Budget adheres to fiscal discipline... - Angel Broking

The Finance Minister has presented a responsible budget with a balance between increasing revenues and reprioritizing expenditure. The Budget has effectively delivered on its most important aspect ie the fiscal consolidation front. The fiscal deficit target for FY2014 has been maintained at 4.8% of GDP which is in line with market expectations and is thus positive for the economy. Another positive is that the revised estimate for FY2013 fiscal deficit has been brought down to 5.2% of GDP, slightly lower than the government-s own estimate of 5.3% of GDP and the actual numbers for the FY2012 headline fiscal deficit has also narrowed to 5.7% of GDP. He has delivered on fiscal discipline, as he did not announce any major populist measure and largely maintained stability in tax policies, save for some tweaking for higher income brackets and corporates. There were some concerns before the budget that there would be a big burden coming from the food security bill, but that has also largely been curtailed to just Rs. 10,000cr. It failed to cheer markets as expectations on reform measures rode high ahead of the budget and it did not deliver on that front.

The total expenditure in FY2013RE is 4.0% lower than the FY2013BE and this has been achieved by squeezing plan expenditure during the period by 17.6%. However, for FY2014BE the Finance Minister has increased the allocation to plan expenditure by 29.4% (to Rs. 5.55lakh cr) over FY2013RE indicating that it is unwilling to compromise on the quality of spending.

On the revenue side, we believe that overall the budgeted estimates look optimistic particularly since buoyancy in revenues is linked to revival of economic activity. The budget estimates a 21.2% rise in revenue receipts to Rs. 10.5lakh cr over the revised estimates of FY2013 with a 35.8% rise in service tax in FY2014BE over FY2013RE as it has limited the services exempt from taxes. The budget also estimates a steep 74.6% rise in non-debt capital receipts to Rs. 66,468cr over the revised estimates of FY2013. This can be mainly attributed to upping of the disinvestment target to Rs. 40,000cr in FY2014BE from Rs. 30,000 BE and Rs. 24,000cr RE in the previous fiscal year.

The fiscal discipline will also create more headroom for the RBI to announce further rate cuts and improve the environment for the private sector to step up investments. In this regard, within the budget too there were a few measures to encourage capex spending (by providing 15% accelerated depreciation on large ticket capex) and home purchases (Rs. 1lakh additional deduction on home loans below Rs. 25lakh), though nothing particularly big bang.

The budget also dampened sentiments since it failed to deliver a boost to exportoriented sectors. The Finance Minister, however, expressed optimism in the foreign trade policy to be announced next month. The budget has proposed a 15% investment allowance for new high value investments and took some measures to augment the savings rate, but not enough has been done either to revive the capex cycle or to attract households- savings in financial assets and to discourage demand for non-productive physical gold which is adding to our trade deficit and CAD woes.

...But GDP growth at 4.5% in 3QFY2013 makes a case for more reforms

Real GDP growth in the economy stood at a decade-low of 4.5% in 3QFY2013, lower than 5.3% in 2QFY2013 and 6.0% in 3QFY2012. Growth in services sector decelerated to 6.1% as against 7.2% in 2QFY2013 and 8.3% in 3QFY2012. The agricultural sector reported a modest 1.1% growth as compared to 4.1% in the corresponding quarter of the previous year. Industrial growth recovered slightly to 3.3% as against 2.6% in the corresponding quarter of the previous year supported mainly by growth in manufacturing (2.5%).

The CSO-s advance estimate for GDP pegs FY2013 GDP growth at a modest 5.0%, nearly a decade low. We believe that for the present below-potential growth rate of our economy to revive, focus should shift towards measures aimed at removing supply side constraints, particularly in mining and power sectors; encouraging investment; maintaining momentum on reforms; and ensuring macroeconomic stability.

Source : Equity Bulls

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