Union Budget 2020: No Fiscal Exercise In Budget, Improve Market Sentiments: Centrum Research

Union Budget 2020: No Fiscal Exercise In Budget, Improve Market Sentiments: Centrum Research
Yagnesh Kansara - 25 January 2020

The big event for the capital market in the name of Union Budget 2020 is fast approaching us. Various experts are offering different suggestions to the Ministry of Finance (MoF) to tackle the issue of slow down in the economy. A unique suggestion is being made by Centrum Research, the research arm of the Centrum Broking. A note prepared by Centrum said, the government need not undertake fiscal exercise to take control of the fiscal situation and take risk at current critical juncture, where the economy is going through. Instead it should pay more attention at the moment in improving sentiments.
Centrum note to its clients said, as it is fiscal situation of the economy has worsened for various reasons. “At the moment, govt. is running a tight fiscal deficit this year. Year to Date (YTD) fiscal deficit has already surpassed the target by a significant margin by 15 per cent. Taking into account, lower than expected nominal GDP growth and likely postponement of divestment, we expect the deficit for FY2020 to witness 30-40 bps slippages, from the budgeted target of 3.3 per cent”, it said.
Centre’s ambitious disinvestment mobilisation target has not been met and in the remaining part of the current fiscal there seems to be chance of achieving the target. Only 17 per cent of the targeted amount of Rs 1.05 Lakh crore has been collected YTD. Also, due to shortfall in revenue, lower transfers to states have dented states ability to spend. However, there are some hopes from the adjusted gross revenue (AGR) dues from the telecom companies to the tune of Rs 90,000 crore.
Given the challenging fiscal maths, Centrum said, “we believe at the moment improving sentiments rather than increasing fiscal may do the trick. There are several things which government can do without affecting the fiscal significantly. Reintroduction of LTCG (long term capital gains) Tax, maybe with 2-yr period is most likely to uplift sentiments without having any significant impact on balance sheet of the government. This holds potential to provide a major booster for stock markets as it is a provider of equity to the industry”.
Secondly, allowing tax breaks for buying property is likely to sort the real estate sector. The sector also expects quick implementation of alternative investment funds to rescue stressed residential projects. Another step, which can help without the much impact on fiscal, is abolishment of DDT. “This will further boost the sentiments”, it concluded.