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Views On Union Budget

The Union budget aims to strengthen Indian growth by focusing on consumption and infrastructure development while gradually reducing the fiscal deficit. It accepts recommendations to lower the deficit to 5.5% of GDP in the current year and provides a roadmap to further reduce it in the coming years. Measures to increase personal tax exemptions and spending on key programs will support consumption, while infrastructure development will see some increased focus. Long-term reforms around GST, direct taxes, banking and subsidies are also expected to boost the economy over time. Overall the budget is seen as positive for both the stock and bond markets.

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59 views1 page

Views On Union Budget

The Union budget aims to strengthen Indian growth by focusing on consumption and infrastructure development while gradually reducing the fiscal deficit. It accepts recommendations to lower the deficit to 5.5% of GDP in the current year and provides a roadmap to further reduce it in the coming years. Measures to increase personal tax exemptions and spending on key programs will support consumption, while infrastructure development will see some increased focus. Long-term reforms around GST, direct taxes, banking and subsidies are also expected to boost the economy over time. Overall the budget is seen as positive for both the stock and bond markets.

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api-25886395
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© Attribution Non-Commercial (BY-NC)
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Views on Union Budget

The Union budget is aimed at strengthening the pillars of Indian growth story which are
consumption and infrastructure build up. The government stimulus which helped the economy
in weathering the global downturn has partially been rolled back while paving the way towards
fiscal consolidation. Accepting the recommendations of Thirteenth Finance commission and
reduction in the fiscal deficit will go a long way in enhancing macro-economic stability. Fiscal
deficit at 5.5% of GDP and net market borrowing for the next year are in line with market
expectations and will sooth fears of crowding out and sharp spike in interest rates. The budget
also provided a roadmap towards fiscal consolidation with fiscal deficit forecast to come in
lower at 4.8% in FY12 and 4.10% in FY13. Measures on the personal taxation and increased
spending on key government programmes would keep the consumption story intact while some
visible moves have been made to ensure increase in the pace of infrastructural build up. The
long ranging reforms like roll out of GST, Direct tax code, further opening up of banking sector,
reforms on the subsidy front will assist in removing structural rigidities and increase the growth
potential of Indian economy.

Increase in personal tax slabs would result in higher disposable income in the hands of the
common man, providing another stimulus for consumption. For a person having taxable income
in excess of Rs 800,000; tax savings would be Rs 51,000. Effective tax rate for corporates has
been reduced due to reduction in surcharge, but MAT rate has been increased from 15% to 18%.
Increase in MAT could impact several corporates in sectors like IT and infrastructure. service tax
rate has been maintained at 10% while its scope has further been widened which would
negatively impact some of the sectors (aviation / airport services, real estate, etc). Partial hike of
2% in excise duty is better than market expectations. While there are no big bang incentives for
the industry, there are pockets of thrust areas in Research and development, renewable energy,
health and education. Though no major surprise, budget should be taken positively by both
equity and the bond market. There could be a brief spike in bond yields next quarter as
government begins the borrowing programme but investors should use it an opportunity to
build duration. The equity market would now focus on cues from global markets, incremental
economic data and corporate earnings.

Navneet Munot
Chief Investment Officer
SBI Funds Management Pvt. Ltd.

Mutual Fund investments are subject to market risks.


Please read the scheme information document carefully before investing.

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