This Article is From Jul 08, 2014

Modi Sarkar's Budget: 10-point Cheat-Sheet on What Economists Expect

On Thursday, the new government led by Prime Minister Narendra Modi will present its maiden budget - its first big policy statement on how it intends to overhaul an economy saddled with slow growth and weak public finances.

Here is your 10-point cheat-sheet to this story

  1. Rather than "big bangs" from Thursday's budget, economists expect a credible outline of steps to steer India from a subsidy-laden, bureaucratic culture to a more business-friendly investment climate.

  2. Growth has crashed from near double-digits a few years ago to 4.7 per cent in 2013, marking the second straight year of sub-five per cent expansion for the economy hit by high interest rates, falling investment and wage-eroding inflation.

  3. The 63-year-old Prime Minister has already warned that "bitter medicine" is needed to push the economy out of neutral. Train fares were hiked last month to help pay for the loss-making network's modernisation.

  4. Finance Minister Arun Jaitley, who will present the budget has called for "fiscal discipline" and has spoken out against "mindless populism" burdening public finances. 

  5. Economists expect him to start paring back subsidies on petroleum products to reduce India's $40 billion or Rs 2.4 lakh crore subsidy bill -- a key reason for the wide fiscal deficit. While the price of petrol is already decontrolled and tied to international market rates for crude oil, prices of diesel and cooking gas are still regulated by the government.

  6. Cutting subsidies on food and fertilisers will be difficult, however, due to the likelihood of a poor monsoon stemming from the El Nino effect, which could drive food prices higher, economists said.

  7. The government is expected to nearly double the tax exemption limit from current Rs 1 lakh to offer some relief from inflation. Doubling the exemption limit to Rs 2 lakh will provide a tax relief of Rs 10,000 to Rs 30,000 to tax payers.

  8. Other announcements could include a roadmap on goods and services tax (GST) long sought by business that would replace a complex patchwork of levies, as well as plans to loosen complicated land-buying rules.

  9. They also expect the Finance Minister to exploit a bullish market to more than double privatisation revenues to as much as Rs 65,000 crore by selling holdings in state firms.

  10. International investors who fled over reform policy inaction by Dr Manmohan Singh's government and huge corruption scandals have been flooding back since the BJP came to power. They will be watching for an announcement on the Vodafone tax case -the British mobile phone operator has sought international arbitration after it was asked in 2010 to pay $2 billion (now upwards of Rs 20,000 crore with interest costs) through retrospective legislation for a deal it struck in 2007.