The Union Budget, I would say, has been focussed more towards controlling inflation, fiscal consolidation and focus on rural as well as agriculture sector.
A Balasubramaniam, CEO, Birla Sun Life AMC gave his views on how he read the budget presented by finance minister Pranab Mukherjee for financial year 2011-12.
The Union Budget, I would say, has been focussed more towards controlling inflation, fiscal consolidation and focus on rural as well as agriculture sector. Series of reduction in excise duty and customs duty seem to be targeted more towards keeping the inflationary expectation down in the coming year. Fiscal consolidation is reflected through the budgetary provision towards reduction in the overall expenditure.
No major efforts have been put to augment revenue. However, expenditure control has been put in place especially with respect to subsidy burden. However, our initial assessment is that this number might overshoot by Rs.40,000 - 50,000 crore during the course of the year. Budget has of course highlighted various initiatives such as FRBM act implementation, creation of debt management cell, rolling out policy for attracting FDI investment, various pending legislation to be taken in the forthcoming Parliament session such as Insurance Law, Life Insurance Bill, Pension Bill, Banking Law amendment and Bill to amend RDBFI Act and SARFAESI act. Finally, the long pending proposal to reduce withholding tax for investment in Indian debt by FIIs is a very welcome move. On top of it, increasing the limit to USD 40 billion from the current level of USD 20 billion and also allowing them to invest in unlisted debt securities is a very welcome move. This is very essential under the current interest rate environment and also the current need for funding the various infrastructure projects that need investment in the SPVs.
In our view, this is a big positive to attract global investors into Indian debt given the high interest rates. Mutual Fund industry is finally getting due recognition by opening up the industry for foreign investors to invest in Indian growth story through domestic mutual fund equity schemes. This is a path breaking initiative, however, this will be subject to completion of KYC stipulated by Indian Regulator as well as local law that is applicable at the investing countries.
To sum up potential upside risk still remains for our market in the form of high inflation, fuel prices moving beyond acceptable levels and monsoon risk which the market and investors will start looking at in coming months. All three factors play an important role especially with the government stance of reduction in expenditure budget.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.