Union Budget: As the finance minister Nirmala Sitharaman is a few hours away from announcing Budget 2020, expectations of an investor & taxpayer-friendly union budget continues to dominate the mind space of most Indians, especially the investing and trading community.
This is not expected to be a regular budget in a general sense. The government has been receiving flak from all corners, with flailing economic growth, a serious drop in consumption demand and with private investments taking a sharp dip.
All this, as the food inflation zooms around the 6-year high mark. At the same time, the finance minister has been doing her best, over the last 8 months, to put the economy back on track, with various reforms and sops spread across sectors.
The corporate tax cut in September 2019 did provide a breath of fresh air to the struggling stock market and its participants. But, on the whole, the stock market did have a tough time over the last 2 years.
Barring a handful of large-cap stocks boosting the index valuations, the broader market fell in a slump and eroded the wealth of the investors considerably. A day before the union budget in 2018, the market capitalisation of BSE listed stocks stood at Rs 153 lakh crores.
FULL COVERAGE:Union Budget 2020
The next day, our former finance minister Late Arun Jaitley, announced the introduction of Long-Term Capital Gains (LTCG) Tax, albeit with a grandfathering clause. However, investors were disheartened and then started the slide in the stock market (with many other factors contributing to the fall), resulting in a market cap loss of nearly Rs 15 lakh crore over the next 9 months.
Similarly, our current finance minister Nirmala Sitharaman introduced the increased cess on income tax for super-rich individuals, dubbed the super-rich tax. This move didn't go down well with most foreign and institutional investors.
The stock market went into a tizzy, which stabilised again, only after shelving the ill-thought out proposal, and in addition, providing the corporate tax cut to soften the flaring tempers.
Hence, it is imperative and foremost that the finance minister doesn't introduce any new policies or regulations which can result in a kneejerk reaction to the stock market.
The calendar year 2020 started off on a right note for the stock market, with the major indices like the Sensex & Nifty taking a back seat, as small and midcap companies continued to woo the investors with dirt-cheap valuations and expectancy of an uptick in business demand.
This trend can get a serious boost if the finance minister can provide the right support, either with new proposals or by eliminating certain unsavoury introductions of the past.
First on the list of most investors is the abolition of LTCG in its entirety or at least, making the LTCG tax exempt beyond a period of 2 years (or a similar shorter timeline).
While no credible data is available on the amount of tax collected by the government through this avenue, going by the stock market performance, it would not be a considerable chunk.
Hence, it bodes well for the FM, to take a stab at LTCG tax - either removing it permanently or by providing an exemption from it, beyond a certain time period.
Second on the list and a long-pending request would be a reduction in Securities Transaction Tax (STT). While the tax department does garner close to Rs. 10,000 crore per year, considering the current circumstances, a 25% to 50% reduction in STT would go a long way in cheering the stock market.
A cut in personal tax is being debated on a daily basis, across newspapers, tv channels and social media. However, it might not be possible for the government to give a large cut, but a change in tax slabs, with taxable income threshold starting beyond Rs 7.5 lakh or Rs 10 lakh mark would positively spur consumption, savings as well as investments.
This can enhance liquidity and boost credit growth, which has been unimpressive, based on the latest quarterly results of most banks.
For realising the goal of $5 trillion Indian economy by FY25 and execution of the Rs 100 lakh crore infrastructure spending plans over the next 5 years, the central government does need private investments and affordable capital in plentiful.
Putting money in the hands of retail investors will surely find its way back into banks and financial assets, which can be tapped for the growth of Indian economy.
After all, a 4.5% GDP growth is not the potential of India and the finance minister needs to internalise that fact and start implementing the right reforms, to realise the aspirations of the country and its citizens.
Hoping for a happy Union Budget 2020.
(The author is CEO and Co-Founder FYERS)