Tuesday January 31, 2017
Welcome to TOPLive. I'm Candice Zachariahs, Mumbai Bureau Chief, and I'll be your lead blogger along with my colleague Niveditha Ravi. Together we plan to bring you some quick and sophisticated insights into India's budget process and why this year's announcements may be key to whether the economy keeps its place among the world's fastest-growing.
We'll begin with a walk-up 15 minutes before Finance Minister Arun Jaitley starts to unveil his proposals at 11 a.m. in the capital. We'll then continue with news, reaction and analysis as we learn how policy makers in Asia's third-largest economy see the year unfolding.
Wednesday February 1, 2017
Here's a list of today's contributors:
- Candice Zachariahs, Mumbai Bureau Chief
- Niveditha Ravi, Speed Team Editor
- Nupur Acharya, Bonds/FX Reporter
- Santanu Chakraborty, Emerging Markets Stocks Reporter
- Arijit Ghosh, South Asia Managing Editor
- Nathaniel Baker, Bloomberg Briefs Editor
- Sarah Jacob, Social Velocity Editor
- Manish Modi, News Data Editor
- Subhadip Sircar, BFW FX/Rates Editor
- Jeanette Rodrigues, Economy/Government Editor
- Unni Krishnan, Economy/Government Reporter
- Arran Scott, Bloomberg Intelligence Editor
- Andy Mukherjee, Gadfly Columnist
- Jody Megson, Visual Media Editor
- Maria Wood, Visual Media Editor
- Kyoji Iwai, TOP Editor
- Jan Dahinten, Markets Live, Singapore
- Ben Purvis, Markets Live, Sydney
- Colin Keatinge, TOPLive Editor
We will hear from the Indian Finance Minister Arun Jaitley shortly, delivering a budget speech that will outline some of the government's key initiatives for the year starting April 1.
Equity, bond and currency traders will listen keenly as he spends the next 60 minutes to 90 minutes or more laying out his plans. In the past, stock markets have reacted sharply as have the nation's currency and sovereign bonds. Prime Minister Modi will give his take on the budget soon after Jaitley stops speaking.
Finance Minister Arun Jaitley (pictured) must juggle a number of competing priorities. On the one hand, he needs to stimulate an economy reeling under the impact of demonetization with tax breaks and spending, while also creating the right environment for private investment.
He must also satisfy ratings agencies that he hasn’t abandoned budget discipline. All this while his government prepares to face key state elections and plans for the roll-out of the goods-and-services tax this year -- one of India’s biggest economic reforms in decades.
Here’s what Bloomberg Intelligence economist Abhishek Gupta expects from the budget announcement:
- Fiscal 2018 deficit target likely to be relaxed to 3.3% of GDP
- Fiscal 2018 gross market borrowing expected at 6,250 billion rupees
- Fiscal consolidation to continue next year
Read the full report here:
Bloomberg Intelligence's Gupta says:
"In fiscal 2018, though revenue growth won't be as stellar, Finance Minister Arun Jaitley is likely to have room to boost capex by more than 20% with the compensation hikes out of the way and unproductive revenue expenditures on interest payments and subsidies on hold - assuming the fiscal target is relaxed to 3.3% of GDP."
Traditionally, the budget was presented at 5pm on the last working day of February. This changed in 2001 when the then Finance Minister Yashwant Sinha presented it at 11am, a practice that continued until the government moved it to Feb. 1 this year. Another significant change in today's presentation is merging the rail budget with the general budget for the first time.
Here's a video from India's Finance Ministry with more such interesting trivia.
The finance minister’s speech is typically peppered with couplets from revered Indian poets as well as Shakespeare and even dialogues from Bollywood, writes my colleague Archana Chaudhary in this QuickTake explainer.
For a flavor, how about this snippet from Arun Jaitley’s first full budget, translated into English: "Some of our flowers have blossomed, and some are yet to bud. The concern is that predecessors have left us a thorny garden."
Over the decades, Finance ministers' budget speeches reveal their muses. Manmohan Singh quoted Victor Hugo's "No power on Earth can stop an idea whose time has come" to mark his landmark 1991 decision to open India's economy to foreign investment. Current Finance Minister Jaitley's partial to Hindi couplets; rarely, though, does he offer a translation.
Today's budget presentation precedes five state elections, which start next month with results due March 11. So handouts may be viewed as incentives to voters especially in the most populous state of Uttar Pradesh, which has an outsized influence on lawmaking in India.
The budget is just the start of a fortnight heavy with events in the world's most populous democracy. My colleague Jeanette Rodrigues provides a summary of what to expect.
Ratings agencies expect demonetization and GST to result in a wider tax base and greater participation in the formal economy, which will benefit India's business climate and financial system in the long run. Read more here:
India's Sensex, Nifty are paring gains ahead of the budget speech.
As we wait for the FY18 budget announcement, here's a reminder of the economic outlook:
- Finance Minister Jaitley's advisers see GDP growth slowing to 6.5%-6.75% in FY17 from 7.9% in FY16
- They see this rebounding to 6.75%-7.5% in FY18
- They however warn that the data may understate hardships triggered by the cash clampdown because much of the impact is in India's informal sector, which employs 90% of workers
Prime Minister Modi faces a bleak investment climate just as key elections near. Gross fixed capital formation, that is creation of productive assets such as factories, is forecast to fall for the first time since 2013 and economists say even this outlook is optimistic.
How are Prime Minister Modi's prospects looking? Not too bright, unless growth meets expectations and rebounds sharply next year. Economists have repeatedly cut estimates for the current year after Modi's November cash ban.
Prime Minister Modi's administration is touting a surge in tax collections as proof of the success of demonetization. Much of this, however, comes from higher levies on fuel and a seemingly one-time jump in corporation tax after Modi's cash clampdown in November. Today's budget will show how sustainable the government believes the surge to be.
Green shoots are appearing after a downturn triggered by Prime Minister Modi's cash clampdown in November. Here's some data from today:
- India's biggest carmaker Maruti Suzuki reported a 27% jump in January sales from a year earlier after a 1% drop in November
- The Nikkei Manufacturing Purchasing Managers' Index rose to 50.4 in January from 49.6 in December. A number above 50 indicates growth. PMI for services -- which account for about 60% of the $2 trillion economy -- is due on Friday.
While President Mukherjee was addressing lawmakers yesterday, a member of parliament collapsed and died early this morning after a heart attack. So lawmakers will probably have a moment of silence before the budget speech starts.
The bond and rupee markets may be pleasantly surprised if Finance Minister Jaitley sticks to his fiscal roadmap of 3 percent deficit for 2017-18. Remember the last budget where Jaitley's fiscal consolidation had triggered a rally in rupee and bonds.
The rupee saw a nearly 4 percent rally since the budget till early April.
Bond investors that have spurred a rally in sovereign debt, even as global yields lifted, will be on tenterhooks. The yield premium Indian 10-year bonds offer over similar-maturity U.S. notes has shrunk toward its least since 2009. Any sign the government is abandoning its previous focus on fiscal consolidation may see local yields bounce higher.
The need for more money in the hands of consumers to counter a liquidity crunch following Modi’s cash ban means many analysts are expecting a change to the income tax applicable at different salary levels or an increase in the exemption limit.
A change in the lowest tax slab by say 50,000 rupees ($737) would mean a revenue loss of about 160 billion rupees, according to ICICI Bank.
``In our opinion this is not a formidable loss and can easily be implemented and will have the added benefit of increasing disposable income and supporting consumption demand for the masses,''
analysts led by Kamalika Das wrote in a report.
India has seven taxpayers for every 100 voters, ranking it 13th among 18 democratic Group of 20 peers, according to the Economic Survey 2016-17 released yesterday.
While we wait for proceedings to start, software exporters and drugmakers are dragging the benchmark index, while lenders and state-owned companies are the top gainers.
Investors say the first stock inflows from overseas in more than a month could accelerate if the Feb. 1 budget unveils steps to boost spending to stimulate growth. On the other hand, a move to end a tax break on equity gains or a levy on foreigners will once again sour the sentiment for India.
February, when the government usually unveils its annual budget, has been the worst month for Indian stocks in the past 10 years. The Sensex index has fallen an average 2.2% in the month over the past decade.
Proceedings looks set to begin. With lawmakers taking their seats and the speaker addressing everyone gathered.
The Indian rupee is holding on to gains against the dollar ahead of the finance minister's budget speech. The currency is now +0.4% at 67.6250/dollar.
No signs of the new budget yet, judging by the government's website: http://finmin.nic.in/indiabudget2017-2018/index.asp
The speaker is paying tribute to lawmaker E Ahamed who passed away recently and has asked lawmakers to stand as a mark of respect.
And now parliamentarians are maintaining a moment of silence to mourn their colleague.
Barely few minutes into the proceeding and the Speaker is already interrupted by some lawmakers demanding they be heard.
Bloomberg Terminal users can watch Jaitley's presentation by clicking HERE.
Yield on the benchmark sovereign note due in September 2026 is down one basis point at 6.40 percent.
The Speaker explains that President Mukherjee has given special permission to continue parliament functions today because of the budget announcement. Silence is rare in India's parliament, and lawmakers are already protesting the decision.
The proceedings are getting noisy as the opposition protests the fact that parliament will continue despite the recent demise of a sitting lawmaker. Traditionally the death of a lawmaker would mean an adjournment. Lawmaker asking that the budget be postponed till tomorrow.