Fiscal deficit is down to 3.7% (FY07RE) and is further expected to improve to 3.3% (FY08BE). This improvement is more of a reflection on growth rather than fiscal management. Despite strong collection growth, the deficits have increased in absolute numbers. Moreover, it is revenue vs. capital expenditure; non-plan vs. plan expenditure that has contributed to the deficits. A trend that is yet to get arrested to instill confidence on fiscal management.
Growth vs. Inflation will remain a debate as inflation containment measures are muted. Principally this is good as any fiscal related control on inflation normally is counter productive.
Encouraging facets of the budget are -
- Growth - Sustainable, High and Equitable.
- Emphasis on social sector, agriculture and sustainable growth
- Continuity remains the key theme with major items remaining untouched. Subtle changes are much better than drastic shifts
Disappointing as far as industry wish list was concerned. Moreover, with excellent collection growth backed by economic growth actually presents and excellent opportunity to bring down taxes and / or enhance key bottlenecks in systems like infrastructure. Sadly once again this budget misses on these opportunities. Understandable so, on account of coalition politics.
Overall a balanced and a neutral budget.
Impact- Some of the measures taken are negative for cement, technology and construction sector. However, the reaction of equity markets was far more than warranted. This gives an good value buying opportunities for long-term investors.
- Key picks - Cement (Guj. Ambuja, Shree Cement, Orient Paper); Technology (TCS, Polaris); Construction (L&T, IVRCL, HCC)
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Thanks Yash