As expected from Interim Budgets, there is nothing in the Budget that the investor needs to take home. We will have to wait for the regular Budget to see the impact on investments.
The Interim Budget presented today by the Finance Minister was only a tradition followed and no great outcome was expected out of the same. With a few more months to go before India votes for its most awaited election ever, the Interim Budget turned out to be a Report Card of the UPA government for the last ten years. Overall, the Finance Minister was able to put forward a positive report, yet on the periphery the market participants are aware about how the UPA has been managing the economy for the last 10 years.
Normally when I write about the Budget, I note down the measures along with the impact that the same will have on the investor community. However, I would reserve that for the Budget which will be announced after the elections. At this juncture, I would just like to dwell on some of the points that the team at North Block had to tell the country.
In nine quarters, the GDP growth rate declined from 7.5 percent in Q1 of 2011-12 to 4.4 percent in Q1 of 2013-14. Thanks to the numerous measures that I have narrated, I was confident that the decline will be arrested and the growth cycle will turn in the second quarter. I believe I have been vindicated. Growth in Q2 of 2013-14 has been placed at 4.8 percent and growth for the whole year has been estimated at 4.9 percent. This means that growth in Q3 and Q4 of 2013-14 will be at least 5.2 percent.
The economy has been growing through a downward trajectory for some time now. During the initial years of the UPA rule, the economy was growing at more than 9% and by the end of 10 years, we are growing at around 4%.Although the FM has lauded himself for taking several measures, yet we are of the view that the government’s policy stagnation definitely had a drastic impact on the growth momentum.
Last year, when I read the Budget speech, WPI headline inflation stood at 7.3 percent and core inflation at 4.2 percent. Through the year, inflation saw its ups and downs. At the end of January 2014, WPI inflation was 5.05 percent and core inflation 3.0 percent. Both the Government and the RBI have acted in tandem. While our efforts have not been in vain, there is still some distance to go.
The previous RBI Governor had been mentioning in several policy reviews that the government had to do its bit to control inflation. This is because inflation was not just a monetary issue but was also the result of demand-supply imbalances. However, the government started acting on correcting the fiscal issues very late and hence this prevented the Central Bank from adopting a policy stance which would have stimulated growth for a long time.
Fiscal Deficit and Current Account Deficit
The fiscal deficit for 2013-14 will be contained at 4.6 percent of GDP, well below the red line that I had drawn last year. More importantly, the Current Account Deficit (CAD) that threatened to exceed last year’s CAD of USD 88 billion, will be contained at USD 45 billion, and I am happy to inform the House that we expect to add about USD 15 billion to the foreign exchange reserves by the end of the financial year.
A few months back, India was the target of some of the rating agencies for a downgrade. However, the government’s strategy of controlling the Fiscal Deficit and Current Account Deficit are definitely good news for the economy.
We have given a big push to infrastructure and capacity addition in infrastructure industries. In 2012-13 and in the nine months of the current financial year, we have added 29,350 megawatts of power capacity, 3,928 kilometres of national highways, 39,144 kilometres of rural roads under PMGSY, 3,343 kilometres of new railway track, and 217.5 million tonnes of capacity per annum in our ports. Besides, 19 oil and gas blocks were givenout for exploration and 7 new airports are under construction.
It is a given fact that UPA’s policy paralysis has been the main reason behind the lagging infrastructure sector. The FM might have given a lot of numbers to show that the government is serious about the infrastructure sector. However, the amount of projects being cleared by the Cabinet Committee on Investment (CCI) is a clear indication that the government definitely rose from a long slumber.
To stimulate growth in the capital goods and consumer non-durables, I propose to reduce the excise duty from 12 percent to 10 percent on all goods falling under chapter 84 and chapter 85 of the Schedule to the Central Excise Tariff Act for the period up to 30.6.2014. The rates can be reviewed at the time of the regular Budget.
(ii) To give relief to the automobile industry which is registering unprecedented negative growth, I propose to reduce the excise duty as follows for the period up to 30.6.2014.
This is positive news for the economy. However, it needs to be seen if the same measure is followed in the Regular Budget.
The best part of this Budget is the vision that the FM has laid down for the future. He has touched upon all the important points that will help India in achieving the 9% growth target. However, the sad part is that at the end of 10 years, the FM is coming out with a vision and he has very less time to achieve this for the country.
Takeaway for Investors:
As expected from Interim Budgets, there is nothing in the Budget that the investor needs to take home. We will have to wait for the regular Budget to see the impact on investments. Till then, our advice remains intact. We continue to remain neutral on Indian equities, hence invest via SIP or through lump sum whenever there is a correction. As for the fixed income side, we are positive on Short Term Funds if the investment horizon is for a year.
The author is a Research Head at Fundsupermart.com India. You can write back to her at firstname.lastname@example.org
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