Interim Budgets are typically non-events, as they are mostly about account keeping and not policy measures. While Finance Minister P Chidambaram largely stuck to tradition, he did announce sops for automobiles, consumer durables and capital goods. The market, however, has dismissed these measures, as they are in contrast to his stated commitment to fiscal consolidation.
Excise duty cut across the automobile segments could push up demand in the coming months but high interest rates would cap the gains. Analysts are calling this only a momentary relief for the sector, seeing a structural slowdown in demand.
Ambit Capital says there is no case to change FY15 volume estimates. Leif Eskesen, chief Asean economist at HSBC, calls the duty cuts an “obvious vote bait” and it might not have been the most appropriate measure, given the need for fiscal consolidation. Although this measure is only for three months, subsequent governments may find it tough to roll it back.
The other sector that ideally should have been impacted is the banking and financial services sector, which should benefit from lower government borrowing and the Centre’s plan to infuse more capital. Given the market has questioned the FM’s fiscal deficit mathematics, chances of the Reserve Bank of India (RBI) following it up with rate action are very low. Also, capital infusion of Rs 11,200 crore into public sector banks might not yield anything, given the run-up in stressed assets.
Similarly, the two per cent cut in excise duty on capital goods (reduced to 10 per cent) is unlikely to revive the fortunes of the sector that is suffering from slowing order flows and weak margins. According to Karvy Stock Broking, the sector would see some recovery from FY16-17 onwards once the capital expenditure is allocated for the 13th five-year Plan. Order inflows from the power sector, other than transmission and distribution, will continue to suffer. Also, orders for 148 Gw of capacity are under construction out of the targeted capacity addition of 200 Gw in the next 10 years.
The interim Budget has been termed a pre-election one and the market has called it a non-event. Attention has returned to the elections and its outcome.