It has been a reasonably balanced, consumption-led and fiscally prudent Union Budget.
Most of the proposals are targeted at reducing inflation, improving the consumption-led demand by increasing disposable income of the masses with complete focus on fiscal prudence — be it the proposal for Rs 60,000 crore for debt waiver for farmers, the modification in threshold limits of exemption of personal income tax slabs or reduction in duties for the industrial sector.
The debt waiver will not only help farmers reduce their debt burdens, helping in the overall reformation of the agriculture sector, it will also improve the overall health of the banking system.
Some of the key proposals impacting capital markets have been:
Dividend Distribution tax benefit to Holding Companies
A key development has been the allowance to a holding company to set off the dividend received from its subsidiary company against dividend distributed by the holding company, provided the dividend received has suffered dividend distribution tax (DDT) and the parent company is not a subsidiary of another company. While this will help a lot of conglomerates having one layer of subsidiaries below them, the question that arises is why this proposal has not being extended to subsequent layers of subsidiaries, which might have been established because of multiplicity of regulators, policies, compliances for different businesses, or simply because of independent business dynamics.
Currency, Corporate Debt Market
The Finance Minister has emphasised on the development of the corporate debt market in the country. Especially those in the form of taking measures to develop the bond, currency and derivatives markets, including launching the exchange-traded currency and interest rate futures and developing a transparent and appropriately safeguarded credit derivatives market.
Enhancing the trading of domestic convertible bonds by putting in place a mechanism that will enable investors to separate the embedded equity option from the convertible bond and trade it separately will encourage the development of a market-based system for classifying financial instruments based on their complexity and implicit risks.
Further measures like exemption of corporate debt instruments issued in demat form and listed on recognised stock exchanges from tax deducted at source is a step in right direction.
While the increase in rates of short term capital gains tax from 10% to 15% and treatment of securities transaction tax as an expense and not as an advance tax may sound like negative news for the market, most reforms initiated by the finance minister will go a long way in providing impetus in the overall growth of the economy.