The Union Budget 2017-18 presented by Arun Jaitley on 1st February can be termed as a good effort under the prevailing circumstances. This was a challenging situation with very high expectation post demonetization. We feel the finance minister has done a good balancing act by not tinkering too much with tax rates (partly leaving changes to indirect tax rates to be taken care of by GST likely to be implemented by July 2017) & reducing fiscal deficit yet spending on infrastructure & agriculture to revive the economy. Low inflation & fiscal deficit will lead to lower government borrowing leaving more for private borrowings & reduction in interest rates.
Most fears of market participants have been belied, which probably explains the rise in the indices post the end of budget speech. There is no increase in LTCG on listed shares or banking transaction tax or increase in tax rates in financial services. Thus this budget possibly had the shortest list of bad news amongst recent budgets. The FM also needs to be complemented for bringing in greater transparency in political funding and relaxing the domestic transfer pricing rules. It has allocated higher allocation for farmers, rural population, youth, poor & underprivileged and infrastructure which will have a ripple effect on the formal economy with a lag. One disappointment for larger corporates (with sales above Rs.50 cr) would be no reduction in corporate tax rates, something promised by the FM in his last budget speech.
Key Budget Proposals:
Fiscal Deficit for FY18 at 3.2% of GDP
MGNREGA allocation at Rs 48,000 crores in 2017-18.
100% village Electrification by 1st May 2018.
Transportation sector as a whole (rail, roads, shipping) receive provisioning of Rs 2,41,387 crores
Rs 10,000 Crs for Recapitalization of Banks
The shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed
Increase in Capital expenditure by 11%
Income tax for Companies with annual turnover upto Rs 50 crore is reduced to 25%
For individual Tax payers within Rs 2.5-5 lakh tax bracket, the rate of tax is brought down to 5%.
Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’