Union Budget 2013 - 14: Consolidation Focus, no populism positive: Angel Broking
Angel Broking has come out with its report on "Union Budget 2013-14 Review"
March 01, 2013 / 17:53 IST
Angel Broking has come out with its report on "Union Budget 2013-14 Review"
Get full Budget coveragePrudence over populism
The Finance Minister has delivered on one of the most important aspects in this Budget - fiscal consolidation. The budgeted fiscal deficit for FY2014 at 4.8% of GDP is in line with our and market expectations. In terms of the fiscal deficit for FY2013, the Finance Minister has exceeded expectations and reined it at 5.2% and it is slightly lower than the government's own estimate of 5.3% of GDP. In addition, the actual FY2012 headline deficit has also narrowed to 5.7% of GDP from 5.9% of GDP.Overall, we believe that the FY2014 Budget is responsible and more credible since it seeks to narrow the fiscal deficit by increasing revenues as well as reprioritizing expenditure. Although the Finance Minister has refrained from announcing any big bang reformist measures (as expected by the market) in the Budget, he has also abstained from 'playing to the galleries' and resorting to major populist policies ahead of the election year and we view that as a positive.Balancing revenues and expenditure
We believe that the Finance Minister has calibrated fiscal policy towards a good growth mix. Non plan expenditure is expected to moderate to 9.8% of GDP in FY2014BE from the revised estimate of 10.0% of GDP in FY2013RE. Plan expenditure, on the other hand is expected to inch upwards to 4.9% of GDP in FY2014BE as compared to 4.3% of GDP in FY2013RE.Overall, despite the over-estimation in receipts we believe that the fiscal deficit number looks credible. We believe that the government would stick to its fiscal deficit target of 4.8% of GDP in FY2014 and akin to the previous fiscal year, any shortfall in revenues is likely to be offset by similar compression on the plan expenditure side. We believe that it spells positively for the economy to avert a sovereign ratings downgrade by credit ratings agencies. The narrowing of the fiscal deficit is also a positive for the interest rate environment in the economy as monetary policy is expected to adopt a more accommodative stance to support growth in the wake of fiscal consolidation by the government.Conclusion
We believe that the Finance Minister has delivered a budget that suggests economic stability supersedes political considerations. We regard it as a prudent but non-reformist budget. Despite the many misses, delivering on the fiscal deficit target is a key positive. We believe that it is crucial for averting a sovereign rating downgrade and thereby ensuring stability of capital flows to finance the current account deficit. Credibly lower fiscal deficit target for FY2014 is also expected to provide monetary policy with more headroom to ease policy rates and crowd in private sector investment.Going forward, we believe that maintaining the momentum on reforms beyond the Budget is pertinent to tackle structural supply side constraints in the economy, particularly in the mining and power sector, for revival of growth in the economy.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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