A bland and balanced budget: Kirkire

As expected, the Finance Minister continues to lay thrust in areas of rural development, infrastructure, healthcare and education. The GDP growth rate of over 8% and fiscal deficit of 3.8% lends a very solid platform for the corporate sector to perform.

Fiscal prudence demonstrated by the incumbent government appears on track. Despite a short fall in actual revenue v/s budgeted last year, the fiscal deficit of 4.1% in FY06 (as against BE of 4.3%) reflects that the government is spending with restraint. In the incoming year too, the planned expenditure is expected to rise by 20%, whereas the non-plan expenditure is budgeted to move up by only 5%. Though, it should be noted that the correction to total expenditure comes from an aggressive containment of capital expenditures.

Despite slippage of tax revenue in FY06, the continuity in direct personal and corporate tax is a significant decision that indicates confidence of the Finance Minister in profit growth of corporate India. A marginal rise in Service Tax rate and MAT is a step in the direction of converging taxes on goods and service (GST or Goods and Service Tax).

From the investment market point of view, with long-term capital gains tax on equity abolished in the last year's budget, there was not much to expect. However, the introduction of EET in small savings scheme and extending the EET to equity investments could have helped augment the already improving equity cult in the country.

While realigning close-ended schemes with open-ended schemes on the tax front was a positive move; the clarification on the tax status for Fund of Fund schemes v/s underlying equity schemes is still awaited.

The removal of the 10% criteria for investing in foreign equity and the increase in total limit to USD 2 bn for investing in foreign equity together with the ETFs is a positive move.

The Indian debt markets have become illiquid in the recent past on account of rising interest rates. The increase in FII limits in both the G.Sec and the corporate bond markets could add a fillip to the bond markets.

Overall, the tone of the budget is positive and indicates fiscal prudence.

The author is Sandesh Kirkire, CEO, Kotak Mutual Fund.

Also read -

• Important Budget announcements for Mutual Funds
• Budget '06 - Mutual Fund Wish list
• I don't foresee any change in tax rate: Kirkire