India’s latest budget scores “eight out of ten”, according to Mike Sell, Head of Asia, Alquity Investment Management…
Given the high expectations, Finance Minister Jaitley was never going to make everyone happy. No budget announcement anywhere in the world ever does. However, he has delivered a pro-growth budget which reinforces our strongly positive view on the Indian economy and stock market (even after the significant move in the latter over the last year). India accounts for 20pc of our Asian Fund, and our Indian Subcontinent Fund is heavily positioned in pro-growth sectors (rather than software and pharmaceuticals – which has been 'the' story in India over the 20yrs I've been investing in the market', but is not the 'next' story).
Overall, if we were forced to 'score', we would rate the budget 8/10.
The highlight of the speech was a 5pc reduction in corporate tax rates over the next 4yrs (starting in 12 months’ time), to be funded by reduced exemptions.
The medium term fiscal deficit target of 3pc was postponed by a year, to provide the much needed boost to infrastructure and growth. Capital spending is planned to grow 25pc versus only a 3pc increase in current spending. Much needed spending on roads and railways will increase (usd140bn over the next 4yrs in the case of the latter).
Other items of note include:
Confirmation that the India wide Goods and Service tax will start in April 2016. This is hugely important in improving the efficiency of the economy and encouraging companies to manufacture in India, so the 'catch-up' with China can start
Plans to simplify taxation in the property sector
Extension of the visa on arrival scheme for foreign tourists from 43 to 150 countries
Plans to simplify the bankruptcy code
Measures to simplify business start-ups and tax cuts on royalties to encourage foreign firms to set up manufacturing facilities.
Efforts to monetise gold holdings to encourage a shift from physical to financial assets to free up funds for growth.
Simplifying foreign ownership limits in bank equities
The government is very clear in their intentions – 'incremental change is not going to take us anywhere, we will need to think in terms of a quantum jump' – which bodes well for continued reform momentum
Mr Jaitley expects 7.4pc GDP growth for the current year (which he believes is the fastest in the world), rising to 8-8.5pc next year
What was missing ?
Whilst a feel good factor has been created for the corporate sector, more could have been accomplished to boost weak consumer sentiment.
Overall, today has reaffirmed and further enhanced our extremely positive view on the Indian investment case. This is one of the most powerful stories in the entire Emerging Markets asset class, and we have only reached the first chapter.