Time for a Big Push – Our expectations from India’s upcoming Union Budget

On February 28th India’s Modi government will present its first full year Union Budget for the year ending March 2016 (FY16). The ruling BJP led alliance headed by Mr. Modi won a landslide victory in national elections last May on a promise to revive India's sluggish economic growth through sweeping reforms. However, its first nine months in office have been bereft of the highly anticipated legislative reforms, although the new government has made headway in implementing executive reforms and improving India's investment climate. These include 1) steps to improve bureaucratic governance standards, 2) strengthening trade and investment ties, 3) completely deregulating diesel prices, 4) raising foreign investment limits in defense, railways and insurance, 5) easing food supply bottlenecks and 6) expediting environmental clearances for infrastructure projects. We believe these steps would be helpful for India’s economic recovery, but they are no substitute to deeper legislative reforms across key areas such as taxation, labor, land acquisition, energy and infrastructure. Against this backdrop, the forthcoming Union Budget and the subsequent budget session of Parliament provides the best opportunity for India to kick-start major structural reforms, while articulating a credible fiscal consolidation plan. That being said we believe that the budget is no magic wand and a credible follow-up is critical. In this flash we delve into the top priorities, which we think the Indian Government should focus in its forthcoming Budget. These are, 1) Stick to a credible fiscal consolidation plan, 2) Enhance simplicity, clarity and stability in the tax regime, 3) Step up non-tax revenue receipts, 4) Explore avenues for productive spending and 5) Build a consensus in parliament for passing key legislative reforms.

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