>PRE-BUDGET ANALYSIS (KOTAK SECURITIES)

India's new Finance Minister will present a full-fledged budget after a gap of 16 months and under a different set of circumstances. In February 2008, India was entering a phase of lower growth trajectory. On the other hand, current data is suggesting that, the economy is likely past the worst and improving. However, we expect the agenda of the budget to be identical, subject to a few differences. We note that, the previous FM had a far more fractious and demanding set of coalition partners to contend with.

We opine that, the focus of the FM will continue to be on sustaining and improving the rate of GDP growth and that too, equitable (inclusive) growth. Investments in infrastructure, social initiatives and agriculture are expected to continue. While fiscal prudence will be attempted, we expect little change to the Center's fiscal deficit of more than 6% of the GDP. Alternate sources of raising finances like dis-investment, relaxation of FDI norms, auctioning of telecom licenses, etc may be used to fund additional investments.

While issues like FDI relaxations / allowance and implementation of GST may be addressed, other critical issues like labour reforms, pension reforms, etc may need broader political consensus. We expect material developments on the same, if any, to be outside the budget. Tax burden on individuals may be reduced to spur consumption. From the market perspective, any major reduction in the STT burden will positively surprise us. Tax benefits for 'impacted' sectors and employment-generating sectors will be provided, in our view.

Though India was impacted by the global economic slowdown, the GDP growth of 6.7% (CSO advance estimates) in FY09, was the second fastest, globally. We expect the focus of the budget to be on sustaining and improving this rate of growth. To that extent, investments, mainly in infrastructure, are expected to continue. Segments like roads, highways, airports, ports, power, etc are expected to receive continued attention and funding. However, only speedier implementation will make these plans more effective.

We expect inclusiveness to be another corner-stone of the budget. Increased allocations to schemes like SSA, NREGS, mid-day meal scheme, etc will be announced, we believe. With falling growth in agriculture and some uncertainty on the monsoon (till now), we expect further initiatives in agriculture, which also promotes balanced growth and helps in containing inflation.

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