Indian rupee and U.S. dollar banknotes (Photographer: Dhiraj Singh/Bloomberg)

Budget 2017 Likely To Drive Foreign Flows Back Into The Indian Market

The Union Budget 2017 presented by Finance Minister Arun Jaitley has surpassed investors’ expectation. That’s the word coming in from Nilesh Shah, managing director at Kotak Mahindra AMC.

“There were apprehensions on maintaining path of fiscal prudence. But by putting fiscal deficit target at 3.2 percent for FY18 and 3 percent for FY19, the finance minister has delivered a budget, which is on the path of fiscal prudence,” he told BloombergQuint in an interview.

The Big Number: Government Targets Fiscal Deficit Of 3.2% Of GDP In FY18

Gautam Chhaochharia, head of research at UBS said foreign investors will breathe a sigh of relief. A lot of their global clientele choose India for its macro stability, he told BloombergQuint in an interview. “Sticking to the fiscal consolidation road map will make sure that it sustains for a while at least,” he added.

Shah echoed that sentiment, saying investors have been also reassured by the government’s commitment to reduce the debt-to-GDP ratio to 60 percent by 2023. This, along with the move to hike capital expenditure to 25 percent year-on-year bodes well for the economy as well as the equity market.

The budget also has taken great care to reassure foreign investors about India, Shah said. “There was fear that the withholding tax of 5 percent, which was concessional rate of tax, may not be extended post 2017. Now that has been enhanced to 2020,” he said adding, the country remains an attractive destination for the foreign investors.

Rashesh Shah, CEO of Edelweiss Group said the abolition of the Foreign Investment Promotion Board (FIPB) and the clear focus on improving foreign direct investment was a welcome move.

He said India has anyway been one of the more favoured countries in terms of foreign direct investment. “We would have $75 billion of FDI in this current year and with this change in FIPB and more push to FDI, maybe we can also reach $100 billion of FDI, which will truly path breaking,” he told BloombergQuint in an interview.