• India’s new Finance Minister, Arun Jaitley, delivered his maiden Budget on the 10th of July. It was a good document, albeit not a ‘game changer’, and needs to be followed up with further action and implementation.

• There were positives for consumers, infrastructure spending, real estate, manufacturing, higher limits for FDI in insurance and defence, as well as taxation incentives for Foreign portfolio investors. There was a commitment to avoid retrospective taxation – something which has been a bone of contention among foreign investors – and a greater focus on federalism, with increased funding allocation to States to deliver services.

• The budget, however, is extremely optimistic about the Fiscal Deficit target of 4.1%, which would likely be missed unless the Government sharply compresses expenditure, increases divestment or rolls over subsidies.

• Further, no specific timeline was set regarding the implementation of the GST and a reduction in subsidies – although the Government did signal its intent to work towards a GST, and monitor subsidy payments under the oversight of an Expenditure Commission.

• It is important for further progress to be made in subsequent Budgets, commencing with the 2015-16 Budget next year.

• On growth, NAB Economics is maintaining its forecast of 5.2% for 2014 and 5.8% in 2015. The forecasts are broadly in line with the lower estimates of forecasts from the pre-Budget Economic Survey. Whilst the measures in the Budget are broadly supportive of growth, issues related to implementation, a weak monsoon, geopolitical risks – potentially triggering higher oil prices, pose headwinds.

For further analysis download the full report.

• India Budget 2014-15 (PDF, 177KB)