Union Budget 2015

“Four Themes the Finance Minister must seriously consider”

As the Union Budget approaches, what should the Finance Minister focus on? A budget after 12 months of hope, euphoria and expectations has to be special. There are 4 key themes for the finance minister to focus on.

No to austerity, yes to growth…

That has to be the principal theme of the budget. Cutting costs and tightening the belt is ok. With strong foreign inflows and the deficit in control, the government must get a little more ambitious. For a $1.8 trillion economy, the key lies in boosting investments. Private investments are waiting for the state to take the initiative on major infrastructure projects. It is the right time for the FM to take that initiative.

Plus a demand-push effort too…

The big challenge in the budget will be how to boost demand. Oil has helped but not a big deal. The benefits of cheap oil have not been passed on to the customers. India’s exemption limits and tax brackets almost belong to a different era. They need to be updated to be in tune with the changing times. After 5 years of wealth erosion due to inflation, a more friendly tax regime will go a long way in boosting demand.

Get savings back on track…

The data on savings by Indian house-holds presents a pathetic picture. The average domestic savings rate is down from 36.8% in 2008 to 30.8% in 2013. Household allocation to financial assets is the lowest in recent memory.

That needs to be changed immediately. Greater incentives for financial investments, easier paperwork and more choice and variety of instruments could be the answer. With stringent KYC, an established regulator and electronic platforms, markets are much safer and sounder than ever before. The time to create more investable resources for the public is now. And the onus is entirely with the Finance Minister.

Finally, bid farewell to STT…

The finance minister has to seriously take a look at this point. STT generates about Rs.5500 crore for the government but the distortion it causes in the equity markets is huge. Firstly, the huge investor bias in favor of options trading is an outcome of STT. Secondly, STT has resulted in liquidity drying out in the market. Thirdly, if the Nifty OI on NSE is a fraction of the SGX Nifty, the real reason is the distortion caused by STT.

Introduced in 2004, STT has already completed 11 years. It is hard to calculate the damage done to markets but Mr. Jaitley can scrap STT as a first step. A sure signal that the FM is committed to creating fair, free, dynamic and transparent markets! ©


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