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India budget: a positive surprise, say leading investors

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India budget: a positive surprise, say leading investors

India's government unveiled an annual budget that aims to boost rural growth and address social issues.

Among the measures were steps to boost infrastructure development and boost farm growth.

Finance Minister Arun Jaitley also retained the fiscal deficit target, which is being seen by investors as an important step towards fiscal consolidation. However, while the budget received moderately positive reviews, there were no 'big-bang' reform measures announced.

Citywire Asia canvassed fund managers to find out their initial reactions to the budget and what it could do to boost economic growth.

Avinash Vazirani, Jupiter

Citywire + rated fund manager of the Jupiter India fund

Coming after months of rumours about new initiatives that could penalise taxpayers, the many progressive steps contained in Jaitley’s third union budget will provide a lot of reassurance about the direction of travel for government policy.

 The fact that the Finance Minister has focused on ensuring that the fiscal deficit remains the same, despite pressure from higher salaries and pensions across the board, is a good sign and my expectation is that a cut in interest rates is now even more likely. 

The main takeaway is that this is an attempt to fix the economy and not the market.

The government has signalled that it will continue to work through its key areas of focus, and will let markets take care of themselves.

The budget also marks a decisive shift towards progressive taxation, with a focus on rural India and the poor. Biometric IDs will now extend to the food distribution system, cutting red tape and corruption while delivering money and services to those who need it.

There were also key developments in the tax sphere, where India has introduced an ‘equalisation levy of 6% of amount of consideration for specified online transactions received by a non-resident not having a permanent establishment in India’.

This is a simple way of framing a tax designed to prevent global internet giants from operating tax-free in India.

Overall I think this is a good budget for our portfolio and is likely to be positive for a number of sectors in which we have core holdings, including consumer staples and oil marketing companies.

Rumours circulating in recent weeks about extra taxation for the oil marketing sector have been quashed – if anything the new policies will benefit the sector.

Furthermore, given savings from low oil prices, there is no question of any further need to fund energy subsidies until oil reaches $55-$60 per barrel, in my view – a positive for the sector.

Anand Shah, BNP Paribas Investment Partners

India CIO

The FY17 union budget seems to have adopted a conservative fiscal position, but has not implemented many of the taxation measures that the market was expecting.

A large part of the budget has focused on social issues (farm income, health insurance, skill enhancement, subsidy distribution).

While allocation to roads and irrigation is up, but that for bank recap remains at Rs250 billion/$3.6 billion (flat year-on-year). 

The budget met the fiscal consolidation roadmap, while keeping its focus on boosting rural demand and supporting infrastructure growth.

Key highlights of the budget are: fiscal consolidation: targets (3.9/3.5% for FY16/17) have been retained. The push for infrastructure development continues: Budget allocation for roads is up 25% YoY, as is rail capex allocation. A rural push is quite visible in the budget:

On various rural schemes, the government is budgeting around $12.8 billion during FY17 on rural development (including rural roads, interest subvention on agricultural loan, crop insurance, etc). This is up 20% year on year, but there are no overt signs of populism.

Huzaifa Husain, PineBridge Investments

Head of equities – India

The budget achieved a fine balance between maintaining the target fiscal deficit along with increasing spending in transportation ministries by raising taxes on consumption and the wealthy. Thereby aiming to achieve a better balance between consumption and investment sectors of the economy.

The government has tried to play the role of an enabler in areas where it can attract private capital to invest. It has tried to play the role of an allocator where private capital is not very forthcoming. Since the time this government took over, they have raised spending on roads by a factor of more than 3x, on railways by 2x and next year they plan to spend on renewable energy. This is an amount which would nearly be equal to what was spent in aggregate for past four years. Most of the sources they are using to achieve this is by taxing fossil fuels and passenger cars.

One would have liked to see more details on how the banking system would be nursed back to health.

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