MC Interview: Rural consumption unlikely to grow in a hurry, although budget increased allocation to rural schemes, says Sandeep Bagla

The Budget is tough for investors in the sense that they will now have to fork out a greater portion of their capital gains as tax, as compared to before. The benefits of indexation have also been removed. The principle that the investor needs to pay tax on the real gains over and above inflation has been done away with. It would be a little more difficult for investors now to have a balanced asset allocation as there are hardly any incentives to invest in debt and fixed-income funds from a tax perspective.

Can the Budget significantly boost rural consumption?

There is some emphasis on the skilling of the labour force and a push towards an increase in the participation of women in the workforce. While it is difficult for the Government to create jobs overnight, steps have been taken in the right direction like the provision of paid internships and focus on benefits to employees and employers for first-time EPFO contributors. For economic growth to sustain/increase in the coming years, reforms in the labour market to enable greater job creation could prove to be a critical area of policymaking.

The Budget increased the allocation to rural schemes from before, but one cannot expect it to make a significant boost to rural income on its own. Rural consumption has been lacklustre due to factors like high food inflation and weather-related vagaries and is not expected to grow in a hurry. A number of steps would have to be taken outside the budget announcements to boost rural income and bolster rural demand.

Do you think the capex target should have increased significantly from the current Rs 11.11 lakh crore when the private capex is yet to pick up?

The Government's primary objective is governance and creating conditions conducive for growth to pick up. The existing capex spending is in the hope to kick start the investment cycle and a wish that the private sector picks up the baton at some point in time. The Government has rightly refrained from increasing the capex spend as there is a limit on the effective absorption of the spend in the appropriate sectors as well and further increases would put a strain on the fiscal as well.

Has the Union Budget provided enough structural measures to boost the economy?

While there has been improved tax collection and higher-than-expected dividends from the RBI, the Government has utilized the extra revenue to reduce the fiscal deficit and allocate some resources for achieving higher growth. More structural changes are needed in key inputs like land, labour, capital, and technology to ensure the continuance of output growth in future years. Hopefully, such changes will be gradually announced and implemented over the next few months outside the Budget announcements.

Has the Union Budget given enough confidence to the financial services sector?

While issues like inadequate deposit growth in the banking system have been raised in the last few months, the Union Budget has not addressed the issue directly. The increase in STT (Securities Transaction Tax) has increased the cost of speculation through derivatives. A rise in short-term capital gains could discourage short-term parking in money market funds and indirectly channelise resources towards the banking sector. All in all, the Budget has not been incrementally positive for the financial sector.

Is the big stress out for startups with the abolition of the Angel Tax?

Abolition of the Angel tax is a much-needed step as it eases the process of raising funds and reduces the ambiguities related to start-up funding.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.