There is an air of inevitability about the Union Budget this time. The economic recovery is gaining momentum, food inflation is rising and a high fiscal deficit, pegged at 6.8% of the gross domestic product in the year ending 31 March, is a very critical pressure point.
Also Read Mint’s coverage on Budget 2010
There is a strong consensus on market expectations from the Budget. A rollback of the fiscal stimulus has already been priced in. Most analysts, fund managers and economists Mint spoke to stressed the need to contain the deficit, curb inflation and for prudent spending by the government. More clarifications on the new direct tax code and goods and services tax (GST) are expected. Infrastructure, education, health and social sector reforms remain the underlying themes of all budget discussions. Here is a bird’s-eye view of what the expectations are.
What experts are looking for
Tarun Kataria, managing director, head of corporate, investment banking and markets, India, HSBC
More than ever, there are several competing priorities for this Budget: urban renewal, infrastructure, rural job creation, education, healthcare and environment.
At the same time, government borrowing remains large, the budget deficit continues to expand and inflation remains an issue. The Budget should focus on tax reform and, indeed, tax cuts, expenditure management and accountability and a renewed focus on the disinvestment process.
As a result, I would expect to see a balanced focus on revenue-raising and expenditure cuts via select indirect tax rises and subsidy cuts. Failing this, we can expect to see long rates rise which neither the government nor Indian companies can afford.
Pradeep Dokania, head- global wealth management, DSP Merrill Lynch Ltd or Merrill Lynch & Co Inc.
There should be a clear road map for fiscal consolidation and gradual withdrawal of the fiscal stimulus. The Budget can be used for announcing a clear road map on divestment or FDI (foreign direct investment) reforms in insurance. More investment should be channelized towards infrastructure, both physical and social infrastructure such as education and healthcare. The unique identification project will help in inclusive growth; the focus on such social schemes should continue. For markets, status quo on capital gains would help as we need to raise a lot of money for growth. This becomes more important as the government itself has to divest a lot of stake. This has to be attractively priced, keeping in mind retail investors.
V. Vaidyanathan, managing director and chief executive, ICICI Prudential Life Insurance Co. Ltd
The Indian economy has been growing at a high pace over the past decade and that has helped bring millions out of poverty. Hence, the agenda should stay on growth. The fiscal deficit is a critical issue but that can be addressed in a phased manner. One way of addressing is not raising the excise duty to the pre-stimulus level, but fine-tuning subsidies and greater tax compliance through GST (goods and services tax). I expect that implementation of the direct tax code will give growth more momentum after 2011 because lower taxes will encourage flow of more capital. Also, benefits may be given for long-term savings, which is critical for long-term development.
Ramesh Damani, member, Bombay Stock Exchange
I don’t expect anything major on the capital gains or STT (securities transaction tax) front in the Budget. The proposed direct tax code and uniform GST (goods and services tax), which will be rolled out next year, will take care of that. There is also widespread anticipation on the rollback of the stimulus package and paring fiscal deficit. Though the market has been sluggish in the past few days, my sense is that the undertone is strong. It is just waiting for the big event to get over. I expect a good upside after the Budget.
Sanjay Sinha, chief executive, CEO, L&T Investment Management Ltd
The primary focus of the Budget would be on the fiscal deficit. Even if the government is able to slightly moderate its borrowing programme and keep the fiscal deficit as a percentage of GDP (gross domestic product) at 5.5%, it will send out a positive signal that the government will avoid profligacy. There is a need to encourage long-term finance for the infrastructure sector, but, in the absence of matching long-term assets and liabilities, there is a need for tax benefit for specific long-term debt instruments. The current limit of Rs1 lakh instruments covered by section 80C (of the Income-tax Act) needs to be revisited. As a step towards implementation of the direct tax code, this limit may be enhanced to Rs2-3 lakh from the next fiscal. Sanjay Sinha, chief executive, L&T Finance.
Also See How The Markets Reacted To Previous Budgets (Graphics)
Graphics by Ahmed Raza Khan / Mint