Pre-Budget Article from Mr V Vaidyanathan, Chairman and Managing Director, Capital First Limited
“Budget will leave significant money in the hands of individuals- but targeted towards Savings and Housing.”
I expect that all the pet themes of this government namely - Make in India, growth, jobs, shelter, renewable energy will reverberate through the budget. Rightly so, as these are precisely what the electorate have voted this government into power recently, and this is the first full budget after the elections.
Firstly, the savings ratio in the country has declined from 36.8 pc in FY08 to 30% in FY 14, and the Household Financial savings has dropped from 13% in FY 08 to 7.1% in FY 14. This is a significant drop, and we need to once again lift savings rates to be able to sustain high investment rates for growth. Hence I expect the budget to increase the limit for 80C from Rs. 1.5 lac to Rs. 2.5 lac to increase incentive for long term savings.
Second, keeping with the theme of housing for all by 2022, the budget will continue to encourage the housing financing sector. Hence I expect the limit for deduction for housing loan interest is expected to go from Rs. 2 lacs to 3-4 lacs.
Third, I am also expecting relaxation in personal income tax limit for individuals from Rs. 2.5 lac to Rs. 4- 5 lac. These measures will spread all round cheer as disposable income in consumers’ pockets will increase. The budget could then argue that such disposable income will boost consumption and consequently investment which needs to go back to high 30s to sustain growth.
My feeling is that this will be a positive budget for growth, largely with benefits loaded for the individuals as a feel good by leaving money in consumer pockets. The markets will see the positive side of this development as the reflected benefit of the same through the cycle of demand> consumption> investment> growth> demand.
Finally, two points in the budget where I am not hopeful, but wish for. One, I wish that the government do away with customised exemptions and breaks, both in direct and indirect taxes, as much as possible. We levy excise based on the length of the cigarette! There are exemptions for breakfast cereals, fruit basket etc. You get the point. Second, I wish the budget move to a “Progressive Income Tax” for corporates, firms and partnerships, wish starting tax rates as low as 5%, and progressing gradually to 30%. This will benefit millions of small entrepreneurs and address the parallel economy of the country.