The finance minister (FM) on Thursday presented a Budget devoid of any major path-breaking announcements. While most in the market expected a “dream Budget”, it finally turned out to be one being more pragmatic than being populist. The current economic situation appears challenging for the economy with diverse pressures coming out of both domestic as also global scenarios. For the Budget, growth was assigned as the biggest goal. However, having said that, there was precious little that the FM could do in allocating a lot of resources to push growth forward. Consequently, as was pointed out in the Economic Survey a day before, the hope is for the RBI to ease monetary policy soon and provide some help for growth.
The challenges for the economy were spelt out upfront, namely a high fiscal deficit, a wide CAD, lower savings and high inflation. However, the Budget failed to announce any big-bang measures to correct for these imbalances. The expectation was that the Budget could roll out further measures to cap gold imports, but the FM decided to not even touch the Customs duty on gold, probably due to fears that any further increase in the Customs duty from the current 6% could lead to rampant inflows through unofficial channels.
Precious little was also done to address the other major challenge for the economy, the dips in the household financial savings. Furthermore, overall tax structures were left untouched, while announcing small steps such as higher taxes for the “super-rich” and a bit more contribution from the corporate sector through higher surcharge on companies whose taxable incomes are higher than Rs10 crore.
Even as the GFD/GDP target is announced at 4.8%, the unnerving factor is the significantly higher borrowing numbers announced, at Rs6.3 lakh crore. This is due to padding up of Rs50,000 crore on account of extra redemptions, taken forward in FY14 to ease the redemption pressure in some of the future years. But what this means is the market will have to factor in approximately a Rs17,000 crore of borrowings by the central government each week. This could be challenging even with OMO accommodation by the RBI.