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Things Markets Want
From Union Budget 2015 5
Budget 2015 has been described as a ‘Make or Break’ one. There is much
anticipation about the first full budget of the Narendra Modi-led
government.
Budget 2015 – Make or Break!
Investors are hoping that Finance Minister Arun Jaitley will
announce significant policy changes to repair the economy and
kick-start growth.
The Indian economy is witnessing a nascent recovery with signs of the inflation
demon tamed. Hence, a strong budget could prove to be game-changer.
Market participants expect the government to deliver a budget,
which is pro-growth and committed to fiscal consolidation.
We present the likely WISH LIST of the
markets from Budget 2015-
#1: Fiscal consolidation
Fiscal consolidation tops the budget wish-list of Dalal Street. Fiscal
consolidation refers to strategies aimed at reducing high fiscal deficit.
India’s fiscal deficit—a situation where government’s expenditure is
more than its revenues—overshot the budget estimate of Rs.5.31 lakh
crore1 by December-end.
#1 - Fiscal consolidation
1 http://bit.ly/1AVArVj
The government has shown a strong commitment to fiscal
consolidation & has taken steps to generate revenues and curtail the
deficit to 4.1%2 of Gross Domestic Product (GDP). It aims to bring
down the deficit to 3%3 of GDP over the next two years.
Fiscal consolidation (Contd.)
2 http://bit.ly/1AVArVj 3 http://bit.ly/1vDFKYf
The recent sale of shares (divestment) in government-owned Coal
India Ltd was a step in this direction. However, this is not enough.
Markets expect the new government to spell out a long-term strategy to
tackle this problem. This may include reduction in non-plan expenditure
like subsidies. A high fiscal deficit poses an inflation risk, leads to slow
economic growth and affects the nation’s credit rating.
Fiscal consolidation (Contd.)
#2: GST Roadmap
Goods and Services Tax (GST) is one of the major reforms, which
markets are looking forward to. GST will replace central taxes like
excise duty and service tax and state levies such as VAT. All taxes
would be subsumed under GST.
#2 - GST Roadmap
GST will also help widen the tax base, improve tax compliance and
lower the freight costs for businesses. This much-needed radical reform
will provide a boost to the economy. Besides, GST will get rid of inter-
state taxes and reduce the complexities in the tax system.
The government has proposed to introduce GST in April 2016. Market
entities are expecting a clear road map on the implementation and
nation-wide rollout of the same in the upcoming budget.
GST Roadmap (Contd.)
#3: Fair Tax Regime
The Narendra Modi government has assured a fair and transparent tax
regime, for both the industry and common man. It has also promised to
simplify the complex tax structure. Recently, the government attempted
to boost investor confidence by not appealing against a Bombay High
Court ruling in favour of Vodafone. The IT department had accused a
Vodafone’s unit of under-pricing shares in a rights issue.
#3 - Fair Tax Regime
Introduction of GST and Direct Tax Code (DTC) will have a huge impact
as it will remove the anomalies in the current tax system. Analysts
believe that GST and DTC implementation will increase GDP by over
1%4. Moreover, it will help the government in raising higher revenues,
which is the need of hour.
Fair Tax Regime (Contd.)
4 http://bit.ly/16RrVtz
India Inc. is hoping that the government would come clean on
retrospective taxation and implement measures to provide a non-
ambiguous and conducive tax environment. This will go a long way to
strengthen business sentiment and restore investors’ faith in the India
growth story.
Fair tax regime (Contd.)
#4: Investment Boost
Markets hope for the government to announce big-bang reforms to
re-ignite investment and economic growth. The government’s ‘Make in
India’ campaign, which envisages making India a manufacturing hub, is
critical for job creation as well.
#4 - Investment Boost
The manufacturing sector's contribution to India's GDP has remained
largely stagnant at around 15%5 of GDP. The budget is expected to
announce tax sops for the manufacturing sector, thereby aiding its
‘Make in India’ campaign. Clarity in the Foreign Direct Investment (FDI)
policy is required to improve business confidence and stimulate
investments. Global investors desire a conducive business
environment, predictable tax regime and simplified regulations, in order
to invest in India.
Investment Boost (Contd.)
5 http://bit.ly/1CfwXZi
#5: Infrastructure Development
Good infrastructure is the backbone of a nation’s economic
development. The government is expected to increase budget
spending on roads, railways, rural & urban housing. Many projects are
languishing for a lack of coal or gas or power.
#5 - Infrastructure Development
Therefore, markets want the government to announce policies to
remove infrastructure bottlenecks, ease environmental norms, and
facilitate faster project approvals. The government recently passed
ordinances to conduct coal mine auctions. Reforms in the infrastructure
sector are necessary to improve the business climate.
Infrastructure Development (Contd.)
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