Nirmal Jain, chairman, IIFL says that the impact of the Budget will only be heightened by the slew of crises that threaten to derail its importance. He calls for out-of-the-box and radical ideas to tackle the growing deficits and yet cater to political compulsions with the general election scheduled for 2014. "Though the market might have corrected, foreign investors are expecting a lot from the Budget," he told CNBC-TV18.
Below is the edited transcript of the analysis on CNBC-TV18
Q: Is it a case of bad timing? Will the Budget be able to impact the domestic market can regardless of global worries?
Jain: The Budget can do a lot in the midst of a slew of crises- fiscal deficit, current account deficit, elections next year and global concerns. A lot is expected from Chidambaram as he has proved to be able to take difficult decisions such as the increase in diesel prices and the hike in railway tariff before the Budget. A lot of things can be set right. Though the market might have corrected, foreign investors are expecting a lot from the Budget.
Q: Do you think he will commit the same mistakes as in the last Budget?
Jain: The Budget math is quite weird because the revenue is equal to non-planned expenditure and entire planned expenditure is met by deficit very broadly. Non-planned expenditure is around Rs 10 lakh crore. There is no choice but to cut down non-planned expenditure and subsidies decisively in order to solve the fiscal deficit problem.
There is very little that can be achieved by the Budget alone and it has to be supplemented by effort from the government in tandem with the RBI’s monetary policy. Unless this is done, growth cannot be expected to revive and rise on consumption alone.
Q: Do you expect the FM to throw a surprise by announcing measures to meet the fiscal deficit target of 5.3 percent?
Jain: How the FM does it is the key element to watch. This Budget is going to be examined by foreign analysts and FIIs. The FM has to come up with completely out-of-the-box and radical ideas to tackle the fiscal and current account deficit, it will be very difficult to meet the growth target and cater to political compulsions in the election year.
Q: Are you holding out hopes that the short-term tax on capital gains or securities transaction may be cut?
Jain: The tax one of the two items can be cut, but not on both. I am hopeful on the cut in the tax on short-term capital gains because at this point in time there is a need for a revival in the FII sentiment that is very crucial to boost other areas of the economy.
It could be gradually reduced over two or three months or pre-pone the start of the tax- free period which is to commence after a year, by about three months
Q: No tax on equities if you hold for more than three months?
Jain: There is a securities transaction tax which may be increased slightly for the delivery trades.