The Hindu Business Line : Social thrust, not populist

The Budget should be viewed in the context of a strong economic growth and concerns on inflation. To my mind, the Finance Minister has done a fair job. While he has ensured that his proposals in general help to sustain the economic momentum, reduction in fiscal deficit and addressing of inflation must be seen positively. While the equity market fell over 4 per cent that was partly aided by the global sell-off.

The thrust towards infrastructure development continues, with a special emphasis on rural electrification, rural housing, drinking water provision and irrigation facilities, and higher penetration of telecom services in rural regions. Continued investments in road building, and raising budgetary support for the power sector are again positive steps forward. Specific fiscal incentives to the tourism industry would help improve tourism infrastructure. The focus on agriculture and allied industries has continued, with several measures being announced in favour of the farming community. Fiscal incentives have been given to the food processing industry and small-scale industries have been encouraged. These measures, combined with higher social spending, would eventually translate into higher disposable incomes and better quality of life for a larger section. While the increased thrust on social spending might be viewed as `populist' or `vote bank economics' by many, such measures would eventually result in a more vibrant economy.

From a sectoral perspective, while cement has been negatively impacted due to differential duty structure, IT companies would now be covered under MAT, effectively increasing their tax rates. On the other hand, no imposition of VAT on cigarettes is a positive. Also, extension of TUF will be good for textile companies. Infrastructure companies would have to pay a higher tax due to the withdrawal of the Section 80 IA benefit. However, these companies will benefit from the significantly higher allocation for infrastructure projects.

Coming to capital market specific issues, while an increase in the dividend distribution tax has been proposed, the market's worst fears of a possible increase in the securities transaction tax (STT) and short-term capital gains tax did not materialise. The proposal to make permanent account number (PAN) the sole identification requirement for investors is a positive step as is the focus on self-regulatory organisations. Further, allowing institutional investors to short-sell and domestic investors to invest in overseas securities would help take India's capital market a step forward as would the recognition of financial services as the next growth engine.

Among the proposals the market was disappointed with was the increase in the dividend distribution tax, increase of cess although quite marginal, and the no change in surcharge (this was expected to go). The market has corrected sharply, by over 10 per cent in the last one month from its recent highs.

While global sell-off has also aided this, we remain strong believers in the growth story of India and this Budget has been fair to this. We would recommend investors to benefit from this correction, by investing in stocks that offer strong growth potential.

(The author is CMD, Motilal Oswal Financial Services.)