The government played it safe in unveiling its Union Budget on Friday, pledging reforms but setting only modest targets for trimming a ballooning fiscal deficit, disappointing investors and sending bond yields surging.
He set gross tax receipts in the fiscal starting in April at Rs 10.8 lakh crore, total expenditure at Rs 14.9 lakh crore and net market borrowing at Rs 4.8 lakh crore.
Here is what some experts have to say:
Taina Erajuuri, FIM India: It's more of a populist Budget and there's nothing exciting in it that can revive the market sentiment.
Foreign investors were anyway a little sceptical about any structural reforms in the Budget after the election results, and that fear has come true to a large extent. They are in a bit defensive mode now.
The disinvestment target for the next fiscal is very ambitious and I doubt whether the government will be able to come anywhere close to it after this year's performance. It will also depend on the market performance."
Deven Chosey, KR Choksey Shares & Securities: The finance minister is looking to collect large sums of money through indirect taxes, probably to mitigate the fiscal situation, but this could have an impact on consumption.
On the subsidy front, I think this is a missed opportunity, because there was some expectation these may be restricted. What they have said now is only in the nature of an outline. The other worry is that their borrowing programme doesn't seem to be coming down.
There is not much for the market to react positively.
Dariusz Kowalczyk, Credit Agricole CIB: We are disappointed with the budget because it assumes a relatively high, 5.1% deficit in FY13. We also think that growth target is a bit too optimistic while inflation may have hard time falling as much as they are assuming.
The Budget is negative for the rupee, because high twin deficits and high inflation [boosted by large government spending] may discourage some foreign investors. It is also negative for government bonds. RBI has a bit less rate cut room now, although we still expect a cut in April.
NS Venkatesh, IDBI Bank: It is clear the government is trying to come back to path of fiscal consolidation. And once inflation eases, it will provide RBI with space for acting on interest rates.
I think the RBI will continue with bond buys through open market operations to ensure their is no disruption due to government borrowing. It is also possible that we may see a 25-basis-point cut in cash reserve ratio in the RBI's April policy review.
Rupa Rege Nitsure, Bank of Baroda: The market borrowing target looks difficult to achieve. So far, I don't think the Budget proposals inspire confidence that there will be enough revenue generation.
Bonds have reacted negatively because they [market participants] do not see much credence in the borrowing plan.
The fiscal situation will adversely impact the monetary policy. The pace and timing of monetary policy easing does look uncertain. I think the RBI may announce a token 25 basis points of rate cut in April just to boost investor confidence, but I am not sure.
Abheek Barua, HDFC Bank: What has effectively happened is that a large share of the fiscal deficit, which is above 80%, is to be funded through the market borrowing. I think the 10-year yield will cross 8.40%, and will move to 8.50%, given that the borrowing is larger than what was estimated.
