Jaideep Hansraj
The Union Budget has tried to balance higher expenditure and still maintain a prudent fiscal deficit target of 3.5 per cent for FY21. The gross fiscal deficit is being pegged at 3.8 per cent for FY20, which is in line with our estimates. GDP growth estimates of 10 per cent for FY21 look realistic on the back of the lower base of FY20. This implies higher inflation in FY21. The average revenue growth from corporate tax, personal income tax and GST has been forecasted at 13 per cent. The lower Fiscal Deficit figure of FY21 could be partly due to the steep jump in the disinvestment target, pegged at Rs 2.1 trillion. The higher disinvestment target in turn is on the back of proceeds from LIC’s IPO. The budget focused on the three broad areas of agriculture, economic development and a caring society.
Additional cashflows
Removal of DDT will lead to greater cash flows in the hands of corporate India. The increase in turnover threshold for tax audit from Rs 1 crore to Rs 5 crore should provide relief to the MSME segment and help in improving the business sentiment of smaller businessmen. If individual tax payers opt for the new tax regime, then it will result in more cash in the hands of the individuals. This will result in higher spending or higher investments, both being good for the country. The removal of tax deductions and exemptions under the new optional tax structure dilutes the benefits of lower taxation. This removal of exemptions under the new tax option has been perceived negative for Insurance companies as individuals were investing in insurance products from tax saving perspective.
The FM has reiterated the focus on the infrastructure sector by providing Rs 22,000 crore to infrastructure finance companies, who in turn would leverage to create a financing pipeline of more than Rs 1 trillion. To attract foreign investment in infrastructure and other notified sectors, sovereign wealth funds will get 100 per cent exemption on interest, dividends and capital gains. There has been an emphasis on the PPP (public-private partnership) model towards building an aspirational India. The proposed amendments to the Companies Act for removing criminal action in case of tax disputes should help improve trust among Indian Inc. The increase in bank deposit insurance from Rs 1 lakh to Rs 5 lakh will help increase confidence among banking customers.
The extension of additional Rs.1.5 lakh Interest deduction for new purchase of affordable housing could help improve sales volume of real estate. We were expecting some more measures to come for the housing sector but that did not materialise. The FPI limit in corporate bonds has been increased from current 9 per cent of outstanding stock to 15 per cent of outstanding stock which is a good step in deepening the bond markets.
A Few sectors that are likely to get a push from the budget are gas, power, electronics & footwear. Market expectations were high on capital market reforms, which have not materialised and to that extent there could be some near-term disappointment. As earnings recover in the course of the next fiscal year, markets will also follow a similar path. Rural sector could recover with bumper Rabi output and higher food prices. Revival in rural consumption could provide the much-needed green shoots in the coming months.
(The writer is MD & CEO Kotak Securities)
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