The
budget has laid greater emphasis on catalyzing GDP growth through overall push
in Infrastructure. Over Rs. 6 lakh crore of additional outlay on various
infrastructure projects through various sectors of the economy shall go a long
way in boosting overall demand in the economy. The government’s sharp focus on
improving rural infrastructure and income may seem populist to some but is
actually needed for broad basing economic growth and wealth distribution in the
economy.
On the fiscal math, 3.5% deficit for the current year
exceeds the target by 30bps which puts a question mark to the feasibility of
the next year’s target of 3.3%, which itself is marginally higher. However the
fiscal math may actually work out for FY19 as the economy is on the uptrend and
the increased push from government spending may actually realize 8% GDP growth.
If that were to happen, an additional 1.5% GDP growth coupled with tax buoyancy
of 1.5% shall generate the required funds for the increased outlay. That seems
to be the government’s calculation and it may actually work out. The Capital Markets are disappointed due to the
introduction of Long Term Capital Gains Tax at 10% and increase of Cess by 1%
on Corporate. However, in the final analysis if the corporate earnings grow at
a healthier rate resulting in higher capital gains then a marginal tax rate
should not hurt investors. I believe today’s reaction in stock markets will be
more than nullified in the medium term due to the improvement in the overall
corporate earnings outlook.
The government has done what was needed and essential
for the economy. There can never be a please all budget. Overall it is a growth
oriented and broad basing budget, the benefits of which will overshadow the
short term disappointments.
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