8
also increased allowable provisions for banks from 7.5% to 8.5%.
MAT credit was proposed to be carried forward by up to a period
of 15 years, instead of 10 years at present. The government, in
its endeavour to benefit honest tax payers (who fall in the lower
bracket of the tax slab of between
R
0.25 mn –
R
0.50 mn), reduced
the tax rate from 10% to 5%. However, it brought in an additional
surcharge of 10% on those having taxable incomes of between
R
5–10 mn.
However, the equity markets were pleasantly
surprised as there was no change in the current short term
and long term capital gains provisions, which was widely
anticipated.
The budget also touched upon financial sector reforms, promotion
of digital economy and bringing transparency in electoral funding.
The proposed abolition of Foreign Investment Promotion
Board (FIPB) seemed to suggest that the government was
comfortable with foreign companies coming into the country
through automatic route.
This would help in the ease of doing
business. This also raised expectations of further relaxations
in FDI limits for both new and existing sectors. PSU banks’
capitalisations and increased lendings under the Mudra Yojna were
also key positives of the budget. The government has proposed
to ban all cash transactions above the
R
3,00,000 limit, which
is likely to drive more usage of digital and electronic channels
of transactions.
The demonetisation scheme, GST and the
proliferation of electronic/digital modes of transaction could
mean an increase in the tax base of the country and better
revenue generation for the government in the future.
Increase
in digital proliferation would especially aid the government’s JAM
(Jandhan-Aadhar-Mobile) initiative. The budget would also be
remembered for ushering in a new era of transparency in political
funding. The budget proposed capping of cash donations to
political parties (who enjoy tax exemption) down from
R
20,000 to
R
2,000. It also talked about a unique electoral bond which could be
purchased from notified banks. This, however, would be ‘bearer’
in nature, so as to keep the donor anonymous, while giving tax
benefits to both the donor and the donee.
Clearly, the focus of the budget was to maintain a tight
balance between fiscal consolidation and improving domestic
growth and job creation. While the focus was to nurture
and expand the existing schemes of the government which
have been doing well and have the potential to drive the
economic growth higher, the budget also brought in innovative
schemes in the political funding area and for driving digital
penetration. The emphasis of the budget for FY18 was more
on infrastructure, housing, job creation, alleviating rural stress
and ease of doing business in the country. Improved rural
economy and higher job creation would also form the base for
increased consumption demand and thus help the economic
growth cause. The strong push for infrastructure in the budget
is likely to drive capital formation in the country and could
also act as a catalyst for the revival of private sector capex.
In a world which is gradually seeing signs of change in the
status-quo, it is very important for India to be have strong
job creation ability and a robust domestic market, as these
could place it at an advantageous position vis-à-vis its export
dominated emerging economy peers. The budget gave enough
indications that the country continues to take steps towards
this direction.
During the period between December 26, 2016 to January 31,
2017, Indian equity markets rallied by ~10%, with domestic
institutions being net buyers to the tune of
R
100 bn and FPIs
being net sellers to the tune of ~
R
44 bn. This shows that Indian
markets have become resilient to the vagaries of international
flows and can deliver despite negative flows from foreigners.
We, of course, do expect FPI investments to revive in the
current year, given India’s robust macroeconomic indicators
(as is reflected in the budget document, the economic survey
and the outlook of multilateral agencies) which then have the
potential to take the markets to a higher trajectory.
The Indian equity market, therefore, still provides good
opportunity for investors to invest from a 2-3 year perspective,
in line with their risk profiles. We think that the investment
strategy should be 70% lump sum, with the remaining 30%
staggered over the next 2-3 months. The market continues to
provide good opportunity to invest with higher focus on large
cap stocks and selective allocations to mid cap and small cap
stocks. From an equity mutual fund perspective, investors
should look at large cap, flexi cap and balanced funds for fresh
investments.
Sectoral Impact
Automobiles and Auto Ancillaries
Budget Recommendations
• Total allocation of ~
R
1.87 trillion for rural, agricultural and
allied sectors.
• Total allocation of ~
R
587 bn for agricultural and allied sectors.
• Total outlay of ~
R
3.96 trillion for the infrastructure sector,
including transport.
• Total allocation for the transportation sector as a whole,
including rail, roads and shipping - provision of
R
2.41 trillion in
FY18.
• Allocation of
R
480 bn for Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA)
• Allocation for road transport and highways increased to
R
649 bn in FY18.
• MAT credit is allowed to be carried forward to up to 15 years,
from 10 years currently.
• Rate of taxation for individual assessees in the
R
0.25 mn
to
R
0.5 mn income bracket reduced to 5% from the present
rate of 10%.
View:
The budget has not made any specific announcement
for the automobile sector. However, there were many
T
he
U
nion
B
udget
2017-18
