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Avinash Vazirani, manager of the Jupiter India Fund and the Jupiter India Select Fund (Sicav)

India’s giveaway budget postpones the pain

With an eye firmly on national elections in 2014, the Indian government has delivered a populist budget aimed at securing the support of its core rural voters, while putting off more radical structural reform until later, says Avinash Vazirani (pictured), manager of the Jupiter India Fund and the Jupiter India Select Fund (Sicav)…

The budget was a missed opportunity. We saw large increases in funding for rural development projects and a rise in the farm budget3 but measures aimed at boosting domestic and international investment in the country were few and far between.

India’s Finance Minister P Chidambaram could have used the budget to introduce incentives to make investing in domestic shares more attractive for Indian investors who traditionally choose bonds over shares.

It’s difficult for stocks to compete when state-owned Indian companies are offering bonds with interest rates of 8% or thereabouts, free of tax.

There were some positive announcements in the budget including a cut in the transaction tax on Exchange-Traded Funds to encourage more investment by Indian pension funds and the introduction of a 15% investment allowance to boost capital expenditure by manufacturing firms.
The budget aside, the most encouraging development for the Indian economy remains the launch of the “Direct Benefit Transfer (DBT) Scheme, according to Avinash. This scheme allows government subsidies on a list of 39 items to be paid directly into a recipient’s bank account that is linked to a biometric unique identification number given by the authorities.

I have just come back from a trip to India and I have seen queues of people waiting patiently to get their biometric identification. DBT has cut out the ‘middle man’ who would often skim off a percentage of the subsidy before handing it over to the designated recipient. It means more is getting into the hands of those with the greatest propensity and need to spend it.

Consumer goods companies should be one of the main beneficiaries of this new scheme as recipients spend the extra cash they receive on a range of products. Over the last five years, exposure to consumer goods companies in the Jupiter India Fund has increased significantly.

I remain positive on the outlook for the Indian economy. The current government did a good job of cutting the country’s fiscal deficit to 5.2% of GDP for the year and is confident it can meet its new target, outlined in last week’s budget, of a 4.8% shortfall in the twelve months starting April 15 – despite the projected 16% rise in expenditure announced in last week’s budget.

Even with a government that remains focused on cutting the deficit, we still believe the country’s economy can grow by a healthy 6% this year, an improvement over the last 12 months6 and significantly better than growth in other parts of the world.”

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