Com­mon Man, Mar­ket Punter Both Can Cheer

To list well-performing PSUs will raise re­sources for the govt EX­PERT TAKE

The Economic Times - - Front Page -

EX­PERT TAKE

SMALL AND Medium En­ter­prises (SMEs) and mid­dle­class in­di­vid­u­als form the core of the econ­omy. There are tax breaks for SMEs and also con­ces­sions for mid­dle-class peo­ple who are tax pay­ers in the lower and mid­dle slabs of in­come. Our grow­ing work­ing class, farm­ers and ur­ban work­ers need hous­ing, jobs and bet­ter in­fra­struc­ture.

There is a planned in­crease in cap­i­tal ex­pen­di­ture by 25%, which will be a huge boost for eco­nomic growth and em­ploy­ment. Spend­ing on cap­i­tal rather than rev­enue ex­pen­di­ture cre­ates or ex­pands ca­pac­ity to sus­tain long-term growth as well. The Bud­get has ma­jor in­cen­tives for af­ford­able hous­ing, in­clud­ing in­fra­struc­ture sta­tus to the sec­tor, and in­crease in area thresh­old for hous­ing units. This will spur in­vest­m1ent in the sec­tor. If we go by the ex­pe­ri­ence of the US and China, there has been a strong cor­re­la­tion be­tween the hous­ing sect o r a n d e c o n o mi c g r o wt h . In­vest­ment in hous­ing spurs em­ploy­ment and has a cas­cad­ing im­pact on de­mand for in­put sec­tors.

Stock mar­ket in­vestors were con­cerned. They are now pleas­antly sur­prised. The bulls have sev­eral rea­sons to re­joice. There is no change in tax struc­ture on cap­i­tal gains, or gift tax, or es­tate duty. For in­sti­tu­tional in­vestors, fis­cal pru­dence and con­tain­ing the deficit at 3.2% are pos­i­tives.

The gov­ern­ment’s plan to list a few well-performing PSUs such as IRCTC, IRFC and IRCON will raise re­sources for the gov­ern­ment and of­fer good qual­ity se­cu­ri­ties to new money in the mar­ket. Lower gov­ern­ment bor­row­ings at ₹ 3.5 lakh crore will drive in­ter­est rates down, a rea­son for cor­po­rate sec­tor to be happy and in­di­vid­u­als to al­lo­cate more as­sets to eq­ui­ties. For­eign in­vestors are re­lieved with1 the an­nul­ment of the con­tro­ver­sial CBDT cir­cu­lar.

The planned dis­man­tling of FIPB is an­other big re­form step to sup­port grow­ing for­eign direct in­vest­ment in In­dia. While the Bud­get has a few pos­i­tives and no neg­a­tives for the mar­ket, the liq­uid­ity sit­u­a­tion is ex­tremely be­nign. Do­mes­tic mu­tual funds have wit­nessed un­prece­dented flow of money, a large part into eq­ui­ties, post-de­mon­eti­sa­tion, a trend that is likely to con­tinue with lower bank de­posit rates and an im­prov­ing out­look for cor­po­rate earn­ings. Also, the US dollar in­dex is show­ing weak­ness, caus­ing in­creased flow of funds to emerg­ing mar­kets. FPIs have al­ready turned net buy­ers in In­dia.

A rare Bud­get that de­lights both com­mon man and mar­ket punter.

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