Union Budget 2016

Four themes that could drive the Union Budget exercise…

As the market prepares for another Union Budget on February 29th, the question is what can the economy and the markets expect? This will be Jaitley’s third consecutive budget and hence expectations will be high. While specifics may be hard to predict, we believe that there will be four broad themes that could form the theme of the Budget.

Budget will be largely populist…

The current government has already completed 21 months in power. With its losses in Delhi and Bihar and many more critical state elections coming up, the government will choose to play its populist card. You can surely expect generous doles of food subsidies and farm subsidies. Don’t be surprised if there are loan write-offs to farmers, on the lines of what the UPA government did in 2009. The government will try to focus on schemes that will ensure immediate transmission of benefits. This could be an important theme of the Budget announcement this year.

Look for a strong infra focus…

This is the one area which gives a lot of hope. One can expect something similar to what the Vajpayee government attempted in its 2003 Union budget. The Rs.75,000 crore outlay for the Golden Quadrilateral was largely instrumental in propelling growth in India. With India needing almost $200 billion each year, the time has come for the big leap in infrastructure. This Union Budget could see the thrust coming hard.

FPIs will be surely placated…

The last one year has seen negative flows due to a mix of global and local factors. Open issues like the tax treatment of Vodafone and Cairn transactions as well as the retrospective tax issue has soured sentiment. The budget will make a serious attempt to clarify that there will be no issue of retrospective taxation on FPIs. That will go a long way in boosting sentiment. More so, at a time when FPIs are largely negative on emerging markets. A friendly tax regime will help India get the flow benefits of its 7.2% growth and the government will definitely focus on placating FPIs in this budget.

Forget about GST for now…

For all the GST fanatics, they will have to forget about it for the time being. GST has very important state-level ramifications and the government will be loath to touching upon this delicate topic at this point of time. The Budget may likely put off GST for a future date. With assembly elections coming up in important states like West Bengal, Tamil Nadu, Uttar Pradesh and Punjab, the government will choose to play it safe. This is likely to be one area where political reality will get the better of economic reforms. For GST, we will have to wait for a later date! ©

For more news and updates on Union Budget 2016, visit Religare Online.

One response

  1. A good and logical preview of the forthcoming budget . Two more important expectations from a large number of retail investors remain to be addressed . 1) Abolition of the double taxation of dividend paid out by the companies.2)Removal of Capital Gains tax on long and short term basis but taxing the gains at the end of each financial year at a flat rate of 5% or so, without adding the gains to the main source of income of the salaried and pensioner class

    Like

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