Download Mr. Motilal Oswal – Expect FM to encourage first time equity

Mr. Motilal Oswal – Expect FM to encourage first time equity investors
The Modi-led government has taken several steps to stimulate growth since it assumed office. I
believe this trend will continue in this year’s budget with the announcement of measures aimed at
raising public spending and stimulating private investment. The finance minister will take further
steps to effectively channelise domestic savings into investments.
I expect greater outlays for infrastructure projects which will not only enhance the standard of the
country’s infrastructure but also provide large scale employment opportunities. Also, as private
investment has an imperative role to play in enhancing economic growth, the government is likely to
encourage private investment too. Financial inclusion has been a key focus area for the government
and I expect further progress in this area.
The government seems keen on greater flow of savings into equities. I expect the finance minister to
encourage equity investments, especially by first-time investors.
Past measures such as the Rajiv Gandhi Equity Savings Scheme have only met with limited success.
The finance minister could come up with innovative alternatives though tax incentives on
investments in equity-linked savings schemes are unlikely to be raised. Demands such as lowering of
securities transaction tax (STT) or removal of dividend distribution tax might also remain unmet.
The government has been dwelling on social issues such as upliftment of the rural sector, mitigation
of adverse weather effects on agriculture, creation of more employment opportunities and enriching
the lives of women, children, senior citizens and people below the poverty line.
I believe the finance minister’s budget speech will cover all these issues. While he is also likely to
touch upon burning economic issues such as the Goods and Services Tax (GST), I do not expect the
government to meet its deadline of April 1, 2016 to roll out GST.
While increased social and infrastructure spending could threaten the achievement of the
government’s fiscal deficit targets, a supportive factor is the continuously falling prices of global
commodities — particularly crude oil.
As far as the more popular expectations relating to personal taxation are concerned, I expect the
finance minister to disappoint. The widely anticipated enhancement of the minimum threshold for
Income Tax may not materialise and personal tax rates are likely to be left unchanged.
Strained tax receipts given the general economic slowdown, implementation of the seventh pay
commission, need to boost the rural economy after two years of subnormal monsoon and necessity of
infrastructure and social investments place increased demands on the expenditure side.
As a result, there is little scope for relaxations on the revenue side. I do not expect significant
concessions on the taxation front. In fact, there could be attempts to bolster tax revenues by
expanding the base and raising service tax rates.
Also, the government could consider alternatives such as public sector disinvestments and spectrum
sale to raise revenues.
I expect the thrust on ‘Make in India’ to continue. The encouragement to local manufacturing may,
however, be more by discouraging cheap imports and minimizing red tape rather than by providing
fiscal incentives.
Given the diverse expectations on the expenditure side and limited options to increase revenues, the
fiscal deficit targets may have to be revised upwards. While that would be worth doing in the interest
of wholesome growth and sustainable development, too much deviation from the fiscal consolidation
path could cost the economy dear. It will be a tight rope walk for the finance minister.
Wisely planned social and infrastructure investments, possibility of a good monsoon following two
consecutive years of subnormal rainfall and continuation of the benign global commodity price trend
augur well for India. I believe the consequent revival in economic activity will further bolster India’s
position as one of the fastest growing economies in the world.