FM needs to give more incentives for investing in mutual funds.
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FM needs to give more incentives for investing in mutual funds.

The government could increase expenditure on projects that have a lower execution time.

  • February 16, 2016  
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NIMESH SHAH, MD and CEO, ICICI Prudential AMC

The second full-year Budget of this government will ride high on hopes that the Indian economy will see further reforms on taxation, development and economic growth.

Against the backdrop of lower oil prices, downturn in China and falling commodity prices, the Indian economy is currently among the few bright spots in a slowing global economy.

Budget 2016, therefore, will be a great opportunity to cement these foundations of growth. India's financial savings sector has been experiencing a change from physical to financial assets over the past few years.

The Budget could further this trend as the economy needs large inexpensive capital for investments.

CONCESSIONS FOR MF INVESTORS

As mutual funds funnel capital from the masses, a little fillip to this segment is in order. The government could consider an exclusive exemption limit for equity-linked savings schemes, or ELSS, to boost long term equity investments. This could be over and above the Section 80C limits.

In addition to ELSS funds, equity-oriented hybrid funds that help investors in asset allocation could be brought under this separate exemption limit. Also, interest rates in the country are among the highest in the world. Steps to reduce them could boost investments. The government must, therefore, boost financial savings to reduce interest rates.

ENERGISE BANKS

To boost fund fl ow to the economy, the credit system has to be robust. This means that the health of the banking system has to be restored. The government could increase the outlay for bank recapitalization and take steps to energize the banking system.

LOOSEN FISCAL POLICY

The slowdown in the global economy is affecting India's growth. Problems in commodity exporting countries and credit bubble in countries such as China are affecting global markets.

The Indian economy requires higher government expenditure to counter the slowdown. This may result in higher fiscal deficit this year, but it's a path that the government should not hesitate to walk on. As Indian companies are not willing to undertake big capital expenditures due to a slowing economy, the mantle now rests with the government to keep the domestic engines running.

The government should make all efforts to reduce revenue deficit through better tax implementation, increase fiscal deficit and boost non plan expenditure.

SPUR PROJECTS

The government could increase expenditure on projects that have a lower execution time. This could result in faster recovery of the economy.

Therefore, small bridges, rural roads, public transportation and health care should be the priority areas.

TAXATION

The government could move in a new direction on goods and services tax or GST. It could streamline the tax structure in such a way as to get the benefit of a GST-like system. This could exclude state sales tax.

EMPLOYMENT GENERATION

In the past 25 years, the government has incentivized capital expenditure to boost the economy. It can now also look at stimulating employment generation through some innovative policies aimed at shoring up production.

PUSH TO RURAL ECONOMY

After two consecutive monsoon failures, the rural economy could be revitalized with incentives like building of new roads, irrigation and infrastructure projects, and thereby improving the well-being of the rural population.

Written by Nimesh Shah, MD and CEO, ICICI Prudential AMC