The participants were presented with an enlightening exchange of opinions and detailed analysis of the implications of the Budget proposals for the common man, businesses as well as the entire economy.
Mumbai, 27th February: Speaking at the open discussion on “Budget and You” organised by Moneylife Foundation on Saturday, Ameet Patel, president of the Bombay Chartered Accountants Society said, “This Budget proves that the finance minister is willing to listen to investors and taxpayers on various issues. It is a substantial departure from the past Budgets. I believe that if the minister continues to take bold decisions, Indian taxpayers are in good hands. The proposals on individual income-tax slabs mean that savings are going to flow into consumer goods and investments.”
The discussion saw an interesting and enlightening exchange of opinions as the panellists for the discussion analysed and debated every aspect of the Budget and the National Pension Scheme (NPS). The participants and audience were presented with a detailed analysis of the implications of the Budget proposals for the common man, businesses as well as the entire economy.
Apart from Mr Patel, the panellists for the discussion included Saumil Trivedi, an expert at both technical and fundamental analysis; Rajesh Krishnamoorthy, managing director of iFAST Financial Private Ltd; and Gul Teckchandani, a much-sought-after speaker and commentator on markets.
Speaking about some of the other Budget decisions, Mr Patel said, “On the Direct Tax Code (DTC), there are many mistakes in the proposals which need to be addressed. Representations have been made to the ministry. Hopefully, things will be worked out soon. The Goods and Services Tax (GST) will make life simpler for businessmen and end-consumers.”
Mr Trivedi said, “We are at an interesting juncture in the stock markets. I believe that when it comes to the markets, people only depend on hindsight analysis, rather than thinking on their own. But the fact is, the only reliable truth available in the markets is the current price at which it is trading. People have to understand how prices move—whether they are showing strength or weakness. If you are a long-term investor, you have no business looking at the daily price points.” Summing up his presentation on market trends, Mr Trivedi said, “Be very cautious. Don’t be in a hurry to buy into the markets just because the Budget appears good.”
Mr Krishnamoorthy said, “The Budget is fantastic from the macro perspective; but certain micro issues like education and healthcare reforms need attention.
Also, it is disappointing that the government has not taken any tangible steps to tackle food inflation. However, the government’s move to allow deduction on investment in long-term infrastructure bonds is a welcome step. It is crucial that long-term savings in the country are channelized towards infrastructure.”
Mr Teckchandani spoke about investors’ attitudes to investments and how greed is a major factor in getting the timing of investment and exit all wrong. He also observed, “This Budget is definitely better than previous ones. It will leave more money in the hands of the common man. It will spur economic growth. But inflation still remains a cause for worry. As regards the stock market, I believe it is in a consolidation phase, irrespective of the Budget proposals. It will move in a narrow range from here on. In the next four years at least, I expect the market to double.”
About Moneylife Foundation:
Moneylife Foundation is registered as a not-for-profit trust and intends to engage in spreading financial literacy through workshops, round-table meetings and awareness campaigns; advocacy to crystallise policy and bring about regulatory changes to protect investor rights; and grievance redressal, counselling and research. The Foundation is offering free inaugural membership.
Pictures of the event
The Budget aims to bring India's GDP growth back to 9% levels while at the same time trying to reduce the fiscal deficit, the ratings agency said.
Ratings agency Standard & Poor's (S&P) said India's 2010-2011 Budget, announced on Friday, marks the country's first steps towards fiscal consolidation after two years of deteriorating finances. In a release, S&P said it believes that increased certainty that the government can restore its financial soundness over the next several years will be key to improving the sovereign credit ratings on India rated as 'BBB-" with negative outlook.
"For India, progress on fiscal consolidation is one of the most significant factors in our assessment of the sovereign credit rating. The Reserve Bank of India's handling of emerging inflationary pressure and the country's growth prospects over the next several years will also be important to stabilize the rating," said S&P's credit analyst Takahira Ogawa.
India's fiscal problems include large outstanding debt and a deficit that has widened over the past two years. The budget aims to bring India's growth level back to 9% growth and addresses wealth distribution issues for low-income groups, particularly in rural areas, at the same as trying to reduce fiscal deficits.
The union government plans to reduce the size of its fiscal deficits for FY11 to 5.5% from a revised estimate of 6.7% in FY10. On the revenue side, partly because of the planned introduction of the nation-wide goods and service tax (GST) in the near future, there is no significant change in tax. However, the budget does include increases in some indirect tax rates, which were reduced to boost domestic demand in previous budgets. On the expenditure front, the budget includes an increase in capital spending in areas such as infrastructure investments, and gradual increases in the social security sector.
"We believe the steps announced in today's budget speech could signal a turning point that reverses the recent deterioration in India's fiscal position," said Mr Ogawa adding that further steps to structurally improve India's fiscal position and flexibility would solidify this trend, and could contribute to a revision of India's sovereign outlook back to stable against the background of improving macroeconomic indicators.
Prior to the budget speech, the Indian government had changed its fertilizer policy to implement a nutrient-based pricing policy and will raise urea prices by 10% from April 2010. This should reduce the total size of fertilizer subsidies, which amounted to almost Rs1 trillion (Rs1 lakh crore), including the issue of fertilizer bonds, in fiscal 2008-2009, or 45% of total government subsidies. However, S&P said it believe further changes to the system of food and domestic fuel subsidies could improve the structure of expenditures and prevent future increases in the size of subsidies.
The ratings agency said in its view, India's fiscal consolidation will occur at a moderate pace. In a report tabled to parliament on 25 February 2009, the 13th Finance Commission recommended that the government take 'a calibrated exit strategy from the expansionary fiscal stance of 2008-2009 and 2009-2010'. The commission proposed a general government debt target of 68% of GDP in 2014-2015 from an estimated 79% in 2009-2010. It also proposed to bring down the general government fiscal deficit to 5.4% in fiscal 2014-2015 from an estimated 9.5% in fiscal 2009-2010. Based on this recommendation, the announced budget for 2010-2011 included a rolling target for the central government deficit, at 4.8% for 2011-2012 and 4.1% 2012-2013. In our view, one of the critical factors for India's fiscal consolidation will be the timing and the details regarding the implementation of the nation-wide GST system. A successful implementation of the GST could pave the way for a structural improvement in budget revenues.
In the same report, the commission indicated reforms of a new Fiscal Responsibility and Budget Management Act (FRBM), which will replace the current legislation that expires at the end of March 2010.
S&P said in its pinion, the new FRBM would be a positive step forward for India's fiscal consolidation if most of the key recommendations by the commission are adopted. These include the full disclosure of contingent liabilities and the inclusion of off-budget debt-raising activities such as government-issued oil bonds or fertilizer bonds. The commission also recommends some flexibility in the implementation of the FRBM in the event of an unforeseen economic shock. While in our view this is a realistic approach, there is the risk of slippage in the implementation of the new FRBM, if the requirements for such exceptional cases turn out to be overly lax in the final FRBM act.
NBFCs and the private sector can now enter the banking business if they meet RBI’s criteria. This is a major move for the financial sector
Private players and non-banking finance companies (NBFCs) have reason to cheer the Budget speech as the finance minister announced that the RBI is open to giving them banking licences if they meet the apex bank’s criteria.
“The RBI is considering new bank licences to promoters in the private sector and also NBFCs, if they meet the eligibility criteria of the RBI,” Pranab Mukherjee said while presenting the annual Budget for 2010-11 in the Lok Sabha.
NBFCs like Indiabulls, Reliance Capital, Religare, IL&FS, IDFC and Aditya Birla Financial Services are likely to apply for bank licences after the RBI norms are in place.
“The Aditya Birla Financial Services Group is already a large non-bank player occupying a significant position across all its verticals. We wholeheartedly welcome this initiative and will definitely apply for a licence. The Aditya Birla Group is confident that we will meet any eligibility criteria that might be set," said Ajay Srinivasan, chief executive (financial services), Aditya Birla Group.
“The finance minister has shared the government's desire to open up the banking sector to NBFCs and the private sector. This is a significant step towards further strengthening and broadening the banking sector and bringing it closer to the aam aadmi,” adds Mr Srinivasan
No new banks have been set up in the past eight years. In fact, no new Indian bank has been set up since the first flush of liberalisation in 1993 when half-a-dozen banking licences were given. This announcement clearly demonstrates the government’s plans for liberalisation of the financial sector.
India has 96 scheduled commercial banks (SCBs)—27 public sector banks 31 private banks and 38 foreign banks—having a combined network of over 53,000 branches. According to a report by ICRA, public sector banks hold over 75% of the total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5%, respectively.
Unlike banks, all NBFCs cannot accept demand deposits. Only NBFCs which hold a valid certificate of registration with authorisation to accept public deposits can do so. NBFCs that were earlier allowed to be converted into banks were Kotak Mahindra Finance and 20th Century Finance. While Kotak has diversified into various financial services, 20th Century became Centurion Bank; it was taken over by a bunch of private equity investors and eventually merged with HDFC Bank. Two of the other new licensees in the early 1990s—HDFC Bank and UTI Bank (renamed Axis Bank)—have become very successful private banks.
The announcement also cheered the markets. The Sensex gained 175.35 points while the Nifty gained 62.55 points. Religare (an NBFC) inched up 3% to Rs371 from Rs361, Indiabulls shed 1% to close at Rs98.90, and Aditya Birla Nuvo gained 4% to end at Rs842.