Budget 2020: How govt measures to deepen financial inclusion can boost stock markets

Published: January 9, 2020 3:17:54 PM

Budget 2020-21: The Indian Finance Minister Nirmala Sitharaman, is set to present the budget for the financial year 2020-21 on February 1, 2020.

Budget 2020, Union Budget 2020 India, Budget 2020 India, Budget 2020-21, nirmala sitharamanBudget 2020 India: As it has always been, the Indian stock market is one of the most important tools through which the government regulates sector-wise growth.

By Puneet Maheshwari

Union Budget 2020 India: The Indian Finance Minister Nirmala Sitharaman, is set to present the budget for the financial year 2020-21 on February 1, 2020. Amid the heavy criticism that the current government is facing for the way it has handled the country’s economy, Budget 2020 is expected to include policies and regulations to heal the sluggish industry growth and economic slowdown. As it has always been, the Indian stock market is one of the most important tools through which the government regulates sector-wise growth. In the upcoming budget, there is a massive opportunity for the finance minister to achieve the intended goals through capital market-based comprehensive policies. The economic slowdown, coupled with high volatility in the domestic stock market, calls for relief measures to boost investor sentiment. Impetus on technological innovation and easing tax burden can help raise markets at a faster pace.

Furthermore, in the Budget Wishlist for 2020, if the government waives the Securities Transaction Tax, it will bring relief to the market. The STT is a financial tax levied on every purchase and sale of securities that are listed on the recognized stock exchanges in India. The removal of STT will deeper stock market penetration, boost government revenues, reduce trading costs and boost equity volumes.

The double taxation policy along with the Securities Transaction Tax and Long Term Capital Gains tax introduced in 2018 hurt investor sentiments. The 10% tax on the total profits along with STT has resulted in double taxation on equity trades and will eventually harm equity volumes. Consequently, if the government relinquishes LTCG or reduces STT, it would improve investor sentiments by allowing them to increase their profit potential.

The corporate tax cut was a big reform and ensured that companies increase their profits. However, to allow them to utilize the rate cut to the fullest, their product sales must increase, too. Cutting down personal income tax rates, and the subsequent increase in the disposable income would boost consumption, investments and equity volumes.

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Pinning its hopes on the Budget 2020 to revive the Indian economy, the stock market is expected to reach new heights with a 12-15% increase in valuation by 2020. But, the stock market growth is massively based on the policies which experts wish should be introduced in the coming budget. During the economic slowdown, the government should reach out to remote regions, incentivize financial inclusion as further equity investments would deepen markets.

It is majorly through increasing the depth of the stock market will the budget succeed in its financial goals and help fuel economic growth. The government should allocate funds for enhancement and expansion of information technology and digitization in Tier 2 and Tier 3 cities as these regions carry huge economic opportunities. As the Finance Minister and her team prepare to present the Union Budget, there’s hope on the horizon that the introduced policies will stabilize the Indian economy and back the impressive performance of the stock market.

(The author is Director, UPSTOX. The views expressed are the author’s own)

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

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