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Economy

Modi government's first budget brings disappointment

NEW DELHI -- Prime Minister Narendra Modi's first budget has disappointed in its bid to fast track the nation toward economic recovery.

     The maiden budget announced Thursday was highly anticipated as it would reveal how the Modi government plans to achieve national economic growth and fiscal rehabilitation at the same time.

     However, the feedback is not good. The Federation of Indian Industries said the budget lacks direction and a roadmap.

     Finance Minister Arun Jaitley took over two hours to deliver the budget in parliament, stressing that the government will realize economic growth of 7-8% within three to four years and create 100 modern cities across the country.

Lists without plans

The budget features an extensive list of targets but lacks specific measures on how to achieve them. Reflecting a mixture of expectations and disappointments, the barometer Bombay Stock Exchange Sensitive Index fluctuated erratically following the budget announcement and finished slightly lower than the previous day.

     The fiscal rehabilitation target received particular attention from market players. For the current fiscal year through March 2015, Jaitley said the Modi government is continuing its predecessor's target of bringing the nation's fiscal deficit to 4.1% of gross domestic product. The ratio will be lowered to 3.6% in 2015 and 3.0% in 2016, he added.

     Modi, through his Twitter account, said that the budget represents hope and trust and enables the government to bring India out of crisis.

     But the reduction target of fiscal deficits is not realistic, according to Kunal Kumar Kundu, an India economist at Societe Generale, a French financial services company. This view is shared by most other analysts because the target appears unattainable when the growth rate of the Indian economy is taken into account.

     A considerable number of them forecast that the Modi government will disappoint markets by falling short of its targets.

     The proposed budget is hardly austere as it has set aside expenditures 13% larger than those projected for 2013 by predecessor Manmohan Singh and includes 2% more subsidies. But it also includes some items welcomed by market players, including the introduction of a new goods and services tax. With Modi's party holding a majority in the lower house, Jaitley said the government will seek to settle the new tax issue by the end of this year, arousing a favorable market reaction.

Still finding its way

India, unlike many other emerging economies, has yet to live up to its potential, according to the World Bank. India needs to implement fiscal reforms, such as introducing a GST, cutting government subsidies, simplifying the tax system and broadening the taxation base, for its economic revitalization.

     The new Indian government is aware of what needs to be done, including the improvement of investment environments and the sale of shares in state-owned enterprises. But the government cannot carry out these tasks overnight.

     There is an apparent perception gap regarding time between markets and political circles in India. Frederic Neumman, co-head of Asian economic research at HSBC, said in a brief to customers that investors may need to curb expectations of a quick Indian economic recovery. This budget is just the first step on a long and tough road toward reviving the Indian economy, he added.

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