Thursday, 19 February 2015

India Budget 2015-16 may go down in history as one which has perhaps raised the expectations of industry and foreign institutional investors (FIIs)

GDP data for 2014-15 painted a rosy picture of the economy growing at 7.4% and expected to cross $2.1 trillion mark as against 6.9% in 2013-14 the fall in corporate profitability and rising debt across ind.. India Budget 2015-16 may go down in history as one which has perhaps raised the expectations of industry and foreign institutional investors (FIIs) regarding the economic reforms it would unleash to the highest level possible even as ground realities in the economy aren't that rosy. Equity markets have rallied recently primarily on hopes of several key reforms Finance Minister Arun Jaitley is expected to announce on February 28 that would raise the confidence of the foreign and domestic investors. Equities have ralied 42% in the past one year primarily on the 'Modi wave' aided by the liquidity brought in by central banks of Europe, US and Japan. With funds looking for better yields, India offered the right option, but this could as well be a temporary enthusiasm. Even as the GDP data for 2014-15 painted a rosy picture of the economy growing at 7.4% and expected to cross $2.1 trillion mark as against 6.9% in 2013-14 the fall in corporate profitability and rising debt across industries have put severe strain on the banking sector. Capital formation, an indicator for the investment growth in the economy, dropped to 29.8% during April-December 2014 from 30.7% in April-December 2013. No doubt inflation levels have moderated and declined thanks to lower oil prices and easing supply side pressures. Falling inflation has raised demand for further reduction in interest rates. Assocham President Rana Kapoor pointed out that Finance Minister Arun Jaitely and RBI Governor Dr Raghuram Rajan should work in tandem and the Budget should be the best platform for a big push to industrial revival. Federation of Indian Chambers of Commerce and Industry (FICCI) have also stressed the need to stimulate investors in manufacturing to sustain growth. According to Dr A Didar Singh, Secretary General, FICCI. 
"The demand in the economy also remains subdued as reflected in the muted growth of consumer goods sector. Further lowering of interest rates by RBI is needed to boost consumer and investment sentiments." 
Pre-Budget wishlist and industry demands It is not unusual for the few weeks before the budget to be filled with demands and suggestions from various quarters. This year too the commodity industry expects some relief on the Commodity Transaction Tax (CTT) which has reduced trading volumes drastically in futures trade which has proved to be an efficient mechanism for price discovery and hedging. 

  • Exempting processed agri-commodities such as sugar, mentha oil, soya oil and guar gum would go a long way in bringing back volumes and reducing volatility. 
  • The CTT imposed on metals and energy commodities have led to 42% fall in trade volumes to 51.3 lakh cr this fiscal to beginning April 2014-January 2015.
  •  Rubber plantations are going through a crisis due to steep fall in prices and a price formula evolved by the tyre industry and Kerala Government haven't given much relief to growers as tyre industry continues to import larger quantities due to cheaper global prices. 
Hence, the industry expects increase in rubber import duty from 20% to 30% and incentives for increased domestic use of rubber in various industries. Gold industry is expecting a drastic drop in import duties from 10% to 2% levels although there is no clear indication whether this would happen. Commodity Online would continue t highlight some of the important budget wish lists and anlayse them in the coming days although some of them may be unrealistic. The Federation of Indian Export Organisations (FIEO) has called for simpler procedures for exports so that industry gets their dues and concessions without major hassles.

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