Budget 2013-14 : Dull Budget that was a Virtual Non-Event [Analysis]

This article of mine was originally published on Trak.in , India’s premier Business and Startup site on 2nd March, 2013, over here.

In an email we sent to our users on Investopresto before the budget, I had said that the budget was “unlikely to bring short term excitement to the markets.” Boy, was I right?

Image credit- Trak.in

Image credit- Trak.in

The Sensex crashed almost 300 points on 28th February. However, this being the last budget before the 2014 elections, I had expected a populist budget with loan waivers, gargantuan increases in social spending programs and maybe even measures like a new tax slab for the super-rich. Yet, the tone of the budget was very different- emphasizing fiscal prudence and responsibility. What was also stark was the lack of any serious reform- agenda and an effort to preserve the status quo.

Status quo: Mediocre and boring is good; or is it?

What is undisputable is that the budget was a not a populist one with huge farm-loan waivers and big ticket social spending programs. I thank god for that! That would have been the last straw on the camel’s back – most likely leading to an even bigger fiscal deficit and maybe even a rating downgrade, leading to chaos.

Equally undisputable is the fact this budget was no reformist budget. There were no major increases in FDI caps or fast-track clearances for long-pending projects, or for that matter huge infrastructure outlays.

This budget is about what was left out

To me, this budget is not about the 4.8% fiscal deficit that was projected this year, or the Rs 50,000 crore tax-free infrastructure bonds that were announced. It is also not about more expensive restaurant food or mobile phones, or about the Rs 1 lakh increase in the interest deduction under Section 24.

This budget was about what was not done, what was left unsaid and what, in my opinion, was badly needed, and what someone of the caliber of P Chidambaram was capable of doing.

It was good because it wasn’t bad and bad because it wasn’t good. It was a non-event.

In a way, it was a good budget because there was nothing nasty in it.

No GAAR like provisions that give tremendous scope for harassment and scare the living daylights out of investors, no inheritance tax that leads to the flight of private money into tax havens and no Gold Control Act –like rules that are retrograde in nature.

Notwithstanding the risk of sounding like a 7 year old child, I would think that the budget was good because it wasn’t bad and bad because it wasn’t good. It was basically a non-event.

By the same argument, this was a bad budget because there were virtually no new reforms – no abolition of GAAR, no assurances on the Land Acquisition Bill or DTC, no increases in FDI caps and no fast-track clearances for pending projects.

Agreed, he did set aside Rs 9000 crores for compensation to states for revenue losses related to GST. But, given the political environment, I am not very hopeful of seeing GST taking effect anytime soon.

What does this mean for the markets?

Nothing, absolutely nothing! Had the budget been a pro-reform budget, there would have been a lot of scope for a broad-based rally, taking the Sensex to 21,000 in the short term. But, that opportunity is lost. There is no major driver for the markets as of now and we will thus, probably go back to “tracking global cues” – another way of saying that the markets don’t really have much of a mind of their own and are happy to do whatever the rest are doing.

We are of the opinion that barring any major global or domestic event, the markets will be “rangebound” – another way of saying that no major action will probably occur in the near future. We also think that from a purely domestic point of view, unless the 2014 elections throw up a clear winning alliance, the markets have nothing to rave about, given the economic uncertainty, jaundiced growth, stubborn inflation and a moribund set of government policies.

We could see some stock specific action, but are unlikely to see a lot of broad-based movement. I would not be surprised to see up to a 10% change in the Nifty over the course of the year, which is not a lot of movement over an entire year.

The markets have a way of proving people wrong. Let us hope that for our collective sake, I am wrong.

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