Credit agencies, market players heavily expect new PM Narendra Modi to make good on promised reforms.
New Indian Prime Minister
With varying degrees of severity, Fitch, Moody's and Standard & Poor's all expressed worries that Finance Minister
While the budget unveiled a number of measures to attract foreign investment, Jaitley's revenue and growth numbers were predicated on a major revival in private investment across the economy — one that is by no means guaranteed.
The finance minister seemed to recognise the risks to his own forecasts in an interview he gave state broadcaster Doordarshan after the budget speech, saying that the deficit target was a challenge he had accepted with a caveat.
"I have told the people that revenues are low, the monsoon is not extremely bright this time — the prospects... therefore this is a challenging task," Jaitley said.
"I am accepting the challenge and I will endeavour."
Agency's negative outlook
S&P, the only one of the three main agencies that has
Prior to Thursday's budget announcement, Jaitley and Modi had created expectations of tough reform with warnings of "bitter medicine" and broadsides against "mindless populism". So there was some surprise that the budget chose not to rein in the subsidy bill that drives up the deficit.
"Modi promised a bitter pill, but Jaitley preferred to make it sweet," said
Atsi Sheth, Moody's sovereign rating analyst, told Reuters: "The finance minister did say that we want to reduce fuel and food subsidies, but how exactly that will happen was not clear in this budget statement."
An electrifying election campaign by avowed moderniser Modi, followed by his landslide victory on
Jaitley, who worked closely with Modi to draw up a budget they see as a blueprint for future growth, based his deficit calculations on a 19 per cent increase in tax revenue — an optimistic target given his decision to offer tax breaks to middle-class Indians.
If growth doesn't revive in the second half of the year ending
Many market watchers think Jaitley missed an opportunity — both to take a tough stance on subsidies while the government's political stock is high at the start of its five-year term, and to create headroom for greater infrastructure spending.
Jaitley was widely expected to scrap the 4.1 per cent fiscal deficit target set by his predecessor, who left a stack of bills he owed to state oil companies for unpaid subisidies. These have already eaten up almost half of the targeted deficit this fiscal year.
A day before the budget,
Given its tight spending obligations, the government has increased its reliance on the private sector to revive growth, betting on public-private partnerships, or PPPs, to expand the railways, gas pipelines, airports and roads.
Given over-capacity in Indian industry after the longest slowdown in quarter of a century, and a history of failed PPP projects over the past decade, many companies were reserved in their reaction to the budget.
"The investment cycle is something you can't just switch on overnight,"
"Understandably so. Where are they going to get the money from?" Raman said. "My sense is the larger allocation will come in the 2015-16 budget."
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