Here's how India Inc reacted to the interim Budget.

What about the road ahead?

Shubhashis Gangopadhyay, Research Director, India Development Foundation

The acting Finance Minister started his Interim Budget speech with the observation that extraordinary times require extraordinary actions. We are in extraordinary times as our otherwise resilient economy gets buffeted around by the global financial storm.

For no fault of ours, the Indian economy is slowing down and many feel that the worst is yet to come. For long, we have been telling those who have so far been left out of the process of unprecedented growth that they will soon be included.

And, suddenly, the slowdown means that they have to wait longer than they were supposed to. Add to the fact that current job losses add more to the excluded group.

The speech talked about the initiatives taken by the UPA government in the last four years, and its social sector initiatives, especially on health and social security, are indeed laudable. However, we needed to know what the government will do now.

We needed to know whether the government has done enough during last December and January and everything will be hunky-dory from now on. We needed to be told how important is Parliamentary propriety when the economy is slowing down; propriety in a Parliament that shows wads of notes as evidence of corruption in buying votes. I am afraid that I wanted a more frank and fair discussion of the road ahead; not what has been done in the past. After all, the Budget is for 2009-10, the year that is yet to come.

Markets will move on global cues

Anil Chawla, CEO, DE Shaw India Advisory Services

As expected, there have been no major announcements in the Interim Budget. The election ball has been set rolling and all eyes will be now on how India votes; it will be interesting to see who forms the next government and how..

The revised GDP targets seem aggressive as global analysts have come out with predictions of lower growth for India as well. There is need to check the fiscal deficit which is now expected to go up to 6 per cent from the earlier projection of 2.5 per cent of the GDP.  But given the market scenario, it's government spending on infrastructure projects that will provide the impetus to the economy and will be the key driver till the uncertainty in global markets goes away. 

The increase in defence budget is big and will have a favourable impact on the defence-related manufacturing industry. We are going to have a policy freeze for the next 2-3 months but monetary policies will address some factors like interest rates and that's the area which will see a lot of action. 

I believe, there are funds available in the hands of investors but they have adopted a wait-and-watch strategy. There has been nothing in the Budget to excite investors and the markets have already shown their discontent. Markets were moving along in anticipation of some good news and that's why they showed resilience in the last week, but the focus will be back on global cues.

Rural consumers empowered

Amit Burman, Vice-chairman, Dabur [Get Quote]

F inance Minister Pranab Mukherjee's Interim Budget is on expected lines as no big-bang policy decisions were expected today. But the UPA government has clearly announced its intent to shield the Indian economy from the global crisis, which is a welcome sign.

The finance minister has also provided greater succour to the farm sector, a move that would surely help the fast-moving consumer goods industry by giving rural demand a greater boost. With measures like an extension of interest subsidies to debt-hit farmers, an increase in plan allocation for the agriculture sector, and a three-fold jump in agriculture credit, the government has continued its focus on aam aadmi and rural development.

These steps would further empower the rural consumer who has been driving demand growth for products of everyday use. The government's continued focus on rural development initiatives should go a long way in further fuelling demand from rural India, and will be overall positive for the FMCG industry.

Tightrope between balance and stimulus

Nilesh Shah, Deputy Managing Director, ICICI [Get Quote] Prudential AMC

The government has taken a realistic stance. It had to increase spending on social areas to support vulnerable sectors while it did not have much flexibility on the fiscal side. The government's expenses shot up in 2008 due to the subsidy burdens and the fiscal stimulus, thus the Budget has been a tightrope walk between striking balance and prudence and stimulus.

The responsibility now moves to RBI for managing the economy and the environment going forward. The size of the borrowing programme has increased exponentially and, clearly, the market does not have the appetite for the same at current levels of yield. Any further hike in borrowings will cause yields to shoot up and, consequently, derail economic recovery. RBI has to decisively use all available tools at its disposal.

Not overly negative on the markets

Samir Arora, Fund Manager, Helios Capital Management

People were expecting too much from this Interim Budget. The system does not allow the government to do too much on this Budget. One must remember that the government has already doled out stimulus of over $2 billion last year and these things should not be repeated just to help one company or one sector.

Today's disappointment cannot last for long as it will depend on other world markets too. In general the Indian, Russian, Brazilian and Chinese are doing better than the western world. I do not feel overly negative on the markets just because this Budget had noting much to offer. The focus of financial markets would be more on global cues.

Before the Budget speech began, the bank stocks were really trembling as last year this sector was under extreme pressure when the farm loan waiver package was announced. It is a major relief for banks as no additional burden was put on them.

The core issue is of restoring the confidence of investors back into the markets and bringing stability. Some of our clients are now asking us to show them what stocks we like. They have come to terms with what they are worth and what they have to do next because the world will not stop.

The only thing is that we ourselves have become cautious about what happens after elections in the first few months because the uncertainty will not end even after the elections as the government will face instability initially.

Interest rates may come down in short term

Pawan Munjal, MD and CEO, Hero Honda Motors [Get Quote]

This is an Interim Budget. That it's turning out to be a "non-event" has not really come as a surprise to me. It is creditable that the UPA government has avoided providing sops now, which is sensible, as the new government would have inherited a financial mess four months later.

In any case, with the year expected to end with a substantial shortfall in revenue targets, there was very little leeway for further cuts on direct tax. The December reduction in central excise duties has taken away whatever room the government had on the tax front.

The decision to boost flagship schemes like Bharat Nirman and Rural Landless Employment Guarantee Programme with adequate funds for 2009 is welcome, and is likely to generate demand in rural areas.

However, the high fiscal deficit is a matter of concern, and it is likely to worsen in the coming months since the government will be forced to spend heavily to revive a sagging economy.

The finance minister estimates additional plan spending of 0.5-1 per cent of GDP, but I suspect the spending will have to be even higher if India is seeking to sustain higher growth. Higher government borrowing could lead to a hardening of interest rates in the long term. However, in the short to medium term, I expect interest rates to come down, and the RBI to reduce repo rates.

Nothing to lift sentiment

Pradeep Jain, Chairman, Parsvnath Developers [Get Quote]

The Interim Budget was not in line with industry expectations as it has not brought any relief for the real estate sector to bring the economy back on the growth track. It is very disappointing that the government did nothing to improve consumer sentiment and encourage home buyers.

To revive the sector, the government should have shown concern and taken steps to improve the demand. It was expected that the government would send a strong message to the RBI to take necessary steps like reduction in interest rates on home loans to the tune of 6 per cent-6.5 per cent. We were hoping the government would make loans up to Rs 30 lakh eligible for priority sector lending.

Banks will have to be careful

Abheek Barua, Chief Economist, HDFC Bank [Get Quote]

There isn't much to look at in the Interim Budget. The government has made it clear that the fiscal situation is unlikely to improve in a hurry. We, at HDFC, had projected the fiscal deficit to around 5.9 per cent. The government has pegged it at 6 per cent. This may go up more. 

Thus, there are implications for market borrowing projections and bond yields. It's likely that the government could end up reversing the interest rate cycle if there's no supportive monetary policy to back it up. Bond yields may move upwards, forcing banks to be careful about their bond portfolio.

Banks could, perhaps, drop interest rates. However, they would have to be careful about repricing loans unless the RBI is willing to support the government programme with an expansion monetary policy (a CRR or cash reserve ratio, et cetera).