That was my real reaction to the 2008 Union Budget as all the waiting, in the end, didn’t seem worth it.
The Budget was disappointing on many counts, though it has some good positive points worth mentioning.
From the macro economic point of view, the biggest disappointment is the unproductive package of Rs60,000 crore given to indebted small farmers. Politically, this may be a great step as the elections are drawing closer and the finance minister does not want to make any mistake.
However, economically, I think there could have been a better utilization of this huge amount, which would have been a greater boost to the agriculture as a whole and a big step towards reforming Indian agriculture. Rewarding defaulters alone has now sent a wrong wrong message to farmers at large. There is no doubt that the farm sector needs not just reforms but another revolution but, the loan waiver will lead to anarchy and actually help only a small number of farmers in need. I see this as a great opportunity lost. Had this money gone into infrastructure development of agriculture, it would have helped the nation--as well as farmers--in a far more significant way, as it would have benefited all farmers.
As a tax payer, I may feel happy that the Finance Minister has generously rewarded tax payers by liberalizing tax slabs but, as an informed tax payer, I am not too pleased about this either as tax payers money is ending up going into unproductive uses.
This budget also looked a bit directionless from a macro economic point of view as it had not much on infrastructure and monetary measures, so the overall feeling of positive reforms isn’t coming out from this budget. While subsidies and labour reforms were unlikely to be tackled in this budget due to political pressures ahead of the elections, still more expected from this budget and this finance minister.
From a wider angle on taxation, the Finance Minister has tried to do good balancing act by lowering excise duties but, keeping the corporate taxes unchanged. There was a legitimate demand of the corporate sector to address the issues of surchage, which are essentially imposed for the short term and for specific purposes. However, this issue got completely ignored. But, by lowering down the excise duties, reducing the Cenvat, cutting central sales tax to 2% and moderating tax slabs on individual incomes, the finance minister has tried to address the issues related to inflation.
From industry’s point of view, steel, aluminum, pharmaceuticals, consumer products, hospitals and healthcare, information technology, auto, paper, and the power equipment sector stand to gain in the medium term from the budgetary proposals. Other industries that are not directly covered by the budgetary proposals also stand to gain as the finance minister has tried to cut the cost on one hand and, at the same time, left more money in the hands of people to spend, which is a very good strategy to combat current economic pressures such as rising inflation and a general slow down.
From the stock markets point of view, I think there was a bit of overreaction over the increase in short term capital gains tax and change in the treatment of securities transaction tax. As long as the economy is growing and the markets are booming, this should not be a big issue and down the line, investors will adjust themselves to these budgetary proposals. Strictly speaking from market’s point of view, these are essentially short-term dampeners and do not have any major long-term implications over the health and the trend of the stock markets. Assuming international factors remain constant, I think the markets would start reacting more rationally and would soon focus on values rather than issues such as short-term capital gains tax hike.
The Indian markets should start taking into consideration the positive side of the budget and start moving up just because there are no more negatives expected and sooner than later the positive side of the budget will also get factored in the market sentiments.
--Vipul Verma is a Delhi-based investment advisor whose weekly stock market column runs every Monday in Mint. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org