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* The new Finance Minister, Arun Jaitley, will present his maiden budget amid high expectations. The strong mandate in the elections and the recent announcement of railway passenger fares / freight rates hike have raised expectations about several reforms announcements from the budget. Markets are looking out for a forward-thinking and an 'achievable' budget. We expect the FM to lay down the new Government's vision for the economy over the next five years.
* The FM's priority in the 2014-15 budget will be growth, along with fiscal rectitude. He will budget for higher plan expenditure (investments), financed by higher revenues (higher economic growth, divestment, auctions and better tax compliance) and a cut in non-plan expenditure (subsidies).
* A lower fiscal deficit will leave more money available for the private sector, help in easing inflation and moderate interest rates. Thus, we expect revised targets under the FRBM Act to be set lower. We expect the FM to target a fiscal deficit of 4.1% for FY15 and budget for a gradual reduction of 40 bps in fiscal deficit to 2.5% deficit in 2018-19.
* We also expect the FM to target real GDP growth of 5.5% in FY15 and bring it to over 8% in the next five years. Larger and targeted plan expenditure capital outlays, with strict implementation timelines, will likely be announced, to ensure economic recovery and sustainable growth. We expect plan expenditure growth target to be pegged at 16.7% . The budget will aim to provide an investment - led supply push to growth (with private sector participation) as against a consumption - led demand pull (higher subsidies, etc) of UPA era. Targets for subsidies will likely be controlled, especially fuel and fertilizer subsidies, we opine.
* With CPI food inflation remaining at elevated levels of 8.28% (May 2014), we expect additional expenditure towards easing the supply bottlenecks for food-grains and other primary articles. We understand that, these initiatives can yield results only in the long term. However, they can help in containing inflationary expectations. On the other hand, non-food manufacturing (Core) CPI inflation has moderated to about 7.7%, but may rise on the back of improving growth.
* Mr. Jaitley may signal the Government's intention to move ahead with reforms on several fronts. We believe that, he will target the implementation of DTC and GST WEF FY16. Some enabling measures may be announced in the budget. A definitive roadmap for reducing the subsidy