Budget 2018: The revenue foregone from direct tax changes is modest relative to the funds collected by way of anti evasion measures. Moreover, the forecast of 11.5% for growth of nominal GDP for FY19 made in the Budget is in line with our expectations.
In line with our expectations, the Monetary Policy Committee of Reserve Bank of India decided to leave the repo rate unchanged and retained the neutral stance of monetary policy in the second policy review for FY18.
In light of the slowdown in the GDP growth after the note ban, the Budget has made a concerted effort to stimulate economic activity through a combination of modest tax cuts and higher spending, while remaining committed to paring the fiscal deficit.
No change in growth or inflation targets, policy rate, accommodative stance of monetary policy and strategy to reduce structural liquidity deficit. As the banking system is facing challenges on many fronts, speedier development of the bond market could provide an appropriate platform for faster transmission of policy rates to the eventual borrowers, and also diversify the risk across market participants other than banks.
Restricting repo rate cut to 25bps an appropriate step; focus on liquidity to improve transmission
As anticipated, the Reserve Bank of India (RBI) desisted from changing its key policy rate in the final bimonthly monetary policy review for 2015-16.
The central bank seems more focused on improving the efficiency of transmission of its policy actions to support growth
Relaxation in fiscal deficit target allows the govt to spend an additional estimated Rs 47,700 crore in FY16