Budget 2018 etc

This budget comes as the last full year budget from the government. The next budget should be a ‘vote on account’ if elections are going to be held as per schedule or earlier. Thus, this budget has to address the 2019 polls.

The roll out of GST has made things better for the organized players. Yes, could be some teething problems, but outcome is good. The last budget expected a fiscal deficit of 3.2 % for the year 2017-18. Given the momentum in our capital markets, technically, we will probably be within that number.

In 2015, the government had promised to bring down the corporate income tax rates from 30% to 25%. IF this is fulfilled, it will boost sentiments all round. Will he opt for the full cut in this budget or phase it out, is what I would watch out for. Given that the promise is three years old, the intent seems to be weakening, so do not be surprised if there is only some partial reduction this time. In any case, some benefits will be expected.

I do not wish to hazard a guess on what the Oil prices will be in this year. Firm oil prices are not good for us, but good for OPEC. It will have an indirect bearing on what inward remittances flow in. Our Oil import bill be close to ninety billion US dollars. A ten percent rise in oil prices ( the ninety billion is at an average of around $55 per barrel) means an extra ten billion to be found. Street prices will be hiked as it is very unlikely that the government will give up on its taxes etc. All of us want Oil to be covered under GST. I do not think the government finances can afford that as of now.

Expect some big news for the salaried. This goes against popular belief, but I suspect that there would be big time relief on this. There are two routes to take. One is to do a big bang change by raising the tax exemption limit to beyond ten lakh rupees a year. The other one is to do away with all the exemptions, deductions etc and announce a low flat rate of five or ten percent across the board. This would be a good thing to happen, but I do not know how the government mind works. Of course the skeptic in me tells me that the middle class salaried group is not an important vote bank, so does not matter and not worth bothering about.

This budget will also have the Railways finances included. We can only hope that the Railways do not want any support, given that they have aggressive fund-raising plans through vehicles like IRFC and other PPP initiatives.

The global economy is booming. Foreign money is also pouring in. Good times for India. Corporate India is healthy. In the three years, most companies have reduced their indebtedness.  The PSU Banks have been pumped with steroids once again.

All ingredients are there for our economy to grow. The details in the budget will be there for budget talks etc. Budgets should be routine financial plans and nothing more. Yes, given that we are going in an election year next, some schemes etc will have to announced. The key thing I am expecting is a big government spend on infrastructure which will spur growth and encourage the private sector also to invest more.

Investment strategies do not change with budgets. What we see is that every year, we talk about ‘winners’ and ‘losers’. However, at the end of the year, we do not see much change in the fortunes.  Today, we have reasonable levels of tariffs. So changes would be very nominal, unlike in the eighties, where tariffs could help or hurt a business.

While on the budget, there is a document called the ‘economic survey’. It is a pre cursor to the budget and tells us the numbers. However, it is cleverly presented just a day or two before the budget so that no one gets time to digest it in full.  Unlike for companies, we never see any ‘audited’ accounts for the nation. It is all “Estimated” “revised” etc. So, it is more a matter of faith.

What matters to me is prices, inflation and investment safety and returns.  Budgets generally are bad for the first two because each successive budget increases the subsidies and freebies so that politicians can supposedly ‘please’ their constituencies. All done in the name of ‘welfare’. It is also worrying at a big level because there is no public debate on the distribution of the money that is collected and borrowed by the government.