To some investors that optimism is misplaced. Should Modi win the elections, his government will face its first credibility test with markets when he delivers a budget by June or July that will need to show the country can realistically contain its fiscal deficit.
With no major triggers in the near term, markets will now look at the elections and international factors over the next two three months. Monetary measures, if any, will have an impact in the intermediate term, says Dipen Shah
"Moody's notes that India's fiscal deficit ratios have declined over the last two years, but its general (central and state) government fiscal deficits remain higher than those of similarly rated peers," it said.
Also, the market is not very convinced about the estimates for the coming fiscal, especially on tax revenue assumptions. Fiscal deficit target for FY15 is pegged at 4.1 percent. Much of that will depend on the pace of the economic recovery and how the next government manages its subsidy bill.
In an exclusive panel discussion with CNBC-TV18's Shereen Bhan, Finance and Revenue Secretary Sumit Bose and Expenditure Secretary Ratan Watal discuss why the target should be achievable and why the government's fiscal consolidation plan is "credible".
Overall, curtailing the fiscal deficit to 4.1% of GDP for 2014-15 seems challenging, given the optimistic assumptions for nominal GDP growth (13.4%), tax revenue growth (19%) and disinvestment receipts (Rs 370 billion), while simultaneously allowing for fiscal space to fund the new governments expenditure priorities.
The rupee rose to a near one-month high on Monday, helped by some late dollar selling by foreign banks, even as the finance minister presented a largely in-line budget, sticking to his fiscal deficit target while doling out sops to some sectors.
Most of the numbers are not gelling in terms of the economic reality. It is an instance of taking away revenues from the next government as well as imposing more expenses on them and also imposing on them the difficult task of achieving 4.1 percent fiscal deficit.
As had been widely speculated, Chidambaram announced excise duty cuts on some capital goods and non-durable items (specifically those for export purposes) from 12 percent to 10 percent. There were also reductions for motor vehicles.
There were no nasty surprises in the form of populist measures from the Interim Budget, but the government seems to be trying to reach out the corporate sector and the middle class as evident from some of the indirect tax incentives.