BUDGET 2013–14 - Focus Points - JM Financial

Tax Reform Push: The last year saw an environment of great regulatory uncertainty in the country, which led to foreign investment becoming very cautious. This is one key perception that needs to be proactively addressed this year

Fiscal Road Map: Rising crude oil remand, mounting gold imports and depreciation of local currency against dollar has pushed the current account deficit (CAD) to record high of 5.4 %t of GDP in the July-September quarter. Notwithstanding government steps to curb gold import (this is touted to be the main reason behind burgeoning CAD), fuel reforms (like cap on LPG cylinders, partial deregulation of diesel prices) the CAD figures remain alarming. At the helm of affairs in the Finance Ministry, FM faces an uphill task of narrowing the CAD.

Revival Growth Regime: India's GDP growth slowed from 5.5 % in the first quarter ended on June 30 of 2012-13 to 5.3 % in the second quarter that ended on September 30. Though government is trying hard to accelerate the pace of economic growth, uncertainty over the world economy coupled with domestic impediments like poor IIP numbers, rising current account deficit and slowing demand from all the major sectors has put a brake on the growth story. Thus the major challenge before the Finance Minister is to get the growth momentum back that India achieved in 2008, prior to the global economic slowdown.

Expanding FDI Regime: After facing flak from all quarters over policy paralysis, the government pushed through major reforms at the end of the calendar year 2012. Inspite of passing of FDI in multi-brand retail and FDI in aviation, FM needs to open up More sectors.

Populist Measures Balancing Growth: Need attention to win over 2014 General Elections at the time UPA led by Congress Party running at a low confidence after High inflation coupled with High Prices.

Fiscal Consolidation: FM has limited room to raise resources through taxation. Raise the levels too high and it would be counter-productive to business and growth. He has to tread a fine line. One area, we believe FM has the largest room for fiscal correction, however, is the expenditure side. With elections only a year away, there should be no expectation that the finance minister will reduce the ambit of social schemes such as MGNREGS. But going by recent news reports, the finance ministry seems serious about making the implementation of such schemes much tighter to stem leakages.

Revival of Economic Growth : Deregulation and lifting caps on most foreign direct investment is the one action that will provide a solution to revive the investment cycle and growth momentum. This has a spin-off effect that will put the economy on a high growth trajectory and address the current account deficit and fiscal deficit, in turn. Introducing greater competition in the mining sector (particularly coal), strengthening framework and creating new avenues for infrastructure financing and improving agri-marketing systems are some areas where the government should now focus.

Tax Reforms : Given the back drop of fall in tax collections, FM need to be more proactive in removing tax bottlenecks. With the government serious about pursuing the passing and implementation of the goods and services tax (GST) and DTC , it is possible that we will also see a rationalisation of excise duties in tune with the rates foreseen under the GST regime. Rationalisation/simplification of some tax measures, withdrawal of some tax exemptions are likely changes anticipated in this Budget.

Source : Equity Bulls

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