FM wants the economy to do the talking: Sridhar

The Honorable Finance Minister has adopted a cautious approach not just in his Budget speech but also in the entire Finance Bill 2006. It appears that the primary objective is more towards not to displease any group than to please a select few.So, most of the proposal in the budget are harmless and more oblivious ones with none to invite any serious debate or controversy.

I would call this itself as a great achievement given the divergent views within and outside the ruling party. The market also could not have expected more than this.

From the Mutual Fund industry point of view, putting the close ended equity funds at par with the open ended funds as far as the dividend distribution tax aspect is a good move to encourage long term money coming into equity markets.Removing the restrictions and increasing the quantum of money that the Mutual Funds can invest overseas (outside India, in foreign listed companies) is again a long pending issue, but a welcome move.

By including the bank deposits in the existing limits of exemptions under Section 80C, will actually reduce the thrust to make savings come into to Mutual Funds and hence, into equity markets.

Increasing the FII investment limits in the Corporate Debt is good, but it should have got increased to much higher limits and also giving a separate additional limits to FIIs investing in the stressed debt assets. Even though there are no new announcements in the development of infrastructure area, the funds allocation to all the projects already in progress is itself a good move.

Overall the Finance Minister seems to be depending on the expected good economic growth itself to mobilize the higher revenue to support all the expenditure and the growth, which is quite possible. 

The author is AK Sridhar, CIO, UTI Mutual Fund.

Also read -

• Important Budget announcements for Mutual Funds
• Budget '06 - Mutual Fund Wish list
• Extend zero dividend tax to equity close-ended funds: AMFI