HSBC’s global research said in a report today that it expects some slippage with the budget deficit at 4.5 per cent of GDP considering that Arun Jaitley, had set the bar high.
It pointed out that revenues will need to grow faster than GDP, even by the administration’s own forecasts which is a tall order. It said that without significant tax hikes or a broadening of the tax base, the burden will fall on disinvestment.
Lofty equities should boost proceeds, although that may not be sufficient to close the gap (the new budget targets Rs 63,400 crore in such revenue this fiscal year).
So it expects a slippage, but points out that this is hardly a devastating outcome, although not quite the belt tightening that was seemingly delivered yesterday. It draws comfort from the aim to finalise the GST Bill by the end of the year and hopes that it has the potential for more rapid fiscal consolidation in the coming years.
It notes that Mr Jaitley’s plans to make subsidies more targeted and revamping of some schemes may prove politically tricky, especially when drought and higher energy prices are thrown into the mix. A rapid pruning of such programmes thus appears unlikely, it said.
While it was not a big bang budget, it offered a few reassuring steps that faintly offer a taste of the type of reforms that the government will need to deliver if it wants 8 per cent growth, the report said.
Interim budget
The real upside for the private sector will come from tackling labour reforms, land acquisitions and potentially from the setting up of special economic zones that cater to exports. However, to be fair to the new administration, this is an interim budget and the government should be judged on its first full budget for fiscal 2015/16 to be tabled in February next year.
While noting that the benefits of policy measures introduced in this budget were not quantifiable, HSBC thinks “investors will give this administration the benefit of doubt and in the months ahead judge it on its governance and its ability to lift/remove investment bottlenecks.”