Saturday, February 28, 2015

Budget 2015: Some Preliminary Thoughts

The Finance Minister today announced India’s Budget 2015-2016. The Budget documents, including his speech are available here.

It is significant that this Budget comes during a period of upturn in the economy after a few preceding years of perceived gloom and doom, especially from the perspective of foreign investors. Other features attributable to the current macroeconomic environment include slowing inflation. As the Finance Minister notes in his Budget speech:

5. ... In November, 2012, CPI inflation, stood at 11.2%, the current account deficit by the first quarter of 2013-14 had reached 4.6% of GDP, and normal foreign inflows until March 2014 were $15 billion. …

6. We have come a long way since then. The latest CPI inflation rate is 5.1%, and the wholesale price inflation is negative; the current account deficit for this year is expected to be below 1.3% of GDP; based on the new series, real GDP growth is expected to accelerate to 7.4%, making India the fastest growing large economy in the world; foreign inflows since April 2014 have been about $55 billion, so that our foreign exchange reserves have increased to a record $340 billion; the rupee has become stronger by 6.4% against a broad basket of currencies; and ours was the second-best performing stock market amongst the major economies.

(On a related note, two pieces (here and here) in last week’s Economist magazine echo this trajectory make a strong case for India’s economic prospects)

The Budget proposals are hence made in the context of a rebound in the economic growth with great expectations and prospects for the future. The proposals touch upon a number of areas, and the key highlights are available here. While we hope to deal with some of the more specific proposals relating to the subject matter of this Blog in a series of subsequent posts, in this I set out some of the key philosophical overtones and policy goals that are evident in the Budget.

From a corporate or business perspective, one of the major focus areas of the Budget relates to the “ease of doing business”. This is not surprising given that the policy paralysis in the past has driven away foreign investors and has also set up hurdles for domestic businesses and entrepreneurs. The Budget has a close eye on reversing this trend. The Government has also undertaken measures in the past in this direction, particularly with a view to enhancing India’s position in the World Bank’s Doing Business rankings.

Related to this is the topic of “Make in India” that finds a prominent place in the Budget. Several reforms focus on enhancing manufacturing and other business activities in India. In order to enable capital raising for Indian business (including in the small and medium sector), there has been an effort in streamlining foreign investment norms and also a push towards enhancing the utility of domestic funding mechanisms such as alternative investment funds. The domestic push is also evident in the emphasis on the infrastructure sector, which requires a major fillip to support other sectors and enhance domestic industrial productivity.

Overall, there appears to be a lot in the Budget to stimulate economic growth fuelled by further investments (both domestic and foreign). Coupled with other reforms that have taken place recently, including a revamp of the Companies Act, these are likely to have a significant (and arguably positive) impact on the corporate sector in India.

We will address some of the more specific topics emanating from the Budget in future posts.

[Update (March 1, 2015): The link to the Budget speech above does not appear to carry the complete version (with some pages missing). For accessing from an alternative location, please see here]

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