Advertisement
X

Union Budget 2020: What The Sentiment Holds

With the Union Budget knocking at the door, the air is filled with a lot of anticipation. The quest to stabilise this challenge will take place in the next few days. Slipping into low revenues, for example, has already blocked the government’s earlier optimism to touch a decent GDP and to become a $5 trillion economy by the end of 2024. Therefore, we can expect this budget to be more decisive for the economy. 

Advertisement

Galloping inflation is supported by RBI’s decision to cut down on Cash Reserve Ratio (CRR), by 25 bps. Despite the steps taken by the government, economists believe that in order to control the upcoming wave, it is important to unleash fiscal actions. Sticking to this need for the government to spend aggressively in the economy, we expect the budgetary measures to increase consumption. Otherwise, it will be difficult to arrest the fall of GDP. We can also expect personal income tax relief, in order to boost the savings. Though the overall sentiment of the people of India is very much negative in nature, the above-mentioned initiatives by the government through budget exercise is imperative.

We are also anticipating a reduction in Dividend Distribution Tax (DDT), which is favorable for the market. There are also expectations for a change in the long-term capital gains tax, which was introduced in the 2018 budget. This will help the equity and mutual fund investor to increase their zone of profit. 

Advertisement

Talks are going on regarding the government’s decision about the Security Transaction Tax (STT). It was introduced in Union Budget 2004 when there were tax evasions on capital gains. The tax is mainly imposed on brokers, who after collecting it from clients, pass it on to the government. When buying and selling deals with equity funds one is liable to pay the STT. When we go further into categorisation, for equity share, both the buyer and seller have to contribute to STT. For equity-oriented mutual funds, the transactions of STT fall on the sell-side. It is a long-standing demand from the broking industry. 

There is also a lot of anticipation for a sizable budgetary allocation for infrastructural development. Finance Minister, Nirmala Sitharaman announced the plan to invest Rs 102 lakh crore over five years for social and infrastructural growth. Presenting the National Infrastructure Pipeline (NIP) focuses on the high growth of the infrastructure sector through an increased capex. A strong structural change is a mandate to improve investment demand and direct the economy towards sustainable growth. This scenario is inevitable as per the Keynesian prescription, where it is mentioned that consumer demand is the main driving force to boost an economy, which comes with the government spending on infrastructure. 

Advertisement

Show comments