Feb 26, 2013, 02.58 PM IST
The FM will get close to 5.3-5.4 percent fiscal deficit number for 2012-13 through tighter expenditure control and higher PSU dividends that will offset slippage in tax collections, lukewarm spectrum response and spillage in unrealistic subsidy targets set by his predecessor.
On Fiscal deficit:
"The FM will get close to 5.3-5.4 percent fiscal deficit number for 2012-13 through tighter expenditure control and higher PSU dividends that will offset slippage in tax collections, lukewarm spectrum response and spillage in unrealistic subsidy targets set by his predecessor.
The Finance Minister has a market borrowing leeway of only Rs300 bn or so if he wants to achieve fiscal deficit of 4.8 percent in 2013-14. He is likely to resort to massive expenditure control by allowing only marginal rise in development spending and reducing allocation to centrally sponsored schemes, or even dropping some of them altogether. Other significant ways of reigning in the deficit is through targeting higher non-tax revenue from disinvestments and communication services. The scope for material increase in taxation if limited due to slowing growth environment but an amnesty scheme, if launched, can help bridge the gap."
On Direct taxation:
"We expect no change in personal income tax and corporate tax rates. The FM too, hinted at stable rates at a recent investor seminar. A higher surcharge could be imposed for the higher tax brackets though. We also doubt that exemption slabs will be increased from Rs2 lacs. Instead, the limit for Section 80C will be raised from Rs1 lac that will give more money to lower income groups, discourages gold investment to an extent and encourages mass savings and investments to help fund infrastructure.
We expect wealth tax rates to be raised. It looks unlikely that a downward revision in STT rates comes through in the light of the 10 percent drop in collections. Instead, we see the possibility of a commodity transaction tax to boost collections under the garb of better regulation.”
On Indirect taxation:
“We don’t expect Service Tax and Excise rates to be raised in times of falling GDP growth. Customs duty may be raised to discourage imports and help improve current account deficit. The variable rates in Customs duty could be raised by 1 percent and a Countervailing duty could be imposed.”
“Interest subsidy to farmers and raising purchase limit for housing, Food Security Bill, access to medicines through higher allocations and substantial rise in agriculture allocations are voter friendly measures likely to be taken up.
Attempts to revive the industry cycle, infrastructure and deepening the corporate bond market are some market-friendly measures likely to be taken up.”
Overall view: “The Finance Minister will deliver a reform-centric Budget addressing the fiscal and current account deficits in the wake of the sustained country downgrade scare. In our opinion, the FM cannot even afford a Budget which is termed as a non-event, leave alone a bad one. The Budget is likely to be balanced and devoid of any ambiguous provisions to help maintain investor confidence.”
Markets face resistance; Nifty likely to correct soon
After expansion comes contraction - this is the theme which the stock markets have begun to work on. This letter has been upbeat on the market. We still are, when it comes to the long term. The short term scenario may be different. For short term traders the strategy should be to take swing trades lasting one or two days, only on extremes.
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