Government spending policies that influence macroeconomic conditions. Through fiscal policy, regulators attempt to improve unemployment rates, control inflation, stabilize business cycles and influence interest rates in an effort to control the economy. Fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883–1946), who believed governments could change economic performance by adjusting tax rates and government spending.
Indian government will announce their budget this week. The Railway budget is the first set piece on the agenda and scheduled to be announced on Thursday Feb. 26 followed by economic survey the next day and the annual budget on Feb. 28.
Fiscal policy and monetary policy are two major drivers of a nation’s economic performance. Through monetary policy, a country’s central bank influences the money supply. Regulators use both policies to try to boost a flagging economy, maintain a strong economy or cool off an overheated economy. Here, I would like to emphasize that budget measures part of a fiscal policy.
Here I will provide a brief outline of main concepts to watch in policy measure and making trade decisions based on them, as they will move the markets, rest of this week.
Insurance Laws (Amendment) Bill–The federal government approved to raise FDI in insurance from 26% to 49%.The temporary law needs to be replaced by a permanent one with a vote by lawmakers. The bill was initially introduced in Rajya Sabha, or the upper house, in December 2008 and later referred for re-assessment to a special committee, which submitted its report in December 2011. During the most-recent Parliamentary session at the end of 2014, Mr. Modi’s government tried to clear the bill but was unable to gain the support.
Market’s affected- Futures, Banking sector, Bank Nifty, Insurance companies
Constitution Amendment Bill—This seeks to amend the constitution to allow for the introduction of a uniform, national goods and services tax. If passed, it will be the country’s biggest tax reform in years. The implementation of GST has been opposed by some states as they are reluctant to surrender their right to impose state-specific taxes. For instance, some have objected to the inclusion of petroleum products and liquor –major sources of revenue – in the proposed GST as the move would severely affect their coffers. The finance ministry has moved to smooth out the issues and is hopeful the bill will be approved by lawmakers this session.
Market’s affected- Entire stock market, Commodities, Futures
Citizenship Amendment Bill—Another piece of legislation that didn’t make it through Parliament but was passed by executive order. The Citizenship Act, 1955 provides for citizenship by birth, descent, registration, naturalization and by incorporation of territory. It also provides for renunciation and termination of citizenship under certain circumstances. It contains provisions regarding registration of overseas citizens of India and their rights. Overseas citizens of India are entitled to benefits such as a multiple-entry and multipurpose life-long Indian visas. The bill proposes to add grounds on which a person may register for overseas citizenship of India. These include children whose parents are Indian citizens, spouses of an Indian citizens or overseas citizens of India, among others. The amendment could also bring holders of PIO or Person of Indian Origin status in line with overseas citizens of India, who are entitled to greater benefits. This is something Mr. Modi promised the Indian American community when he visited New York in September.
Market’s affected- Tourism industry and sector, Forex and currency markets, Futures
Mines and Minerals (Development and Regulation) Amendment Bill—This proposed law seeks to amend the country’s archaic mining rules and pave way for auctions of minerals such as iron ore. Auctions would replace the current system where a panel approves applications for mining licenses. An ordinance for the immediate implementation of the policy was introduced in January.
Market’s affected- Metals, Commodities, Copper and Iron ore, Metal sector stocks
Motor Vehicles Amendment Bill—This was passed by lower house of Parliament on Dec. 18, 2014 and introduced in upper house on Dec. 22, 2014 but couldn’t be taken up for discussion amid uproar in Parliament. The federal cabinet on Dec. 24 approved an executive order to allow e-rickshaws or battery-operated three-wheelers, which had gone off roads after Delhi High Court banned them last year on safety concerns. The bill seeks to provide a transparent system for issuing driving licenses.
Market’s affected- Automobile industry, Stocks, Futures
How to trade this?
Since we are small scale players, we don’t need to jump in the market right after the announcements or budget measure. Let’s play wait-see approach, look how the particular markets react just after or before the key announcements. Once the price establishes a trend (which is most likely a possibility, since budget will affect more or less all the markets to a certain extent) Market’s may try to price in these information beforehand, so once a trend is established this week in a particular market, we can trade along with the trend or we can news trade the particular key announcement,since they have potentiality to create large movement in one direction.
Markets may become more volatile this week.