Market reactions

The finance minister has done a good job of walking the tight rope. He has tried his best to revive the investment cycle — viability gap financing, issuance of tax-free bonds or removal of withholding tax. The feel-good part of the Budget was the widening of personal income tax slabs, increased spend on agriculture and supply chain, lowering of Securities Transaction Tax, and addressing financing issues of the infra sector. Direct transfer of subsidies like LPG and kerosene can significantly reduce leakages when rolled out all over India.

R Venkataraman MD, IIFL

The FM presented a realistic Budget. Those disappointed would argue it fell short of big-bang announcements markets and observers craved for. But, some might find relief in this Budget, as there were concerns the government might fire on all cylinders on the populist front, with an eye on the elections. The government’s decision to persist with the status quo means the gap between India’s performance and its potential will persist. The headline numbers suggest the Budget is a step towards fiscal consolidation, with fiscal deficit projected to fall to 5.1 per cent. The subsidy assumptions appear to be too optimistic and for these numbers to hold good, global fuel, fertiliser and food prices will have to correct sharply. Alternatively, there will have to be a substantial rise in the retail prices of these commodities.

Vetri Subramaniam CIO, Religare

Overall, we believe the economy is back on the path of fiscal consolidation with the Budget presented today. First, the finance minister has rolled back indirect taxes towards the pre-crisis levels. What we like about the Budget is that the revenue thus raised has not been ploughed back into social schemes like the National Rural Employment Guarantee Scheme and so on. On a broad basis, the Budget is taking away more from the consumer in form of indirect taxes than it is giving away through social schemes — a big break from the earlier populist Budgets. This is in line with the other burdens (outside budget) that consumers have been saddled with — power and railway tariffs. There is some emphasis on infrastructure through sops, but, otherwise, the Budget seems rather insipid.

Prabhat Awasthi Head of Equities, Nomura

The Budget was a balancing act, considering the challenges facing the economy. The assumptions underlying revenue collection were more realistic and the intent on reining in expenditure, was laudable. The big issue, however, is the impact it will have on the economy. With few options to contain the fiscal deficit, the FM had to resort to increasing taxes on goods and services. Coming at a time when industry is reeling from impact of high interest rates, this will further dent companies’ margins. For industries that are able to pass on this cost, it will lead to cost-side inflation pressures. Another big challenge from an inflationary perspective is the aspect of reining in subsidies at 2 per cent of GDP.

Girish Nadkarni Executive Director and Head of Equity, Avendus

This year’s Budget was presented against the backdrop of slowing growth and a tough macroeconomic environment. A major impediment to growth was high inflation, which led to tight monetary policy. High oil prices throughout the year led to an increase in subsidy burden and increased the fiscal deficit to 5.9 per cent of GDP for 2011-12. A major highlight of the Budget 2012-13 is a credible fiscal consolidation plan, which brings down the fiscal deficit to 5.1 per cent of GDP. The deficit reduction is backed by measures of raising taxes, primarily increasing the excise duty and service tax rate from 10 per cent to 12 per cent, and broad-basing the service tax net.

Milind Barve MD, HDFC MFl