Wednesday, February 29, 2012

Goldilocks budget - any chance?

Under normal circumstances, last day of February is "budget day"

However, budget this year is postponed to March 16, owing to polls in 5 states which extends up to March 4 after which counting starts.  Our Finance Minister has a tough task at hand.  Complex coalition government (the only thing that I recollect from the last year is inaction),  global situation being what it is, dwindling economic growth at home, prolonged period of high inflation and burgeoning fiscal deficit  - damned if you do and damned if you don't, Mr.Mukherjee! 

Challenges and high expectations aside, some of the likely outcome of the budget are:
  • Individuals can expect a  modest increase in exemption limit, lower tax rates may be asking for the impossible but it is likely that highest income tax to be made applicable for those with annual income above Rs.10 lacs (as against existing 8 lacs)
  • Tax deduction limit is likely to be increased on interest paid housing loans.  This might boost the real estate sector and balance the burden of increased interest rates for home buyers
  • To give a boost to investment into infrastructure, the tax breaks is likely to be increased from the existing Rs. 20,000
  • Exporters may not get any additional tax incentives in the form of excise duty exemption / reduction (select industry), service tax exemption on ECGC premium or currency conversion. 
  • Corporate tax rate is likely to remain as it is but there may be higher depreciation benefit in the offing to encourage companies to replace assets and there by boosting infrastructure sector
  • Airline Industry may get some relief with support packages being considered to help the cash strapped industry
  • Service tax threshold may be increased and MSMEs may get additional attention 

On a broader perspective, market is expecting a Goldilocks budget, one which is pro growth, pro investment and one that deals with inflation and fiscal deficit.  Possible?


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