The budget positives are lower income tax which help domestic consumption, abolition of dividend distribution tax and increased infra spending with Sovereign wealth funds enjoying tax incentives. On the latter the markets will be disappointed that there was no real push on rural spending and lack of help for NBFC and real estate.
The doing away of dividend distribution tax (DDT) is a good measure from the company’s viewpoint, but the Budget has been silent on the long-term capital gains tax (LTCG). This is one thing that the markets always wanted and were hoping for this time around.
The fiscal deficit number is manageable, but given the deviation from the original target, I would have liked to see some extra spending where it would have made a difference. The economic growth this fiscal year, which ends on March 31, will slip to 5 per cent - its weakest pace since the global financial crisis of 2008-09. The government has revised the fiscal deficit target to 3.8 per cent for the current fiscal year, from an earlier target of 3.3 per cent. It has also pegged the fiscal deficit target for the year 2020-21 at 3.5 per cent of the GDP.
The divestment target is quite ambitious. The government plans to pare its stake in Life Insurance Corporation of India (LIC of India) and IDBI Bank. These measures can only help bridge the revenue shortfall if we have a buoyant market.
In a nutshell, there is nothing in the Budget proposals that will get the economy moving quickly. Indeed it will be will be a u-shaped recovery, Basically a long, hard and slow grind upwards.
That said, the markets will now start to focus on global factors amid a slowing economy back home. Come Monday, investors will start looking at the global markets and updates on coronavirus’ impact.
As regards foreign investors, they will now look at India in context of the global developments. There is nothing for them as regards the Indian economy to get excited about. Any changes of revival in the mid-and small-caps will also get delayed. Large companies in each sector will continue to gain market share in a slowing economy.
Andrew Holland is CEO, Avendus Capital Alternate Strategies. Views are personal.
(As told to Puneet Wadhwa)