It was expected that there would be a strong focus in the Budget on rural and the agriculture sector.
Nominal income of the agriculture sector has hardly grown in the last three years. In our zest for stock markets and global business, we should not forget the farmers. They had brought this fact to the notice of our government in the Gujarat elections.
The proposed increase in Minimum Support Price (MSP) was much needed. Interestingly, higher income in the hands of farmers would boost consumption as well as demand for rural housing. There are several other initiatives for the rural sector such as the rural market, operation green, and iniatiatives in husbandry.
The Budget envisages a major jump in loans to self-help women groups and also spending on schemes like Ujwala, Saubhagya and Swachh mission for LPG connection, electricity and toilets. The Budget provision for ₹14.34 lakh crore for rural infrastructure, if spent well, will make a positive difference to our rural folk.
One must commend the government for thinking big and proposing to cover 50 crore people by introducing the world’s largest health protection scheme. The cost of this mega health plan will be shared by Centre and States and is more than covered by the 1% increase in health and education cess.
Effective tax rate rises
The cess further increases the effective tax rate for large corporates. Still, increase in threshold of turnover from ₹50 to ₹250 crore for lower corporate tax of 25% is a big boost for a large number of enterprises.
There is impressive increase in the outlay for roads, infrastructure, railways and education. This would give a further fillip to economic growth.
There is some relief for salaried tax payers who end up paying more taxes than self-employed people who get away understating their income. It has not been often that government has been able to meet ambitious disinvestment targets.
The Finance Minister has kept next year’s disinvestment target a bit lower than the realisation seen this year. It does provide the necessary cushion should there be a shortfall in some revenue heads or excesses in expenditure.
For the recent fall in stock market indices, I do not think only the long-term capital gains (LTCG) tax is to blame. A 10% LTCG tax by itself is not so bad. But we should not forget that when STT was introduced, that was in lieu of lower taxes on capital gains. That is the problem with our Indian tax system.
In principle, we are all okay that people making more money may be taxed more. But, we should not make it very complicated just to make it optically look better.
The government should have removed STT, as levying both the taxes at the same time will hit liquidity in the market. It’s a pity that STT remains and LTCG tax is back. It’s okay to tax LTCG but STT should be removed.
Investors who have bought shares in last one year, assuming they hold them to complete one year, will get the benefit of grandfathering. Therefore, smart provisions can actually reduce selling pressure.
The Budget does make serious attempts to meet the expectations of all constituencies. And despite LTCG, equity remains the best asset class in the medium- to long-term.
(The writer is Chairman, IIFL Group)
