The backdrop to the budget was that of a global economic slowdown, efforts by all central bankers to provide monetary stimulus and hope for revival.
From a domestic perspective, we were on the edge in terms of growth, current account deficit, fiscal deficit and a looming possibility of a rating downgrade. This demanded prudent reforms to ensure survival in the short term and building growth in the long term. This budget, which comes just a year before the general elections, also had the pressure for populist measures.
The expectations from the budget were largely in terms of revival of growth by stimulating the investment cycle with incentives encouraging capital expenditure since only consumption-led growth is not sustainable.
Some other expectations included measures to control the current account deficit including import of gold, incentivising exports and moving to financial savings versus physical savings, the level and composition of fiscal deficit (5.3 per cent for FY 2013 and 4.8 per cent for FY 2014) to be reasonable and prudent, better compliance and widening of the tax base, and clear road maps for reforms such as direct taxes code (DTC) and goods and services tax (GST).
From a capital market perspective, there were expectations of reduction in short-term capital gains tax and securities transaction tax, primarily to get retail investors to participate in the market.
The budget has been a very fine balancing act, being prudent reformist and populist. Increase in plan expenditure by 30 per cent compared with revised estimates will help growth. Incentivising capex has come through with a 15 per cent investment allowance for amounts over Rs 100 crore.
With respective to current account deficit, there is clearly lack of measures to control the same, though there was an admission that this is a bigger problem relative to fiscal deficit. The reliance on FII inflows hence becomes far more critical to take care of this issue.
There could have been some better incentives to redirect savings to financial assets. The plan to stick to the fiscal deficit at 4.8 per cent of GDP for FY 2014 is in line with the commitment.