For New Year 2020 Global headline hovered around Coronavirus Epidemic &as of today, it has blown out more than one could guess. It threatens to rattle global economic growth. Last Friday was typically bad for US markets with the Dow & S&P500 Index recording one of their biggest single-day Fall, yesterday.
Indian Markets were opened on Saturday for Budget 2020, initially maintained strength, BUT hopes fizzled as FMs longest Ever Budget Speech did little to what markets have expected.
Some Big Expectations were:
1. Withdrawal of LTCG on Equities.
2. Some BIGG BANG Tax Cuts on Personal Tax Front, to put more money in the middle-class pocket so that they can spend more, which in turn will create demand.
Hopes fizzled out soon as FM Sitharaman started wrapping her speech. Investors didn’t find much of what they were on the hunt for & followed their global peers and tanked over 3%.
• Loosened fiscal deficit: Allowing it to slip from 3.3% to 3.8% in FY 2019-20. (Fiscal deficit is a shortfall in govt. income compared to govt. expenses. Its expressed as a % of GDP.)
• Extra Budgetary borrowing in this FY was 0.7% of GDP & in next FY it will be 0.8%. She was upfront and transparent in this.
• Focus lied on Capex & push for infrastructure, this will be funded through record Disinvestment of INR 2.1 lac Crore. LIC is the show stopper for this.- But looking at the current track as govt. managed to garner only INR 18000 Crore this year against a target of
1.05 lac Crore, next FY disinvestment targets looks like an uphill task.
• Decision to give 100% tax Exemption to Sovereign wealth funds will boost infra spending. (A sovereign wealth fund is a state-owned investment fund)
• Following Developed Countries govt. proposed to tax NRIs who pay lesser tax/ or don’t pay tax anywhere in the world.
• Personal Tax: An attempt has been made to give more disposable money in the hand of taxpayers by curtailing incentives to save. FM offered a PARALLEL system of Personal Income tax to choose from, which will have lower slabs and doesn’t restrict individuals to save to enjoy exemptions. This is on the similar lines of Taxation offer which was delivered to Corporates in Aug 2019 to forego exemptions & and enjoy lower taxes.
• Removal of Dividend Distribution Tax: Corporates will now not have obligation to pay 20.56% (approx.) tax on the distribution of Dividends, now onus will lie on individuals to pay tax on dividend income which will now be taxed as per their income slab. Will be treated as income from other sources. Savings for corporates as they can either pay more dividends or utilize extra capital for growth, good for individuals in low tax brackets, a setback for individuals on higher slabs.
• Scrapping all corners: Its been proposed that Employers’ contribution in (NPS+EPF+Superannuation), together is capped at INR 7.5 lacs annually. Anything over and above this will be taxed. Fine prints awaited.
• One of the key pieces missing was NBFC distress not addressed in the budget.
2019 was the year when govt. displayed the intention to walk that extra mile to kickstart the economy, but this sentiment was not reflected in the budget. Markets built high hopes & some irrational expectation which were dashed. Through this budget, FM made an attempt to be realistic, Simple and narrowed focus on Infrastructure & rural development. A massive push in infra will in turn result in money flowing in the allied & ancillary industry, & eventually flowing in the economy.
Govt. has taken path-breaking step to encourage sovereign wealth funds which currently yield zero to negative returns for their investor, if they find value here they will stick on for the long term, massively benefitting economy