The government outlined a workable and realistic budget for the next year, sticking to the fiscal consolidation path but reduced the pace of deficit reduction to 0.3% of GDP (from -3.5% in FY17 to -3.2% of GDP FY18) vs 0.5% expected. Bond borrowings have been kept in control, limiting any negative spillover on the debt markets. In terms of hits, rural development and infra received a strong push, with higher outlays towards the farm sector, village electrification, higher agricultural credit to farmers, rural housing schemes, MNEGRA allocations, irrigation schemes and crop insurance, amongst others. For urban sectors, housing will qualify as infra status. Consumption stimulus was provided by way for direct tax cuts - personal income tax rates cut for the low earners, but offset by surcharges on higher income brackets.
Misses included lower provisions towards banks' recapitalisation, still high divestment/ dividends targets and only a selective cut in corporate tax rates.
On a broader note, the key takeaway from a combination of higher spending and limited revenues suggest a strong emphasis on improved compliance on revenue collections, widening the base and strict enforcement of regulations to meet budgeted tax projections (15.3% YoY in direct and 9% in indirect taxes).
In all, kneejerk exuberance is likely in the short-term (helped also by no change in the capital gains tax), with global drivers to return as an over-arching theme beyond the next couple of days.