‘Overall, a positive budget’, say analysts

Shubhada Rao, Chief Economist, Yes Bank, Mumbai:

“It’s in line with expectations. The budget has a large rural flavour. Some anti-inflationary measures in the form of excise cuts have been effected.

“Tax targets appear ambitious as indicated by a modest fiscal deficit. The emphasis on social sectors like health, education and the rural economy do suggest that the budget is leaning towards some populist measures.

“We await details of the funding of the farm loans waiver, which at this point appears a concern.”

Sharmila Joshi, Asst Vice President, Prabhudas Lilladher, Mumbai:

“Overall, a positive budget. We expected it to be populist and it is on those lines. The duty cuts and rural segment focus show they are trying to filter down benefits to the lower end of society. Markets may have reacted negatively on the increase in short-term capital gains tax, but we think there will not be too much impact.”

Rupa Rege Nitsure, Chief Economist, Bank of Baroda, Mumbai:

“The budget has effectively responded to the concerns voiced by the economic survey on Feb. 28. While the fiscal deficit target has been met because of buoyant tax revenues, technical and allocative efficiencies in expenses have not improved.

“Revenue deficit at 1.4 percent of GDP will act as a major hurdle in achieving fiscal consolidation. The budget has made a serious attempt to stimulate consumption demand by reducing indirect taxes on consumer durables like small cars, two- and three-wheelers etc., and by raising the personal income tax exemption limit.

“From the bank’s perspective, the waiver of small farm loans in not a negative thing entirely as these were the most stubborn NPAs on banks’ loan books. There is comfort that the government will partially bear the burden for banks.”

Shuchita Mehta, Chief India Economist, Standard Chartered Bank, Mumbai:

“The focus is on inflation, the social sector and consumer. However, capital spending is a little disappointing. The reduction of the fiscal deficit in ’08/09 to 2.5 percent is positive, however it may not include the impact of the pay commission, so it could be higher than forecast. A lower than expected gross borrowing programme is positive from the market perspective.”

Han-Sia Yeo, Strategist at Bank of America, Singapore:

“It is an election budget. The personal income tax changes are definitely welcomed. The smaller than expected borrowing requirement and budget deficit is a positive and the fiscal stimulus should offer some growth support.”

A. Prasanna, Economist Aat ICICI Securities, Mumbai:

“It is a progressive, inclusive budget. Despite high provisions of social expenditure and the cost of the farm loan waiver, the finance minister has managed to better the budgeted fiscal deficit target which is a pleasant surprise and bond positive.”

Devesh Kumar, Managing Director, Centrum Broking, Mumbai:

“Most of the banks have written off their non-performing assets. So the write-off of the loans to farmers may not have much impact. If the government gives some support to the banks, then it will be positive.”

Following are the reactions from key participants in the commodity market to the Indian federal budget of 2008/09 announced on Friday.

Rajini Panicker, Head of Research, MF global commodities India Ltd:

“There were expectations that edible oils would have duty cuts to help lower prices. That did not happen, so oils and oilseeds hit their upper circuits. This market may stay firm and continue to take direction from overseas factors that are bullish at the moment.

“There was also an expectation that sugar would be decontrolled and that there would be some measures for use of ethanol. That would have had a mixed impact on sugar.

“Now, sugar will continue to be governed by the factors that were affecting it earlier — that of higher quotas which make it bearish.

Dilip Bhatia, Director, Kotak Commodity Services Ltd

“It is going to increase the cost of doing business. The commodity transaction tax is going to affect the spread, the day trader and the arbitrageur. That will reduce their profit margin and we see this is not positive for the market. I think some of the volumes will get affected.”

S. Raghuraman, Head of Research, Agriwatch

“Budget didn’t give plans to rein in commodity prices….specially edible oil and pulses…this will affect respective commodity futures. The commodity transaction tax may not affect the futures trade as is expected to be negligible.”

Naveen Mathur, Head, Angel Commodities Broking, Mumbai

“The budget is a little negative on commodities. About the commodity transaction tax that they’re introducing, the market will not accept it at such a nascent stage.

“Also, there was no indication on the Abhijeet Sen report or the commodities that were delisted from futures trading (last year). And, PAN should be compulsory, independent of the market conditions. That would hamper some people like farmers to come and trade.”

Kishore Narne, Vice President, Anand Rathi Commodities:

“The worst thing in the budget is the proposal to impose transaction tax on commodities. Already we were facing low volumes because of the ban on trading of foodgrains and other reasons. This will be an additional blow.

“Our cost of transaction could rise by 20 percent.

“The funds for plantations could raise the output of these crops next year.”

Ravi Bhushan, Analyst, ICICI Direct:

“As against expectations there has been no reduction in import duty of edible oils or reduction in value added tax. The edible oil market could now be in a long bullish phase.”

Unupom Kausik, Head of Research, Anagram Comtrade Ltd:

“The commodity transaction tax would certainly be an additional burden on the market, but I think the market had anticipated this because it is already in the fourth year of business. “The proposed investments in agriculture will not have an immediate impact as they are long term plans.”

Market reaction:

The stock market was down 2 percent after the government proposed to increase the short-term capital gains tax; shares in Indian vehicle makers rose due to budget proposals to cut excise duties on vehicles; bank shares fell due to a proposal to waive the debts of small farmers.

The yield on the 10-year federal bond was at 7.58 percent, down four basis points from before the budget speech and an intra-day high of 7.66 percent. It had ended at 7.60 percent on Thursday.

The partially convertible rupee was at 39.96/97 per dollar, weaker than 39.86/87 beforehand. It had ended at 39.87/88 on Thursday.

Background:

– Growth has slowed to an estimated 8.7 percent this fiscal year from a scorching 9.6 percent in 2006/07.

– A finance ministry survey said on Thursday that keeping growth at 9 percent would be a challenge, due to inflation and infrastructure bottlenecks, and raising it to double digits would require more reforms.

– National elections are due by May 2009.

– Farm growth is estimated to slow to 2.6 percent in 2007/08 from 3.8 percent in 2006/07.

– Data released on Friday showed annual wholesale price inflation — the country’s main inflation indicator — in the week to Feb. 16 was 4.89 percent, the highest since June last year.