Key things to watch in Budget 2013-14 - AXIS CAPITAL

The FM has already stolen his own thunder by announcing a slew of measures outside the budget. Focus will now be on Stability, Credibility on fiscal consolidation and Reform intent in order to reposition India as an attractive investment destination:

- Stable policy regime to encourage normal business expectations and capital inflows

- Fiscal deficits cannot be tackled in one year. It is the trajectory that matters. Thus the budget should stress:

- Revenue increases without hurting growth: A roadmap for implementing GST and DTC

- Expenditure control: Roadmap for reining in subsidies through Direct Cash Transfers etc

- Quality of fiscal adjustment: i.e. in April-December, non-plan expenditure rose 12% (budgeted ~9%) while plan expenditure rose <7% (budgeted 22%). Thus there are drastic capex cuts to make the fiscal deficit look better; but this may endanger economic recovery. The FM should be cutting wasteful expenditure instead

- Roadmap for key bills: GST, DTC, Land Acquisition, Mining and the Insurance Bill

- Propping Savings: Planned reduction in fiscal deficit, higher tax breaks and regulatory tweaks to channelize household savings into financial savings (ie MFs and Insurance)

- And Investments: Deepening the corporate bond market and steps to improve the regime for foreign capital flows. Specific proposals include investment tax credit, depreciation benefits, a cut in the withholding tax rate for debt instruments and a holistic policy for foreign investments.

Indirect Taxes

Rates may remain broadly unchanged though there could be some selective duty rejig and pruning of exemptions:

- Customs duty: Expect reinstatement on Petro products, to provide ~Rs 490 bn in revenues

- Excise duty: Selective hikes, lowering threshold for SMEs to Rs 10 mn. Also expect diesel price hikes to be front ended, given bunching of state elections

Direct Taxes

Despite a clamour for higher tax rates for the rich, the budget may soften the blow by:

- Raising Income tax exemption limits for the middle class

- Incentivizing investments into Financial assets : Offering tax incentives for Pension products/MFs or include Rajiv Gandhi Equity Savings scheme & Tinkering with LT capital gains tax on Infrastructure/ Corporate bonds.

Source : Equity Bulls

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