Post
budget reactions by Ms.
Radhika Rao, Economist, DBS Bank.
“The FY15 Budget accorded priority to fiscal prudence and the
scope of measures was wide ranging, encompassing the manufacturing sector,
infrastructure and social sectors like housing and education, amongst others.
The interim budget deficit target at -4.1% of GDP was retained, and is set to
narrow the gap to -3.0% by FY17, signaling fiscal consolidation for the
long-haul.
The decision to maintain the fiscal target is positive, but with
the expenditure outlays (slightly higher than the interim budget estimates12.9%
YoY vs 10.8% earlier), the burden needs to be borne by additional revenues. Tax
collection projections meanwhile remain optimistic, hinging on a revival in the
domestic households’ and corporates health this year. Divestment target was
also raised, alongside stress on the need for consolidation in the banking
sector and encourage institutions to raise funds from domestic/ offshore
investors. Increase in sin taxes should also provide some cushion.
Expenditure management committee
At the same time, setting up of the Expenditure management
committee to comb through the spending components is a prudent move, but these
inputs will be more relevant for the next budget. Total subsidy expenditure was
lowered modestly to a shade under 2% of GDP, but stark cuts were avoided in the
face of a possible monsoon shock and external risks.
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| Radhika Rao, Economist, DBS Bank |
There is some direction likely on the GST by end-year, while the
Direct Tax Code still up for review. While there was some disappointment at the
margin on the decision to retain the retrospective tax framework, the
government appointed a unified body to address these disputes.
Most sectors received support in budget 2014-15, with FDI ceilings
in insurance and defense raised along expectations. The households received a
hand by modest increase in the basic tax slab and higher exemption limit on
financial savings. Extension and expansion of investment allowances for SMEs
and manufacturing sector was positive.
Funding towards infrastructure sector found support from the
decision that banks will be allowed to raise long-term funds, without the need
to maintain proportional SLR, CRR and PSL. Financial sector liberalization and
sops also buoyed the markets.
Overall, set against the challenging economic backdrop, the
government tabled an encouraging budget, balancing need for fiscal restraint
and support to the domestic growth engines. Implementation of the reform agenda
will be in focus next.”
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