In a freewheeling conversation, Rajat Jain, chief investment officer, Principal PnB Asset Management Company, shares budget insights
What is your take on the Union Budget 2015-16?
The budget is not a big bang budget, which means it had no obvious big ideas. Having said that, the budget makes up for that in being realistic, practical, not distracting its efforts in launching many new schemes and aiming to bring some predictability to the tax regime. The government has also been consistent in being focused on reviving the economy through a push to infrastructure sectors, both through the higher capital spend proposed in the railway budget and the fillip to the sector given here as well. The big positive is that there are no obvious negatives in the budget, so there are no signs of commission which itself is a change from the past.
What are the growth projections we are looking at?
The gross tax revenues are projected to grow at about 16%, with service tax, excise duty and income tax on individuals doing the heavy lifting. Assuming a nominal GDP growth rate of about 11%, these look achievable. Clearly, growth outlook in manufacturing would be the key in achieving the growth in excise duty projected. The markets have raised the issue of the projected fiscal deficit at 3.9% as against an expectation of 3.6% of GDP as part of the medium-term fiscal policy. That is not too much of an issue if the incremental money is spent on capital assets which will generate growth over the long-term.
What are the key tax benefits that have been extended?
On taxes, the government has tried to give some stability on corporate side saying that the rate would move to 25% while removing exemptions. This, in addition to bringing in predictability, should reduce hassles for both the tax payer and the department. Other positive moves on the tax are a proposal to bring in new laws to curb black money, and a restatement of the deadline for implementing the Goods and Services Tax (GST) by April 2016, though that is dependent on support from the states. With regard to mutual funds, making merger of mutual fund schemes tax neutral will lead to more efficiency at AMCs as similar funds can now be merged.
The gross tax revenues are projected to grow at about 16%, with service tax, excise duty and income tax on individuals doing the heavy lifting. Assuming a nominal GDP growth rate of about 11%, these look achievable.
Other positives are extending the SARFAESI (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ) to NBCSs beyond a certain size (this meets a long-pending demand) and the proposal to have a bankruptcy code.
While the budget is not the only time the government can announce policies, some disappointments relate to no progress on urea pricing which has been a cause of misuse of urea impacting soil fertility. Also, the provision made for capitalising PSU banks seems low given their need for capital.
On social spending, the government’s focus is more on efficient delivery of services to the citizen so even if the spend on social sector schemes is constant, if the leakage is brought down even by a small measure it would probably mean more funds in the hands of the beneficiary.