By Rajiv Anand, Axis Mutual Fund
Finance Minister P Chidambaram at a press conference. Photo: PTI
Another budget done. As usual some incremental tweaks. Some more allocations to social programmes, many of which don’t see light of the day. One can however see a big emphasis on women, including the creation of bank for women! This budget was meant to address two key issues – Get growth going which will create jobs and help manage inflation and secondly make financial instruments more attractive. Let us look at each one separately.
The reintroduction of Investment Allowance, a tax break for creating new assets is positive. Apart from that, there was little to spur growth. While the RGESS (Rajiv Gandhi Equity Savings Scheme) has been liberalised to some extent with tax benefits now available for three years, it is still too cumbersome for investors to get into this scheme and the tax benefit too small. One big issue is the lack of retail participation in equity markets or equity mutual funds. I did not see anything to enthuse domestic investors into the markets.
Corporates have been helped by keeping both direct and indirect taxes stable. There has however been an increase in surcharge on corporation tax. The surcharge will also apply to dividend distribution tax (both for corporates and mutual funds).
In a pre-election year the FM has managed to present a budget that has made the requisite allocations to please the electorate and at the same time kept the aam admi happy by not raising taxes. He has however decided to target the super rich by increasing taxation on their income as well as on luxury cars and yachts.It is disappointing that tax revenues are only being increased from 42,800 honest tax payers and no attempt is being made to increase the tax base itself.
Despite the fact tax rates have not been increased tax revenues are estimated to grow at 20%. This seems ambitious for an economy that is expected to grow at about 6% in FY14.
Overall, this is a budget that fits well for an economy that is growing at steady state rather than an economy that has troubling structural issues.
