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Will India's 'Do-No-Harm' Budget Cheer Investors?

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India's much-awaited annual budget failed to deliver on the hype sending the nation's equity markets lower on Thursday, with one economist calling Finance Minister P Chidambaram - who has the tough job of reining in the fiscal deficit while spurring growth – simply a "firefighter."

"Pedestrian is the way I would describe the budget. There was a fair amount of halo around Chidambaram, but this is best described as a fire fighter's budget not a town planner's budget," Rajeev Malik, senior economist at brokerage, CLSA told CNBC.

However, Malik added that "Given the monumental challenge ahead, Chidambaram stuck to his guidance - which is not a small achievement - but it was clearly insufficient in what else needs to be done."

(Read More: India Budget Increases Spending, Taxes the Rich)

Taimur Baig, chief economist at Deutsche Bank called the budget a "do-no-harm" budget that fell short of high expectations.

The markets gave their verdict on the budget with the benchmark Bombay Sensex closing 1.5 percent down on Thursday, while the rupee fell 1.3 percent against the U.S. dollar to a one week's low.

"There is nothing in the budget to spark a rally in markets," said fund manager Sameer Arora of Helios Capital, adding that there were no surprises in the budget as "Chidambaram had no aces up his sleeve," implying the budget was on expected lines.

In the weeks leading up to the budget the finance minister had promised austerity and he delivered on that by lowering the fiscal deficit target to 4.8 percent of gross domestic product for the financial year ending March 2014. He also said the deficit for the current fiscal year would come in at 5.2 percent, lower than the target of 5.3 percent, something not seen in many years.

But along with that he also increased government expenditure to 16.65 trillion ($309 billion) rupees in the coming fiscal year - from an estimated 14.3 trillion rupees in the current year - funded in part by raising taxes on the super-rich and on high earning companies. A large part of the spending increase will be directed to welfare schemes and infrastructure.

"From a macro perspective, the budget is disappointing in our opinion as it lacks any expenditure control," said Sonal Varma, India economist at Nomura.

The country's poor track record in managing its deficit has been of top concern for credit ratings agencies, with both S&P and Fitch downgrading their outlook on India to negative watch last year.

(Read More: Indian Finance Minister Makes Case for Ratings Upgrade)

Rated at one notch above junk, India is faced with the prospect of being the first BRIC nation to have its credit rating reduced to non-investment grade if it fails to demonstrate better restraint with spending.

Robert Prior-Wandesforde, director, Asian economics at Credit Suisse added, the sizable increase in public spending gives the impression that the finance minister is paying more attention to next year's general election than perhaps the markets would have wished.

Other India watchers, however, noted that while the budget underwhelmed market expectations, it was realistic.

Uday Kotak, executive vice chairman of Kotak Mahindra Bank told CNBC TV18 that there were no "steroids" in the budget, but it was a good one given the tough macro-economic conditions.

India's growth has been languishing at multi-year lows, but high levels of inflation have put a lid on monetary stimulus.

(Read More: India in a 'Horror Show' as Growth Slumps)

"This is a big picture budget making the best out of a bad situation," Sujan Hajra, chief economist at financial services firm Anand Rathi in Mumbai, told Reuters.

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