What is expected from Budget....????

Budget Day

As was expected this year FM will stand to present the Budget on 26th. For me the day of Budget has always been an interesting day in Deloitte. People sit in group analyzing and printers are busy taking out print defying “IDEA” advertisement of Abhishek Bachaan. I never watched Live Budget before joining Deloitte rather relied on the Economic Times for complete synopsis. But Capital market taught me the importance of every jiffy.

We at Deloitte sit in front of big screen making synopsis, as in few hours time presentation has to be prepared for media and different business forums. If you think few hours is very less time to analyze the impact of Budget, think of investors which takes merely fraction of seconds to pour & suck crores of rupee.

Takeaway: If you don’t trust me and not noticed earlier, then have one eye on the lip movement of FM and other eye on movement on sensex/nifty.

Emotions

Every industry expects sops, reduction of tax and more tax friendly environment. Wish lists are invited from every industry and they have their huge expectations. But expectations are not necessarily meant to be culminated as per one’s whims and desires.

Takeaway: That’s the reason even an average Budget is perceived as bad budget and causing market to tumble down.

Fertiliser subsidy

Fertiliser is a political sensitive sector and historically the price has been supported by huge subsidy. Last week the government took U-turn by deciding to de-control prices of fertilisers. The subsidy now would be nutrient based instead of per bag basis which to me seems more logical. It would encourage farmers to buy more nutrient based which would be available at subsidized rate. However, this step is a bold decision from the government side and is a step further towards the economic reform process.

Takeaway: Remember, if Government has guts to kick start reform by de-controlling fertilizer none of the sector would be spared in this Budget.

The Politics

The congress led UPA government has been formed almost on its own therefore it needs not to fear from its allies pulling down the government. Further, in the first year of tenure every government takes bold decisions as they’ve to face the election only after 4 years now and public has very short memory. There might be few elections lined up which I’m not fully aware apart from Bihar state election in october. However, my experience has been that state elections deals mostly with regional and local issues. Each state minister writes it’s own fate and national level issues has not got major impact.

Takeaway: The Government would not be afraid of taking bold decisions in this Budget.

Fiscal Deficit

Fiscal deficit is the gap between government expenditures and government income. The fiscal deficit has been hovering around 10% of GDP which certainly is high at the time of recession due to increased spending. In general, High fiscal deficit is not good for economy. PM’s Economic Advisory Council (EAC) is insisting to reduce the fiscal deficit at least by 1%. Therefore, it is likely that if Government takes this suggestion seriously it will lead to withdrawal of stimulus package.

Takeaway: Government needs money to rein Fiscal deficit and is expected to withdraw stimulus packages. However, withdrawal of stimulus package should be an evolutionary instead of revolutionary.

Quarterly results

India has already returned to 7%+ growth path, FM might think of gradually withdrawing stimulus package. Economy is showing signs recovery and economists are sanguine on above 7.5% GDP growth. Does it not mean that we should do away with few of the stimulus packages?

Government met huge resistance in Direct Tax Code (DTC) wherein it proposed minimum alternative tax (MAT) on 2% of gross assets. DTC might be modified to make it more acceptable. Government might also decide to increase indirect taxes in selected industries which were decreased as part of stimulus packages.

Takeaway: I expect, better the Q3 result shown by the Industries worst will the axe of FM will fall in budget in that industry. I expect government might increase few of the taxes as government need money.

In a nutshell, this week the market might see a good amount of correction in expectation of harsh budget. In case there is no correction in coming days then on the day of Budget I expect a bloodbath on Dalal street.
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Disclaimer: This article I’ve written based on the fact available at this spur of moment with me and based on my understanding and judgement. Facts change every moment so will the analysis. However, I won’t be able to update my analysis as frequently as the fact changes. Therefore readers are recommended to apply their judgement and seek professional advice before taking any decision based on the above article.
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