NAB Economic Group on the Indian Budget 2015


·         Finance Minister Arun Jaitley released his first full-year Budget on the 28th of February, 2015. 

·         The pace of fiscal consolidation was pushed back, with the 3% Deficit target now likely to be achieved in 2017-18. Instead, there was a strong push for infrastructure spending, increased funding for the States and a halving of fuel subsidies due to sharp decline in oil prices. 

·         Further, there were a number of positive announcements about setting up a GST by April 2016, enshrining an inflation-targeting framework for the RBI, measures to curb money-laundering and steps to monetise gold and thereby increase savings. Moreover, the Corporate Tax rate was slated to fall from 30% to 25% over 4 years, beginning April 2016. 

·         Further, measures to set up a public bank board bureau and adopt new bankruptcy laws should be favourable for the banking sector. However, the limited scale of capital infusions in the banking sector remains an issue. 

·         Overall, whilst not a groundbreaking budget, it is pragmatic and has the potential to boost India’s economic well being, if properly executed. 

·         On growth, we are forecasting a 7.7% outcome in 2015, followed by a somewhat higher 8.0% in 2016, based on the newly revised GDP numbers. 

·         Following the RBI’s 25bp rate cut to 7.5% on March 4, we are forecasting one more rate cut in the June quarter. This will lead to a 7.25% Repo rate by the end of 2015. Further rate cuts are possible, but are dependent on the external situation (eg. Fed tightening), the nature of the monsoon, supply-side improvements and progress on fiscal consolidation.