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Bytes before budget: Five things FM is telling you
By the time you read Meaningful Minutes next Friday, India's finance minister P Chidambaram would have presented the much awaited Budget in the Parliament. Ahead of the Budget, he has completed an extensive consultation process with stakeholders. He has also been vocal about a few concerns in the press.
As a stock market investor, it is important to track noises made ahead of the budget by the government. Here are pointers that could clarify statements made so far:
Here are pointers that could clarify statements made so far:
Politics ahead of budget: At a meeting of the All India Congress Committee or AICC on 14 February 2013, Congress leaders called for tax incentives for farmers and the middle class. Chidambaram highlighted financial constraints before the government even as demands were made for a people-oriented budget, according to a report in the Economic Times. The indication is that the government is unlikely to offer any significant tax incentives for 2013-14 considering slow growth and overall fiscal constraints. This is despite this Budget being the last one to be presented by the United Progressive Alliance government.
New taxes likely: The government faces a tough situation. On one hand, the economy is slowing. On the other hand, the government needs to gather more resources for physical and social infrastructure. Media reports suggested taxing the rich through an enhanced income tax rates on the super-rich and introducing inheritance tax. The government is also planning to introduce commodities transaction tax on the lines of securities transaction tax, according to Mail Today, which quoted an unnamed finance ministry official.
Emphasis on growth: Finance minister P Chidambaram said recently that sustained high growth could make India a comprehensive national power, according to a report in The Times of India. He said that a high growth rate has enabled China to do so. Reportedly, Chidambaram expects India to grow at between 6% and 7% in 2013-14 and 8% a year later. However, India's growth is expected to slump to a 10-year low for 2012-13 at 5%, according to advance estimates of Central Statistical Organisation. If the government has to lift this number, it has to announce a budget that helps kick start the economy. As an investor, you need to look for Chidambaram's statements on infrastructure in his budget speech.
Interest rates: Low interest rates could spur economic growth, Chidambaram recently told banks in Mumbai. He was addressing the board of State Bank of India, the biggest public sector bank, according to a report in Financial Express. He urged banks to reduce interest rates by improving the efficiency of their operations. As an investor, you need to know that banks cut interest rates only if the cost of borrowing is reduced by Reserve Bank of India through monetary measures. Finance minister seems to have acknowledged that it may not be easy for RBI to rapidly cut rates as it awaits the budget announcement for a direction on fiscal consolidation. RBI wants the government to borrow less by cutting the fiscal deficit.
Fiscal deficit: If media reports are to be believed, fiscal deficit was the topic of discussion at Chidambaram's roadshows in Hong Kong, Singapore and London. He has assured foreign institutional investors that India would cut the fiscal deficit by 0.6% every year for the next 4 years, according to a report by NDTV Profit. Fiscal deficit is excess spending over income. Experts have called for a cut in expenditure and Chidambaram is believed to have assured to them of that.
The budget estimate in February 2012 estimated a gross domestic product or GDP at 7.6%. According to advance estimates by Central Statistical Organisation or CSO, the government's statistical arm, the GDP growth in India is likely to be 5%. This is the lowest in 10 years. Slow growth also leads to lower savings. India's savings rate has slipped to 30.8%, according to CSO. This is the lowest in 8 years. High domestic savings rate is important for a high growth rate. China's domestic savings rate is over 40%.