The budget has no wiggle room; there is so much to do, like boosting jobs, DeMo relief and elections, but credibility concerns and rating upgrade aspirations caution against straying too far from FRBM deficit target, which is itself under review and could end up as a range like 3.3-3% of GDP.

Sticking to the deficit target will achieve low risk growth by structurally lowering cost of borrowing in the economy. Besides, there will be sufficient space for Pay Commission allowances, state revenue shortfall provision etc due to one more year of oneoffs from tax compliance and formalization of activity. 

Policy Stance: Meet deficit target: 17% receipts growth, 12% revenue expense growth and 16% capex growth

• Higher capex on roads, railways, defense, urban transport, affordable housing
• Credit support to farmers, MSMEs, senior citizens etc
• Recharge flagship schemes: i.e. Make in India, Digital India, Affordable Housing
• No room for personal tax cuts as it contradicts Demonet & GST objectives of expanding tax base
• Other roadmaps & Incentives: 1) GST, 2) Cash-less transactions, 3) Tax policy clarity, 4) PSB recap, 5) Power (renewable energy), 6) DBT in Kerosene

Beneficiaries: A) If budget sticks to FRBM (Banking, Auto, Realty). B) Reforms: Banking, Infra/ Cap goods, Realty. C) Rural and MSME support: Auto, FMCG, Retail.

Losers: Cement, if clean energy cess on pet-coke imposed, Cigarettes if hike in excise duty >10%, Coal-based gencos setting up new capacity (renewable thrust).

Surprisingly the USD’s response to Trump moving ahead as promised was tepid, although stock markets remained upbeat helped by decent macro numbers and company results. Traders remain skeptical of the Trump rally, but will likely wait for details on expected tax cuts and big infra spend. 

Mark these dates: US FOMC (possible 25bp hike) and India budget (stick to FRBM) on 1 Feb and RBI policy (no change) on 8 Feb.