New Delhi: Over the years, the Union Budget has become a non event, with most policy actions taken outside of it. The coalition nature of the last two central governments has also translated into big bang structural reforms being put on the backburner. As such we don’t expect much more than a mildly positive budget.
Ajay Bagga, CEO, Lotus India Mutual Fund
Overall the macro economic picture is buoyant, with 8.6% economic growth for the last three years, this years GDP growth forecast at 8.7% and a forecast of 10% economic growth in the 11th Plan.
The tax collections of the GOI have hit a lifetime high number with a nearly 40% plus growth . This has given the Finance Minister the leeway to look at giving individuals and corporates some tax relief .However, populist politics will probably lead to an increase in the cess on taxes to fund some of the measures.
It also gives him the opportunity to increase allocations to key thrust areas of agriculture, education, rural development, infrastructure, employment generation and urban renewal.
The main contributor to market stability is regulatory maturity and policy continuity and stability. We hope that the budget contributes to that with a stable, continuity oriented and practical budgetary statement, given all the constraints of coalition politics.
Key recommendations for the Mutual Fund Industry in the forthcoming budget are listed below:
• Sec 115(O), II5 R and 115 T should be amended to bring schemes of equity funds, International equity funds, Gold ETFs under the definition of Equity Mutual Fund
• Dividend Distribution Tax on corporates and equity and non-liquid Mutual Funds to be reduced to 10 % from 15% at present
• Dividend Distribution Tax on money market and Liquid Mutual Funds to be reduced to 10% from 25% at present
• Capital gains and STT levels to be held steady
• REITs to be treated as equity mutual funds in all aspects
• Overseas Investment limit for individuals and international funds to be lifted completely
• Sec 80C deduction level to be raised from Rs1 lakh to Rs3 lakh
• Dedicated Infrastructure Funds guidelines to be issued so that the huge infrastructure funding requirements can be met.
• Commodity ETFs to be introduced
• Self Regulated Organizations in Capital Markets to be formalized
• Short Selling and stock lending and borrowing guidelines to be formalized.
• Pension Reforms to be fast tracked.
• Fiscal and revenue deficits contained, FRBMA targets on track: Fiscal deficit at 3.3% and revenue at 1.5% of GDP is well within the targets and will help enhance sovereign ratings; more funds will be available for other borrowers; maintenance of overall fiscal prudence while maintaining enhanced expenditure on key sectors is a well balanced act that needs applause.
How much of this wishlist gets achieved waits to be seen, given our coalition based polity, expectations are muted.
We will at best get a mildly positive policy statement.
Ajay Bagga, CEO- Lotus India Mutual Fund