Modi Budget detailed, pragmatic – but misses on infrastructure: 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 Bbudget 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 invsetments, 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.” www.bbvaresearch.com (ATI).