Budget: Time for action is NOW! - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Budget: Time for action is NOW!

Feb 12, 2003

Is Budget that big an event to look forward to and build expectations? History, atleast in the last five years, suggests that expectations tend to head north ahead of the budget, which translates into a pre-budget rally. Four out of five years in the past, stock markets have rallied. The year 2001-02 was an exception in the sense that the country was recovering from the Gujarat earthquake that rocked sentiment on January 26th, 2001. Given this backdrop, should expectations soar this time around too? Before delving into that, consider key budget measures in the last three years…

Budget 2000-01 Budget 2001-02 Budget 2002-03

    Tax policy
  • 10% surcharge on corporate tax.

  • The upper ceiling of the sum insured under the mediclaim policy is also to be increased to Rs 0.5 m


    Stock market related

  • All income from UTI and other mutual funds to be fully exempt from income tax.

  • Cap on long-term capital gains for resident Indians on transfer of shares at 10%.

  • Law to amend stock options as perquisite at the time of exercise of option by the employee and capital gains at sale of the same.

    Housing sops
  • Interest on housing loan exemption raised to Rs 75,000 from Rs 30,000.


    Other fundamental changes
  • Special excise duty restructuring into 3 slabs.

  • Appointment of debt recovery tribunal to reduce NPAs.

  • Implementation of technology upgradation fund for textile units.

  • Lending to food and agro-processing to be recognised as priority sector lending.

  • Additional duty on high-speed diesel.

  • Rs 100 bn to be raised from disinvestment.

    Conclusion:
  • Verdict: Positive for stock markets and housing, but short on vision.

  • Stock market reaction: Down 8.2% in one month.

  • Key reason for the reaction: Tech meltdown.

    Tax policy
  • Decrease in surcharge on income tax from 17% to 2%. TDS on interest on bank deposits lowered to Rs 2,500 per annum from Rs 10,000 per annum.

  • Interest income deduction under 80L reduced to Rs 9,000.

  • Deduction or rebate on insurance premium extended to all insurance companies.

    Stock market related
  • Increase in FII investment limit to 49%.

  • Dividend tax reduced to 10% from 20%.

  • Indian companies can invest upto US$ 50 m abroad through the automatic approval route. ADRs/GDRs provided two-way fungibility.


    Housing sops
  • Significant increase in tax incentives for the housing sector. Interest waiver raised to Rs 150,000 per annum.

    Other fundamental changes
  • Special excise duty slab reduced to one slab.

  • A 150 basis points reduction in administered small savings rate.

  • Implementation of committee recommendations to control burgeoning expenses. Govt. plans to reduce headcount by 2% each year.

  • On the labour reforms front, companies employing upto 1,000 employees would have greater freedom in layoff and shutdown.

    Conclusion:
  • Verdict: One of the best budgets under the ruling government.

  • Stock market reaction: Down 15.1% in one month.

  • Key reason for the reaction: Stock market scam.

    Tax policy
  • Section 88 benefits for individuals earning above Rs 500,000 removed. For person's earnings between Rs 150,000-Rs 500,000, it is 10% (earlier 20%). A 5% security surcharge imposed.

    Stock market related

  • Dividend tax imposed on the hands of the recipients, at individual's tax bracket. Dividend tax applicable for mutual funds also.

  • Automatic approval limit raised to US$ 100 m.


    Housing sops

  • Incentives maintained


    Other fundamental changes

  • Dismantling of the administered price mechanism for the oil sector.

  • Administered interest rates reduced by 50 basis points. Rates will be benchmarked against government securities.

  • Focus on rural infrastructure development (including roads and rural electrification)

  • Fiscal Responsibility Bill to be introduced.

  • Peak customs duty reduced from 40% to 35%.

    Conclusion:
  • Verdict: Nothing extraordinary. Salaried class affected.

  • Stock market reaction: Down 2.6% in one month

  • Key reason for the reaction: Gujarat riots.

So what do all these measures mean for India? While the Finance Ministry has to be commended for simplifying the complex excise and customs duty structure that invariably lead to tax evasion, not much has been done to tighten its own belt. Fiscal Responsibility Bill that was aimed at controlling government expenditure has been diluted to a large extent. Inconsistency, on the other hand, has been the hallmark. The most inconsistent budget measures in the past have been dividend tax and surcharge on income tax, as apparent from the table above. Instead of expanding the taxpayer base, the focus has been on how to get more out of the existing taxpayers. Efforts to improve tax collections as a percentage of GDP have met with little success.

What is funny is that while most government functionaries agree that there is a need to speed up reforms and tightening of belt, the FM’s office so far has been unable to show the will to take on hard measures, be it bringing big farmers under the tax net, or knocking off subsidies. While there is no doubt that we have come a long way since days when talking of labour reforms was taboo, half baked measures continue to mar India’s prospects vis-à-vis’ the world.

So as always, we look to the North Block to bite the bullet. But then, one eye of Mr. Singh is likely to be on the coming elections. Given this backdrop, there is a feeling that politics may score over the economy. But for how long?

Equitymaster requests your view! Post a comment on "Budget: Time for action is NOW!". Click here!

  

More Views on News

Ride the Indian Real Estate Revival with this 'Different' Smallcap Stock (Profit Hunter)

Mar 23, 2021

Affordability in the housing segment has never been so good in last one and a half decade. Here's how you could make the most of it...

My Latest Stock Recommendation (Fast Profits Daily)

Oct 9, 2020

How I picked an exciting stock using trends from both the commodity and equity markets.

Data is the New Oil but It's Also the New Sugar. Here's How to Fight it (Profit Hunter)

Jun 1, 2020

Is too much data hurting your quest for market beating returns?

Quantum Mutual Fund: Hum woh nahi hain (The Honest Truth)

Apr 29, 2020

Ajit Dayal on how the mutual fund industry robs you of your wealth.

This One Trigger Could Turnaround Yes Bank's Stock Price (The 5 Minute Wrapup)

Oct 16, 2019

If Yes Bank manages to do this, it could be the start of a much-needed turnaround for the bank.

More Views on News

Most Popular

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

Top 3 Nifty ETFs to Buy Now (Fast Profits Daily)

Apr 20, 2021

In this video I tell you the three Nifty ETFs I think are the best.

A Stock with 700% Return Potential Comes with Additional Payoffs (Profit Hunter)

Apr 15, 2021

Narayana Murthy was one of the first unicorn founders to get the backing of this entity...

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story (Profit Hunter)

Apr 16, 2021

There is no stopping this 11-bagger stock from significant upside.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

MARKET STATS