What should the government focus in its upcoming Budget?
The government on March 16, 2012 will table its Union Budget 2012-13 on the backdrop of global uncertainties and a weak domestic macroeconomic environment, policy paralysis, and political scenario post state polls in which ruling party has lost its hold and regional parties have got an upper hand.
Investors are hoping that the government would address the immediate need to convey its commitment to revive the growth outlook and the return to the path of fiscal consolidation by taking some stringent measures to implement GST which will boost GOI revenue without increasing tax rate and more important to control the leakage of public money in the areas of fuel, fertilizers and food (including NREGA).
In India, the Budget is perceived to be determined more by political considerations than purely economic ones. We expect the Union Budget 2012-13 to focus on:
telecom and roads will likely move outside of and independently of the budget
The Budget 2012-13 tax proposals could also contain a few painful ones from the point of view of the common man.
We expect an increase in indirect tax rates (excise, service tax).
We believe that service tax revenues will also receive a boost through increase in scope of coverage (negative list expected to be announced).
Besides, in our view, some of the politically sensitive proposals such as FDI in multi-brand retail and insurance may not receive much attention in this budget due to limited government maneuverability in the current political environment.
Overall, in our assessment, the Union Budget will likely be progressive with a clear focus on conveying the message of reigning in the fiscal situation as this is the only way in which the present government that is politically on the back-foot can redeem itself over the next 12-18 months before the run-up to the next general elections in 2014.
Any attempt by the Budget at conveying loud populist overtones is likely to lead to negative consequences for the market and the economy.
The author is Sr. Fund Manager & Co Head - Equities, Motilal Oswal Asset Management
