Markets disappointed on Interim Budget - Mr. Shiv Kumar Goel, Director, Bonanza Portfolio Limited

The markets have been disappointed as a section of the industry and market was expecting that there would be some kind of stimulus from the government in view of slowing down of the industrial growth (-2% in December 08) and exports. However, the Govt stuck to the covention and this being the interim budget in the nature of vote on account, the government did not introduced any new tax proposal. The government had already announced two stimulus packages in Dec'08 and January 09.

The vote on account indicates that Government is continuing with its emphasis on infrastructure development and also giving boost to rural economy.

Slowdown in the economy in the second half of the current fiscal has impacted the FRBM targets and there has been a sharp increase in the fiscal and revenue deficit as a percentage of GDP in FY09. In FY09 the revenue deficit as a %age of GDP has increased to 4.4% and the fiscal deficit as a %age of GDP to 6% as compared to 1.1% and 2.7% in FY08 respectively. The targetted revenue and fiscal defecits for FY10 is estimated at 4% and 5.5% of GDP respectively.

The high fiscal deficit means that long-term interest rates may look up while short-term interest rates may remain soft in view low inflation due to weak global demand. It could create some impact on the ability of companies to fund the projects, which require long-term funds (like infrastructure projects).

The initial analysis of figures of tax collections suggests that the Government is not expecting a significant slowdown in FY10. Without any changes in tax structures the Government is expecting that the corporate tax collection would grow from Rs 2.22 lakh crores (revised estimate for FY09) to 2.44 lakh crores (budgeted estimate for FY10) a growth of about 10%. The growth in the indirect tax collections namely excise and customs duty is small. This should be viewed in the light of reduction in taxes as a part of stimulus packages already announced in recent past.

Source : Equity Bulls

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