KV Kamath, MD & CEO, ICICI Bank

Fiscal deficit number at 6.8% does not unnerve me. Certainly, we could have expected that it would be the number. Given that the Finance Minister (FM) has held the taxes and made this a neutral budget in terms of taxes, I would think that what probably everyone, and not just the markets, was expecting was how to breach that. Some statement as to what would be the next step that the government could be thinking of to look at bridging some of the challenges on that 6.8%, I think that has what is disappointed everybody that that articulation is not present.

I would think that one could have expected it in the budget but probably they have their own challenges because given the short time that they have had to actually work out an agenda for divestment as it were. But I think he dropped a hint very carefully, the market sends back a message that hint is not enough. I am sure the government will work on it in good times and clearly lay out a path in terms of how to bridge that. But I think the more important part in this budget as I see is holding taxes in a year when clearly the government is under pressure to reduce that budget deficit. They could have hiked taxes, they didn’t do that and at the same time cut out fringe benefit tax (FBT) and cut out the surcharge on personal income tax. I think it puts a lot of money into the hands of the lay spender which is certainly good for the economy. At the same time increase significantly the outlay on the National Rural Employment Guarantee Scheme (NREG). So I think this is a budget which will take two-three days for the larger market place not just the capital market to understand and then probably react to.

On foreign direct investors (FDI) and insurance, probably the budget is not the best place to have announced this. If the market was expecting this, I would think that this is not something the market should have expected. As far as the interest rates are concerned, clearly at this point in time, the bond market is reacting to what they see as a large gap which they are not sure how it would be met and what it could do to interest rates going forward. So for some time till there is clear articulation on that front, I would think that the bond rate will rule high. But we have a situation where otherwise deposit rates are dropping. I don’t think that situation will reverse immediately. So I think it is good for consumers. To talk of consumers on a bank point of view, I think the steps taken i.e. no increase in tax rates, surcharges and personal income tax being dropped and then FBT also being abolished, puts money into the hands of urban employee or the professionals. When you look at rural India, large outlays on NREG and a whole lot of incentivisation or stimulus if one may call that to rural India including larger outlay on the agricultural loan front, I think we will go a long way in sustaining rural demand which in a way helped us during the last year.

So I think by quietly pushing these two levers, the FM is going to stimulate demand and clearly people will understand this in a next few days that the budget is a pragmatic budget, it has dealt with reality, reality at this point being that we have a challenge on the deficit front and we will have to live with it but at the same time not disturbed what otherwise could put more challenges on us and aim at 9% growth. I think it is a pragmatic budget and I am sure in the next few days, greater articulation of some of the issues that concern the market place will get resolved.

I think the budget is basically giving an idea as to what the government would do on infrastructure. Clearly the government expects increased public private partnership (PPP). I think we have to put in focus that 100,000 crore of refinance from India infrastructure Finance Company Limited (IIFCL). I think it is a big number.

For the first time we are seeing relevant numbers coming out of the IIFCL window and I am sure that in the next few years, this number will increase and will provide a great degree of sustainability to infrastructure projects.

Similarly, there are outlays for rural roads under the Pradhan Mantri Gram Sadak Yojana Scheme (PMGSY). So put in total, I think there are very interesting stimuli being given across the infrastructure sector and this is going to be probably the way forward where the government takes steps and then expects the private sector to play ball as it were in the public private partnership context. I think put together, there is a whole lot of stimulus there.

I think what could be done going forward is someone in the government articulates the big picture as it were. It could be the Finance Minister (FM) or it could be the Prime Minister (PM). I am sure that will provide a whole lot of comfort to investors. I think that comfort is very important for the market place and post-facto we should not be worrying as to who should have made this. Probably somewhere in the government that articulation should happen at the very highest level and I think that will provide a whole lot of comfort not only to investors but to the larger mass, the public of this country, the citizens of this country and that is critical. If I were to look at this budget, I have heard everyone say it is a pragmatic budget, to me the key is going back to that 8-9% growth path, 8% maybe immediately and then stepping at after 9%, we will have to look at does this budget provide the framework for that growth and I think once the market place decides that indeed it is putting us back on that track and 6.8% is not so bad looking at what is happening around the world and maybe looking at some tea leaves saying that here are the ways that 6.8% could be bridged or if additional stimuli needs to be given, I think there will be a dose of realism in the way the market thereafter reacts.