Sivasubramanian KN

What are your reactions on Union Budget 2013-14?

The Union Budget was broadly along expected lines (given the constraints/fiscal deficit) and the government continued to focus on inclusive growth. Whilst there were no big bang populist measures ahead of next year's elections, there were no reform oriented measures announced. There were some expectations of directional statements in terms of expenditure rationalization, boosting of investment activity and curbing of the current account deficit.

Expenditure allocation was raised for various social/development schemes but no new schemes were announced due to limitations of a high fiscal deficit. The budget arithmetic may however prove to be aggressive as the economic growth rate remains modest and there seems to an overdependence on tax revenues and divestments.

The additional deduction of interest up to Rs. 1 lakh paid on home loans up to Rs. 25 lakhs could be positive for the housing sector. With a view to boost savings rate, the government is working with the RBI to introduce inflation-indexed savings instruments. DTC is expected to be introduced in the current session of the Parliament and there is a renewed push for GST in the form of allocation towards reimbursements to the states.

The government acknowledged the need to boost investments but there were few definite measures. The focus on building further investment corridors across the country is a positive step. However, we could see measures outside the Union Budget to boost growth and investment activity. The third quarter GDP growth at 4.5% underscores the need to spur growth on all fronts. Given the limited room available on the fiscal front, monetary policy also needs to become accommodative.

Lack of new policy initiatives alongside increase in dividend and corporate surcharge led equity markets to reverse early gains and close in the red. The corporate surcharge is expected to bring down earnings estimates slightly. Power, banking and capital goods stocks were impacted due to lack of major announcements to spur investment.

The reduction in Securities Transaction Tax is a positive for brokerages. The additional surcharge on high income individuals and rise in duties of luxury items is unlikely to have a significant impact on consumption. Retail sector should benefit from lower excise duty on apparels.

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