Over the years, the importance of Union Budget as a signaling of economic policy has diminished with policy announcements being made outside the budget on a regular basis. However, this year’s Budget is significant from the point of view that it will provide an insight into the areas of focus for the new government. The relatively larger mandate given to the Congress-led UPA means policy making will not be constrained by coalition compulsions and we could see better progress on the reform front. In our view, subjects requiring utmost attention from the government at present are:

• Retaining the focus on spurring economic growth without straining the already weak fiscal position.
• Augmenting revenues through disinvestment and 3G spectrum sale.
• Focus on building the physical and social infrastructure and more importantly, a clearly articulated infrastructure development and financing policy.
• Pushing ahead with next generation reforms in the banking, insurance and pensions space.
• While the VAT regime has been implemented to a large extent, a clear road map for the National level Goods & Services Tax is important. This is expected to benefit the economy as it widens the tax net, bringing in the unorganized sector. This also replaces the irritant of various state level levies with one coherent national levy and would enhance the ease of doing business in India.

We are likely to witness continued emphasis on social programmes as well as rural India and the poor, in line with the government’s focus on inclusive growth. However, given the large fiscal deficit and falling tax revenues, the government needs to balance such initiatives with the need for fiscal prudence. With exports likely to remain under pressure due to weak global environment, all these measures are required to sustain domestic consumption and investment. Other key focus areas are likely to be education sector as well as attracting foreign capital both in the form of portfolio flows and FDI. Foreign capital flows are essential from a Balance of Payments perspective and FDI flows could be instrumental in bridging the infrastructure financing gap.

As regards Mutual Funds, we would like to see the following:

• Allowing real estate mutual funds in India.
• Equity Fund of Funds, Gold ETFs and Real Estate mutual funds getting the same tax treatment as Equity Funds.
• Establishing parity amongst various financial service providers - e.g. insurance and mutual funds. All financial services need to have the same level of documentary requirements and transparency standards.
• Separate tax breaks for pension and children funds.

On the whole, we expect the Union Budget to be quite positive for industry and individuals.

-  Sivasubramanian KN, Senior Portfolio Manager - Equity, Franklin Templeton

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