India’s big budget day in focus – how did markets react? What was included?

by 1 Feb, 2018

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Arun Jaitley speaks to a crowd at the World Economic Forum in 2015

Indian shares rose at the open, fell, then recouped losses today as investors welcomed the Modi government’s union budget, which detailed plans to increase spending in key areas of the economy. This was the last full federal budget before a general election next year.

In his budget address, the Finance Minister Arun Jaitley detailed government plans to invest large sums into rural infrastructure which caused agricultural stocks to rise. Jaitley said plans were underway to effectively double the income of farmers by 2022, the 75th year of India’s independence. The budget promised to raise the minimum price offered to farmers for crops alongside delivering more money for initiatives in rural areas like irrigation and aquaculture projects.

Crucially, he also announced the launch of a flagship health insurance scheme that would cover over 100 million poor families and give up to 500,000 rupees ($7,860) in medical coverage for each family annually. The plans have are already being referred to as “Modicare” in reference to both India’s current leader Narendra Modi and the ambitions of Obamacare in the U.S. under the previous American President. Jaitley said “This will be the world’s largest health protection scheme”. The statement caused healthcare stocks across Indian indices to jump too.

In a less popular move, Jaitley also detailed the reintroduction of a 10 per cent tax on long term capital gains amounting to ₹1 lakh (100,000 Rupees) and above, but this was partly offset by a pro-business announcement he gave in an interview after the budget where he said: “My eventual roadmap is to bring down the corporate tax rate to 25 per cent”. However, he also said the government would be lifting customs duty on mobile phones to 20 per cent from 15 per cent, which may negatively impact Apple and Samsung who are seeking to outsell eachother in the world’s fastest growing mobile phone market.

Alongside a slew of new policy announcements aiming to improve education, sanitation, employment conditions and more, the Finance Minister said India’s $2.5 trillion economy was “firmly on path to achieving 8 per cent plus growth soon.”

Meanwhile, the Indian bond market slumped today after the government set a slightly wider-than-expected budget deficit target for the next fiscal year.

The budget will be seen as an attempt to win over India’s large rural population ahead of the 2019 general election, where Narendra Modi’s ruling BJP party will face off against Rahul Gandhi’s INC. In the last election, Modi was victorious, claiming 282 seats against 44 for his opponent.

Related: Business leaders heap praise on Indian PM Modi – citing improving business conditions

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