Rural spending push, tax cuts to spur consumption
budget delivered on most counts for the economy, but may have disappointed the market through higher capital gains tax on equities and securities transaction tax on futures and options. On the positive side, we highlight (1) the moderately higher spending on farm and rural economy and lower income tax for middle-income households, which is a positive for consumption, (2) the thrust on employment generation through several new measures and (3) fiscal consolidation, which is a positive for bond markets and yields. On the negative side versus market expectations, we note (1) the unchanged capex compared with the interim budget figure and (2) a higher capital gains tax on equities. The government may pursue further rationalisation in the capital gains structure for various asset classes over a period of time.
The government increased allocation to revenue expenditure (6.2% increase versus 3.2% in the interim budget) and cut income tax rates for middle-income households, which is a positive for consumption sectors. The higher proposed spending on social welfare schemes and rural development will drive a faster recovery in the farm and rural economies. The reduction in income tax rates for the lowest income tax slabs corresponding to middle-income households should provide an impetus to two-wheeler, consumer durables, QSR and other discretionary items.
The government maintained its focus on capital expenditure, but did not expectedly increase the allocation to capex versus the interim budget amount. It has budgeted 17%
