The Union Budget For 2014-15 Review The union budget for 2014-15 was presented by Mr. Arun Jaitley, the finance minister of India. The budget was considered to be middle- man oriented and focusing on an overall development in the long term. It failed to appease the critics as it did not focused much on the short-term goals but the key features of the budget aimed at developing a well rounded nation in the long run. The measures introduced in the budget are very progressive and good for the bond and equity markets, they would lead to reduction of inflation in coming years due to lower fiscal deficit. Contrary to almost everybodys expectations, the government intends to meet the fiscal deficit to GDP target of 4.1 percent in FY15 despite two years of very low growth, huge subsidy arrears and lingering threats of monsoon failure and oil price shock. It shows the governments firm commitment to support the RBI in inflation control and management. However, the underlying dynamics of growth-inflation trade-off suggests that we may not see much elevation in growth during FY15. This message was also loud and clear in yesterdays Economic Survey that has suggested a period of at least two years before the nation attains a growth trajectory of 7.0 percent plus. The government has increased FDI in defence to 49 percent to increase local indigenous production and save precious foreign exchange. These measures will reduce current account deficit in the long run. This should lead to the currency remaining relatively stable in the long run as current account deficit will be at manageable levels. Overall, the government has given a roadmap which it intends to work on over the next five years and increase the supply of goods and services in the economy. The intention to retain the fiscal deficit at 4.1 percent is a big positive for the bond markets. Although, it looks challenging to meet, especially with a large increase in non-tax revenues. Extension of withholding tax; treatment of income as capital gains and the introduction of safe harbour rules for foreign investors is a good step and will provide further comfort for FIIs investing in India. Although we need to study in more detail; but the mention on international debt settlement of Indian bonds would mean that the government is going ahead with plans of listing Indian government bonds under the Euro clear system, which will attract further foreign investment in Indian government bonds.
Posted on: Thu, 24 Jul 2014 11:00:20 +0000