The Budget day-end stock market indices are often a reflection of the state of the castles in the air built up by some segments of the business media in the run-up to the Budget, and unfortunately, acted upon by gullible high risk-taking market participants. It is due to this that stock market indices which went into a vertical fall on the day that the Union Budget was announced recouped their losses soon thereafter. Much has already been written and said on the macro-economic impact of the Budget announcements. Hence, I shall limit myself to turning the spotlight on a few of these proposals that have a bearing on the financial markets.

To start with, India’s individual taxpayers now have the option of not availing most of the available exemptions and traversing through six tax slabs instead of the older system with exemptions and lesser tax slabs. While there may be some gain to be had for those taxpayers at the lower end of the tax slabs by availing the new option, it also overturns the efforts of the last several Budgets to incentivise savings by offering tax breaks.  

Furthermore, the signalling of intent to move to a regime sans exemptions was bad news for the life insurance industry which drives a lot of its sales through this route. As far as the mutual fund industry is concerned, the damage is limited to the tax-saving Exchange Linked Savings Scheme (ELSS) product which had already lost a bit of its sheen post the imposition of the 10 per cent Long Term Capital Gains Tax on Equities, which was introduced a couple of years ago.

The scrapping of Dividend Distribution Tax and its replacement by taxation in the hands of investors amounted to a partial solution of a treble taxation problem, which now stands reduced to double taxation, albeit at a self-defeating higher tax rate for promoters who are unlikely to disburse hefty dividends hereon, defeating its very purpose of ostensibly benefitting minority shareholders. 

The TDS of 10 per cent levied on Dividends had an unwanted fall out too as a reading of the Income Tax section under which it was levied suggested that it could apply to Capital Gains too. A clarification that it would not, soon followed, allaying fears of market participants. The announcement of a hike in insurance from Rs1 lakh to Rs5 lakh per depositor in case of bank Fixed Deposits signals good intent, but depositors would do well to note that such a payout will happen only post liquidation, which has hitherto been the exception rather than a rule.   

The PSU Disinvestment target has been hiked three-fold from Rs65,000 crore for FY 2019-20 to Rs2,10,000 crore for FY 2020-21, largely on the back of the expectation of blockbuster proceeds from the divestment of stake in LIC. It is ambitious, though not an impossible target. If it happens, it could help the comatose Indian primary market too. But, it’s a big ‘if’ alright. 

Does all this significantly change the fortunes of the Indian market for the better or worse? Methinks not. Little wonder then that the Budget day losses were rapidly recouped at the bourses, where it is back to business as usual. Of course, volatility looks like it will continue to be the underlying theme in the equity market for a while more.

Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com