Prudence Prevails

Navneet Munot, ED & CIO, SBI Mutual Fund: The government has eventually sided with fiscal prudence and stuck to the broad glide path. The fiscal deficit target has only been slightly compromised  (FY18 and FY19 Fiscal deficit at 3.5 per cent and 3.3 respectively). While there has  been marginal tweaking of the long-term capital gains tax (@10 per cent subject to certain terms and conditions) and no tax benefits for the listed companies, most citizens – such as salaried class, senior citizens and small businesses - have benefitted from the budget.

Measures on the taxation and spending in key programs would keep the consumption story intact while push to infrastructure build up has continued. We also saw better targeting of social security which is pertinent to achieve an inclusive growth in the economy.

Fiscal deficit at 3.3 per cent was marginally higher than market expectation, but borrowing of Rs. 6.06 trillion was better than expected. The other aspects of budget such as increased recourse to PSE borrowing (RS. 1.7 trillion), reduced tax differential between bonds and equity (post LCTG), higher MSP for farmers (implying likelihood of higher inflation) and more income in hands of senior citizens (who invest in fixed income space)  carry both positive and negative news for bond markets. At present, it is too early to ascertain the eventual impact.