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No Big Bang, but the Budget sets a positive tone, says HSBC. Detailed, pragmatic – but it misses on infrastructure, says BBVA . . . 

NEW DELHI – The Modi Government’s first Budget -  for FY15 (year ending March 2015) - is distinct in its unprecedented detail on the to-do list for reviving the Indian economy, says BBVA Bank. Marked by efforts to improve the quality of India’s economic growth, the Budget emphasis was as much on education, health and skill development as on economic and administrative initiatives - but it fell short of going the extra mile in reaffirming investor confidence on the new Administration’s ability to swallow the bitter pill of tough reforms, BBVA says.
“Although not bold enough, Modi’s first Budget makes all the right noises on protecting investor interest, reviving manufacturing growth and boosting infrastructure development in India,” the bank says. “We believe that the new Government has the mettle to bite the bullet of unpopular reforms, particularly on the subsidy front, and may well do so once the India economy is on a firmer footing and growth momentum has gained traction.”
So what did the Budget miss? Firstly, a clear strategy to broaden the sources of financing India’s near USD 1 trillion infrastructure gap.  The Budget largely alluded to the public private partnership (PPP) model for financing infrastructure projects, but failed to detail how the Government would engender private investor interest, particularly that of foreign investors, in such projects without adequate incentives.
“Secondly, the Budget lacked clarity on steps to deepen and leverage India’s corporate bond market for infrastructure financing. On the other hand, the onus of raising funds was left to Indian banks, who continue to face asset quality pressures.
“Thirdly, against expectations of an aggressive liberalisation of foreign direct investment, FDI limits were eased only across defence and insurance, and limited to minority stakes for foreign investors ( 49% from 26%).
“Notwithstanding the Government’s guarded approach to opening foreign direct investment limits, we believe that efforts to enhance policy clarity, quick decision-making and removal of administrative bottlenecks would play a more important role in attracting foreign capital into India. On a positive note, the Government’s quick quality moves in this direction have been reassuring.”

HONG KONG – In an assessment of the first Budget delivered by India's new Finance Minister, Arun Jaitley, HSBC describes the overall tone as positive, although there was no “Big Bang’. There was always a limit to what the Minister could deliver after only a few short weeks in office, HSBC said, adding that investors may need to rein in their expectations of how quickly the economy can be turned around. HSBC’s summary -
Economics: The Budget offers a few reassuring steps and, faintly, a taste of the types of reforms that the Government will need to deliver if 8% GDP growth is to be achieved in three years.
Equity strategy: The Government made a positive statement of intent with the right messages on manufacturing. This should keep sentiment in the equity market buoyant.
Credit: The Budget aims to improve the investment climate and is committed to fiscal consolidation. This is positive but the impact is difficult to quantify. S&P has said that it would look for a lift in growth rates to revise its negative outlook on the sovereign ratings.
FX: We expect the optimism surrounding the INR to remain intact, even though the Budget may not have exceeded expectations. Implementation details on measures to encourage FX inflows into local markets and RBI's FX policy will be near-term drivers for the currency.
Rates: There was not much in the Budget for bond investors to cheer about, except for the proposal on the international settlement of INR-denominated bonds. FY14/15 government bonds borrowing remains largely unchanged at INR6trillion versus INR5.97trillion announced in the interim budget. Yet, government bond yields and OIS rates are likely to remain elevated amid risks of a jump in inflation.