The Budget provides direct incentives for boosting savings and investment, including tax breaks on interest earned on savings deposit and for investments in equity market by first time investors. Though the details of the Rajiv Gandhi Equity Savings Scheme have not been presented, the scheme along with the proposed central KYC depository (to avoid multiplicity of registration and data upkeep) as a facilitator, can bring in large number of new retail investors to the capital market.
Electronic initial public offerings and electronic voting makes for an easier entry and more transparency. Opening up of the debt market for qualified foreign investors, is proposed for wider participation. There is a proposal to amend the Indian Stamp Act, which might be a step to unify the stamp duty and remove an impediment to the development of the secondary debt market. All these collectively have the potential to boost savings and capital market activities.
Proposed capitalisation of banks, including regional rural banks, will enable better credit flow to infrastructure sector, particularly power, road and aviation and the new external commercial borrowing (ECB) policy which permits refinancing of outstanding rupee debt and availing for working capital needs. The enhanced provisions for rural housing, ECBs for low cost affordable housing and a Credit Guarantee Trust Fund have been designed to ensure institutional credit flow to housing sector.
Fiscal deficit is proposed to be reduced to a more sustainable level of 5.1%, as against 5.9% estimated in the current year. The projection is pragmatic. The Budget endeavours to restrict subsidies to 2% of GDP in 2012-13. It may be noted that the government has decided that subsidies related to food and for administering the Food Security Act will be fully provided for. All other subsidies will be funded to the extent that they can be borne by the economy without any adverse implications. Subsidies are to be better targeted and directly transferred to the beneficiaries, which would be facilitated by the UID and Aadhaar exercise.
There is no explicit measure announced in the Budget, which could be of direct benefit to the mutual funds. The various measures proposed for the capital market are expected to benefit funds by boosting markets and improving valuation and investment inflows. The mutual funds would also benefit once pending procedural measures are taken for inflow of QFI funds in the Indian mutual funds and capital markets. There is also a case for rethinking the Rajiv Gandhi Equity Savings Scheme to extend stated benefits for investment in close ended equity schemes of mutual funds, instead of exposing the small uninitiated retail investors directly to the uncertainties of the market.
Proposed measures for fiscal consolidation, capital market, easier ECB regime, investment in power, road and aviation, as well as in other sectors with linkage effects are positive. These are expected to create favourable sentiments. The deficit and borrowing figures for fiscal 2013 are, however, higher than what the markets expected. Further, the market is perhaps not yet convinced of the possibility of restricting the budgeted deficit and borrowing figures, particularly in the background of uncertainty in Iran which could lead to a spike in crude prices. The yield on 10 year G sec closed at around 8.4 % on Friday.
There are fears of cost push inflation consequent upon excise duty hike. The challenge lies in streamlining implementation of the various proposals so as to get the expectations right, have a moderate inflation, and expect no nasty global surprises like unsustainable crude prices. The most significant resolution is to restrict subsidies and fund them to the extent they can be borne by the economy without any adverse implications. Are we moving fast to a new subsidy disbursement model?
No comments:
Post a Comment