Budget Reactions: Not a 'Populist' Budget says Fitch Ratings

Fitch Ratings has come out with its report on post Union Budget 2013.

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Challenges to FY14 Budget Targets: India Ratings observed that, based on present global and domestic macro-economic scenario, it will be a challenge for government to attain the Union Budget 2013-14 (FY14) targets. The core of the budget proposal is 6.1%-6.7% economic growth in FY14. However, India Ratings expects the economic growth in FY14 to be at lower end of the range.

Slightly Optimistic Tax Revenue Targets: The FY14 budget assumes 19.1% growth in central government’s tax revenue. However, based on budget proposals and trajectory of economic growth, service tax has the potential to compensate for lower growth from corporation tax and customs.

Subsidy Allocation: Subsidy allocation in the FY14 budget, especially for sale of decontrolled fertiliser with concession to farmers points towards fertiliser sector reform in FY14. The petroleum subsidy allocation is in line with the recent reforms in pricing of petroleum products.

Not a Populist Budget: The FY14 growth of revenue expenditure allays the fear of a populist budget before the next general election.

Efforts to Revive Investment: The budget has a few proposals to revive investment sentiments and improve savings. However, India Ratings believes resolving pending issues such as land acquisition, environmental and project clearances will have a larger impact on investment revival.

Elbow Room to Adhere to FY14 Budget Proposals: India Ratings believes that expenditure control, similar to FY13, could help the government adhere to FY14 budget targets.

Good and Services Tax (GST) in FY15: The budget made an announcement of INR90bn towards the first instalment of compensation to the state for loss in reduction in the central sales tax (CST). This has brightened the prospects of the goods and services tax (GST) implementation from FY15.

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