Markets reacted positively to Budget 2017 for the right reasons; investing in quality companies will offer decent returns: Motilal Oswal

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Published: February 4, 2017 2:52:23 AM

Union Budget 2017 was a classic act of laying down the foundation of budget being a guide map of fiscal prudence and canvassing of big picture rather than dealing into details of country’s fiscal management.

Budget 2017, Budget 2017 what to expect, Budget 2017 latest newsOn taxation front much was left unchanged for corporate India.

Hitting the right notes the government stuck to its path of fiscal consolidation, targeting its fiscal deficit at 3.2% of GDP in FY18 (year ending March 2018) from 3.5% in FY17. Union Budget 2017 was a classic act of laying down the foundation of budget being a guide map of fiscal prudence and canvassing of big picture rather than dealing into details of country’s fiscal management. Distinct themes were skill India, empower rural India, doubling of farmers income in 5 years, increasing rural income, housing for all, infrastructure development, digital economy, public service, prudent fiscal management and tax administration.

On taxation front much was left unchanged for corporate India. Though, the government cut the corporate tax rate for small companies (turnover of up to R500m) to 25%, from 30%, which it expects will benefit 96% of Indian companies. The personal income tax rate was cut to 5%, from 10%, for incomes of R250,000-R500,000, while at the same time levying a surcharge of 10% on those earning R5-10m annually.

Housing for all was dominant theme. Affordable housing was granted infrastructure status which will facilitate better and cheaper access to funds and tax benefits. The government’s resolution to improve quality of life was clearly reflected in stand of providing affordable healthcare through new norms for controlling prices of essential drugs and medical devices is a step in the right direction.

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The government increased its allocation towards infrastructure spending. According to the finance minister, total spending on transport infrastructure (roads, railways, airports) is pegged at ~1.5% of GDP in FY18 and on overall infrastructure at ~2.5% of GDP. Rural India also remained the focus area. Farm credit target and crop insurance coverage increased. MNREGA allocation was hiked to R480 bn from R380 bn in previous budget.

FII’s were provided further relief as the concession of low 5% withholding tax for FII bond investors in India was extended by 3 years till 2020. On the medium-term fiscal roadmap, the government said it would accept the recommendations of the Fiscal Responsibility and Budget Management (FRBM) committee. The new roadmap requires the general government debt-to-GDP ratio to be lowered to 60% by 2023 (40% for the centre; 20% for the states) from ~66% in FY16 and the central government fiscal deficit target to be lowered to 3% of GDP in the next three years.

Overall, the government’s decision to stick to fiscal consolidation – despite the growth hit caused by demonetisation and the upcoming state elections – speaks volumes of positive outlook of government. Overall, the Budget has been a judicious balancing between inclusive growth and fiscal prudence.

Markets reacted very positively and for right reasons. Going forward, I am sure investing into quality companies and mutual funds would offer decent returns.

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