As the Modi government presents its first full-year budget for 2015 on February 28, the expectations are that they will put forth a reasonably good budget. This budget will be the catapult used to introduce numerous reforms.
The belief is that the government will firm up the fiscal deficit numbers with a target reduction of an estimated 3.7% of GDP for 2015, as opposed to a previously estimated 4.2% of GDP. If the government emphasizes the need for spending toward infrastructure, with a commitment to bring the deficit down to 3% in 2016, investors will have an easier time digesting the need for such spending.
Although incoming inflation will be the key determinant for further policy rate cuts and is an important factor, any government action towards good fiscal consolidation with the easing of supply constraints in infrastructure would be an indicator to the RBI to do its part by lowering policy rates further.