The decision to amend the law to retroactively tax mergers by foreign firms seemed to be the one negative in what was seen by foreign investors as a no-surprises, if somewhat disappointing, budget.
“The budget was in line with expectations, there were very low expectations,” says Ms Taina Erajuuri, a Helsinki-based portfolio manager for FIM India. However, she added that while expectations of any significant reforms to open up the market had been low, certain absences were disappointing. “We were expecting something on the Direct Taxes Code but this was not mentioned at all, nor a goods services tax”
“It's a relatively neutral budget relying on a relatively optimistic growth outlook which speaks to the level of political paralysis in the country,” said a London-based strategist who spoke on condition of anonymity. “They appear not to be taking decisive action in one way or the other”.
The decision to cap the subsidy burden in the next fiscal year to 2 per cent was welcomed, but investors were sceptical of the targets for both deficit reduction “to 5.1 per cent from 5.9 percent” and for growth of 7.6 percent. “We are looking for a 5.5 per cent deficit,” said Ms Erajuuri. She added that the level of borrowing over the year of Rs 4.79 trillion was “much higher than expected” and that the disinvestment target was ambitious.
Among the positives, was the decision to boost foreign investor participation by allowing Indian depositary receipts to be two-way fungible, said Deepak Lalwani, Director, India, at London-based consultancy, Lalcap Ltd.
While the government has signalled it will not be demanding further taxes from Vodafone, following the decision on overseas mergers, investors warned it could still be highly damaging to investor sentiment. “I think any signal that India wants to go back to change things from 50 years ago sends a very negative signal,” said Mr Lalwani.