An aam aadmi Budget

COMMENT: Nilesh Shah

The market was euphoric as it expected many reforms from the Budget. The Budget has pragmatically projected a slowing revenue growth and stressed the need for spending money on supporting the economy. It is clearly an aam aadmi Budget that has tried to put money in the hands of the consumer by increasing spending and cutting taxes. On the positive side, the abolition of fringe benefit tax (FBT) and surcharge on the income tax will help the aam admi. Introduction of GST by April 1, 2010 will also help in blocking the tax leakage and reducing regulatory arbitrage between unorganised and organised sectors.

The equity market has given an adverse reaction to the Budget due to a lack of big-bang announcements on FDI in insurance and retail sectors. Aggressive divestment expectations and immediate steps to realign the fiscal scenario (higher than expected), which have not been met, have also led to short-term market disappointment. The increase in minimum alternate tax (MAT) has probably affected the market sentiment.

On the broader front, the government has focused on inclusive participation in the India story. It has substantially stepped up spending on social sectors, clearly emphasising its stance on inclusive growth. If this spending is carried out wisely rather than being pushed through a leaky pipeline, it will certainly have a major, positive, long-term impact on the economy and the market.

Nilesh Shah, Deputy Managing Director, ICICI Pru Asset Management Company