>INDIA EQUITY STRATEGY (CITI)

New Government: Expectation = Action?

■ Broad blueprint spelt out — The new government has laid out its broad 5-year governance agenda – in the form of the president’s opening address to the parliament. This agenda covers socio, economic and political issues, and is wider and a little more detailed than the Congress Party’s pre-election manifesto. We do not believe there are any big surprises, or any key specifics, on economic policies; though the primary forum for that is the Budget, slated for the 1st week of July.

■ More socio-economic, than pure economic — The agenda of governance, expectedly, is most heavily biased toward socio-economic policies and objectives. These account for 7/10 top priorities of the government, and 90%+ of its 100-day plan – in sync with its pre-poll manifesto, and reflective of the mandate it has got. While expectations of a meaningful economic and policy change (and execution) are fair and will run alongside its socio-economic focus – we believe the ‘givens’ are in the area of rural infrastructure, health, education, agriculture and small business support, rather than headline economic reforms.

■ There is enough economics — The president has spelt out key economics issues and policies for the government – these cover: a) medium-term strategy for prudent fiscal management; b) counter-cyclical investment in the Infrastructure sector – PPP model, and policy changes; c) encouragement of foreign flows; d) recapitalization of government banks, and creating a pension regulator; e) rural infrastructure; f) land acquisition and rehabilitation laws; g) introduction of a
general service tax; h) 13,000MW of power capacity creation annually; and i) energy security, including oil exploration, coal policy and nuclear developments. If executed, and well, could well provide the economic action the market is expecting.

■ Right noises – wait for the budget — The new government has got off to a fairly positive start – ministerial allocations, right noises on economic policy and reform, and fairly positive GDP and market data to boost. While we do expect policy making to be an ongoing exercise – the budget, slated for early July, will be an early test of how much expectation actually translates into action.