Published on 1/02/2017 4:39:38 PM | Source: HDFC Securities

FM's fourth Budget, has put India back on the shopping list of FIIs by MD & CEO - HDFC securities

Posted in | #Expert Views #Union Budget #HDFC Securities #Dhiraj Relli


Below the comments on Union Buget by Dhiraj Relli, MD & CEO - HDFC securities

FM's fourth Budget, has put India back on the shopping list of FIIs. By restraining the fiscal deficit to 3.2% and promising to prune it down to 3% in the next year, FM has delivered on Fiscal prudence. All this has come about amidst 25% hike in government spending and a 19% reduction on Government borrowing. This also increase chances of a rate cut.

 The Govt had a tough call of treading very carefully between the need for stimulating demand in a weak economic environment after demonetization and continuing on the path of fiscal consolidation. It needs to be complemented for bringing in greater transparency in political funding and relaxing the domestic transfer pricing rules. It has allocated higher sums for farmers, rural population, youth, poor & underprivileged, infrastructure etc which will have a ripple effect on the formal economy with a lag.

Another good step taken in this budget is that the term for eligibility of long term capital gains tax on house property has been pruned down from three years to two. This would mean that investors can sell their house property a year earlier and still be eligible for lower tax. But what is more striking is the fact that basket of financial instruments has been expanded, which gives the investors more option to invest and still avoid paying tax. This will have very far reaching impact on the financial markets. This will unlock the real estate investments and divert them to financial instruments, which would be beneficial for GDP as these will have a higher velocity.  

There is no Increase in service tax to bring it in line with proposed GST rates. It is not an anti rich and pro poor Budget.  

But FM's best action is that he has not tinkered with the equity capital gains tax regime. The markets are rejoicing that they can continue to enjoy the fruits of investment.  

All said and done there have been a few disappointments. There has been no cut in corporate tax rate (for companies having sales of more than Rs.50 cr) despite assurance in FY16 Budget to cut taxes to 25% by FY20-FY21. Achieving this level over the balance period is challenging. There has been no  mention  about creation of a Bad bank or Public Sector Asset Rehabilitation Agency which can speed up solutions for rising challenges of NPA for Banks and loss making PSUs. Though a lot of funds have been allocated for public capex, very few initiatives are visible for kick starting private capex (though there is a limit upto which the Govt can do this)  

This growth oriented budget will make the FIIs return to India.

 

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