Indian Rupee Falls Over half a Percent After Federal Budget Speech

The Indian government has released its budget with knock-on effects on the currency.

The Indian federal budget was delivered today by Finance minister Arun Jaitley, who described it as a "farmer friendly, common citizen friendly, business environment-friendly and development friendly."

The budget particularly focused on helping farmers, agriculture and the poor.

There were no major changes to the tax code.

A large rise in infrastructure spending on railways was included.

A slight increase in expected spending means the government's budget deficit is likely to be -3.3% in 2018-19, said Jaitly, which is higher than 2017-18 or this year's target of -3.2% and supposes a delay to the longer-term target of -3.0% in "a few years time." However, it is not so profligate as to concern markets too much.

To offset the extra spending the government increased taxes on capital gains and mutual fund income but not normal income tax which was left unchanged.

The Rupee weakened on the news falling a third of a percent versus the Dollar to 63.86 Rupees to the Dollar and the Pound rose by 0.62% to 90.92 Rupees to one Pound. 

The Rupees loses probably came as a result of the expected widening of the budget deficit.

The country's trade deficit is already expanding due to rising oil prices which constitute a third of its imports and now with the budget deficit also deepening the country has a 'twin deficit' problem.

This has been shown to weigh on currencies according to research and especially when both are in a widening phase.

Highlights of the Indian Budget

The government said it will launch a health scheme to cover 10 crore, poor families, (a crore is 10 million so 100m poor families)said Arun Jaitley. 

Infrastructure spending on railways is to be increased significantly by 150k crore over 2018-19( a crore is 10 million rupees or about 110k Pounds). So the equivalent of roughly 16.5bn Pounds. 

The government proposed considerable investments in higher education, with the building of a railway university, two universities of architecture and development,  larger bursaries to scholars to avoid 'brain drain' as well as increased investment into research and development into AI.

Social security and protection for widows and orphans will be increased.

The government increased subsidies on agricultural products, also called the 'MSP', which was increased and fixed at 1.5 times the market rate.

The government proposed to set up 5 lackh wifi hotspots in rural areas (a lackh is 100k) so 500k new wifi hotspots.

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