Moodys has already confirmed that they are not going to change India's status in near future and will wait for the implementation of the policies.RBI has also stated the same thing in their last policy update.Raghuram Rajan is not going to decrease the Repo rate in near future thats for sure.

The budget document is so huge that its impossible to analyse it one blog without making it boring. So remaining analysis will soon follow in the next blog.