The Hindu Business Line : Budget bonanza leaves out capital markets

The backdrop of this Budget was complicated with a slower growth and rising inflation, juxtaposed upon the demanding political scenario of ensuing elections. The Budget, and the Economic Review before that, emphasised the need to contain inflation without sacrificing its priority for a faster and more inclusive growth.

The Budget, with a definite eye on the elections, focuses on agriculture, education, healthcare, employment creation, and greater social equity. While the objective of social equity is laudable, the choice of vehicles leaves much to be desired.

Debt relief

There have been announcements for huge debt relief for small farmers even at the cost of missing the FRBM target for revenue deficit; the question of how this will be implemented and paid for is not fully answered. Further, assumptions on tax collections for the year ahead appear optimistic.

Cutting CENVAT, excise and central sales tax across various sectors and raising the income tax threshold and slabs for individuals would lead to loss of revenue for the fisc.

However, on a broader perspective, these steps are effective in boosting consumption demand, something that was seen to be flagging of late. Lower duties would also address inflation concerns to some extent and is a welcome move for the majority of the industry.

The Budget bonanza, however, largely left out the corporate sector and capital markets. The corporate taxes remained unchanged.

A reduction in the surcharge or even in the fringe benefit taxes could have been beneficial for the corporates given expectations of relatively moderate growth ahead.

The FM’s proposal to increase the short-term capital gain tax to 15 per cent from the existing 10 per cent together with the change in how securities transaction tax (STT) can be set-off is disappointing from a capital markets perspective and could impact market volumes in the near term. This is particularly relevant at a time when volumes are already low due to negative global cues.

Positives

The positives for the capital markets in the form of removal of the double taxation of dividend distribution or the initiatives to expand the market for other financial instruments such as corporate bonds, exchange-traded currency, interest rate futures and credit derivatives are welcome and were expected, but appear insufficient to counter-balance the negative sentiments.

On the investment front, the increased outlay for highway development programmes, ultra-mega power projects, and enhancing power generation targets are positive.

However, challenges of carrying forward India’s investment-led growth story is still a question mark as the Budget had been sombre for the sentiments of the corporates as well as the capital market.