Budget 2014: Few silence zones, but a good start on reforms and FDI, says Rashesh Shah

By: Rashesh Shah, Chairman & CEO, Edelweiss Financial Services
The first budget of the new government marks a good beginning. It projects an image of a government which is conscious of the challenges of the economy, and therefore, without being too ambitious, has tried to balance the objectives of growth revival and fiscal consolidation.

As the FM put it, the steps announced in the Budget are only the beginning of a journey. To start with, the government takes forward the fiscal consolidation process, setting a fiscal deficit target of 4.1 per cent of GDP.

The target certainly looks a bit aggressive, given the risk of shortfall in tax collections, but the FM concedes that achieving it will be a daunting task. In any case, modest slippage at the end of the year should not be a big disappointment, given the FM’s commitment to the mediumterm fiscal consolidation path. The area where the Budget scored maximum was the area of reforms, especially in the areas of infrastructure and real estate.

In infrastructure, the FM has talked about easing the burden of regulatory preemptions ( CRR, SLR) for the banks to raise long-term funds for the core sector. At the same time, keeping in view that private sector in the infra space is capital-constrained, the FM has raised the allocation to the road sector.

Again, for the real estate sector, pass-through tax status for REITs and measures to encourage FDI in the sector are a very big positive. The FM also lived up to his promise of liberalising the FDI regime for defence and insurance sector.

Certainly, there are a few areas where the FM could have been more specific. In particular, the FM was largely silent on the issue of taking fuel subsidy rationalisation to the next and politically more difficult level of addressing LPG and kerosene subsidies. Similarly, the FM could have provided more clarity in terms of definitive roadmap for the implementation of GST, which has been a long-pending and much-awaited issue.

SECTORS TO WATCH OUT FOR

Infrastructure, real estate.

The FM has talked about easing the burden of regulatory preemptions (CRR, SLR) for banks to raise long-term funds for the core sector. At the same time, he has raised allocation to the road sector.