'Thankfully the first objective has been achieved'

Sujan Hajra, the chief economist at Anand Rathi, an investment bank based in Mumbai, gives his views on the Indian budget.

How do you think the budget compared with expectations?

What is very important to understand is the background of the budget. The background of this budget is a very subdued environment. The growth is discouraging and the inflation - particularly food and consumer price inflation - is extremely stubborn. The current account deficit is at a record high. India faces a possible credit rating downgrade.

So the first objective of the finance minister was to do fiscal consolidation. So he had to garner revenue and rationalise expenditure. From that perspective, that's what the finance minister thankfully has done.

What about the role of the elections in 2014?

There was a significant apprehension that this being the last full budget before the next general elections, there could be a significant amount of populist measures in terms of welfare spending, but that hasn't actually materialised. If you look at two of the flagship projects, the allocations have been modest, so this hasn't been a populist budget.

Do you think there was an element of disappointment?

There has been some amount of disappointment. There has been disappointment in terms of expectations that people had for some of the measures which could have been done to induce the revival of the equity market. There hasn't been any major reform there.

On top of that there has been the "super rich" tax as well as for the companies, which has disappointed some people. We have some apprehension about the budget numbers. The government is thinking about almost a 6 percentage point increase in the collection under the corporate income tax, so that implicitly assumes at least a 5 percentage point increase in corporate earnings. Under the current situation that may not materialise.

How do you think foreign investors are likely to react to the budget?

The finance minister raised the issue of GAAR (General Anti Avoidance Rule), though it has been postponed for some time.

That's something which might slightly unnerve the foreign companies.

Also, for repatriation of royalties by foreign companies, there has been an increase in the tax rate for that.

Now, FIIs [foreign institutional investors] who hold more than 10 per cent of a company, that will now be clubbed as FDI [foreign direct investment] and the income will become business income rather than investment income.

For tax purposes that might become a problem.