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Published on 1/02/2018 4:04:29 PM | Source: Reliance Securities Ltd

A Prudent Balance Between Fiscal Discipline And Economic Growth - Reliance Sec

Below Is The Views On Union Budget 2018 By Mr.Gopkumar Executive Director And CEO Reliance Securities Pvt Ltd

There are all efforts in Union Budget 2018 to appease rural and EWS population but at the same time Government tried to maintain the fiscal discipline by keeping fiscal deficit target at 3.5% and 3.2% for FY18E and FY19E, respectively. Although deficit targets are higher as compared to previous estimates but considering surge in prices of crude oil these are respectable numbers. Higher than estimated expenses and lower than expected revenue on account of lower GST collection and no spectrum auctions lead to miss on fiscal deficit targets. However, the gradual pickup in GST collection in coming months along with better tax compliance will augur well for fiscal maths. Budget speech has talked about total expenses from all agencies at Rs 14lac crore towards aiding rural economy / farmers’ income.

This will have far reaching impact on growth rates of country and reduction of income gaps in society.  On the flip side, visible hardening of oil prices can play a major spoilsport in government’s estimated fiscal target. 

In addition to appeasing rural population, Budget 2018 continued to put strong focus on infrastructure development, which is in line with the expectations. FM has allocated an extra budgetary support of Rs5.97 lakh crore v/s Rs3.96 lakh crore in last budget for infrastructure sector, which is encouraging as India needs large amount of investment in infrastructure due to growing needs. However, road construction for FY19E is likely to be ~9000km, which is tad lower as compared to earlier guidance given by the road ministry. 

We understand higher allocation in infrastructure segment will essentially expedite infrastructure development in the country, which in turn will aid many industries i.e. metals, cement, building materials, etc. 

Govt has also decided to impose 10% tax on Long Term Capital Gains (LTCG) for equity and equity oriented investments for amount exceeding capital gains of Rs1 lakh. The tax will be applicable based on cost prices prevailing on 31st January 2018, which will prevent any large scale selling in stock markets. While LTCG tax has been imposed, there is no tinkering on Securities Transaction Tax, which makes India as probably only country in the world to have both taxes at the same time. Grandfathering of cost prices for LTCG will prevent any knee jerk reaction in stock prices but imposition of tax is a clear negative for equity markets as far as sentiments are concerned.  

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