Union Budget 2024-25: A Budget for long term capital and gains

The stock market's knee-jerk reaction must not define FM Sitharaman's far-reaching Budget

A day after the Economic Survey expressed concern over the sustained surge of India’s stock markets, the Budget sent the indices yo-yoing. As Finance Minister Nirmala Sitharaman read out the parts of her speech that raised long-term capital gains and securities transaction tax (STT), the BSE’s bellwether Sensex plunged more than 1,000 points. It was a rearguard rally by Titan, ITC, and Adani Ports that pulled the market back up and pared the losses to the bare minimum.

If you are not someone who lost a bucketful in the markets today, it would be advisable to take a more considered look at what the finance minister has done, and appreciate the bravery of her decision to take on the markets despite — in all likelihood — having foreseen the knee-jerk reaction.

The stock market has been on an unprecedented upward trajectory, providing untold gains to a lot of people. All the government is asking for is a bit of those gains — not too much. As some market players were heard saying, this increase is far less than what they had feared.

The STT increase is intended to curb the irrational exuberance retail investors are showing for futures & options. This exuberance had deepened the frown lines on the foreheads of regulators as well as many market participants because derivatives are mainly meant to serve as hedging tools for large institutional investors. They can really burn retail players.

If we look beyond the immediate reaction of stock markets, Finance Minister Nirmala Sitharaman has responded to several needs of the economy, as well as a few calls of politics in a country perpetually in election mode. Though this was perhaps her shortest Budget speech, at 86 minutes, she managed to speak at length on creation of jobs — addressing the needs of job seekers as well as employers — skilling of the workforce, and building more infrastructure. And she devoted a fair bit of airtime to Bihar, a state ruled by a critical component of the National Democratic Alliance government.

She did away with the angel tax, a move that is likely to spur investments in startups. She also dispensed with the equalisation levy, a 2 per cent tax imposed in 2016 on profits of non-resident digital companies providing services to Indian firms. And she reduced tax on foreign companies.

The finance minister gave the salaried class, especially in the lower-income slabs, some more money to play with by raising the standard deduction for income tax and tampering with the slabs. She tinkered with a range of Customs duties and made buying of gold and silver cheaper.

These and many more things in this Budget are being covered in the minutest detail by Business Standard. You can delve deeper by visiting our website and in tomorrow’s edition of the newspaper. But let’s look at a couple more things before I let you go.

The standout features of today’s Budget would be its unyielding commitment to fiscal discipline and longer-term pronouncements. It is heartwarming to see the fiscal deficit figure come below 5 per cent of gross domestic product (GDP) after years. And just as nice to hear the finance minister announce a comprehensive review of the Income Tax Act of 1961 in six months to “provide tax certainty to taxpayers, reducing disputes and litigation”.

She also spoke about a new economic policy framework aimed at ushering in the next generation of economic reforms to drive growth. These reforms will address all factors of production: Land, labour, capital, and entrepreneurship.

That is what a Budget is expected to do – combine short-term measures with long-term vision, and not worry about how the markets might react on the day.