By Vinay Ahuja, Senior Managing Partner, Head, Markets – Mumbai & Chennai, IIFL Wealth
The re-election of the BJP-led government with an overwhelming majority provides comfort of policy continuity and raises expectations of bold reforms to pump-prime the economy. The overall objective should be to achieve inclusive growth. Some shockers may well be in the offing as the government looks at new taxes and surcharges to raise funds. Top on our wish-list is some tax-saving incentives for professionals and salaried class to improve the depth of equity market. India remains under-invested in equities and any further tax breaks especially for salaried class and professionals will act as a booster. Moreover, Long Term Capital Gains Tax on equity investments which was introduced last year should be done away with at least till our markets develop further.
There is an urgent need to focus on employment creation for the long-term sustainability of growth in the country. India’s demographic dividend can be reaped only if the country’s youth can make a positive contribution to the economy. Consequently, skill development of the youth and employment generation are an essential element of India’s future economic growth.
With Make in India initiative, the government gave India’s manufacturing sector, the much-needed shot in the arm while the Start-up India initiative gave a boost to entrepreneurial activity in the country. To achieve the optimal benefits of both these initiatives, the government now needs to encourage private investments across sectors so that companies and industries can continue their growth trajectory.
Over the last decade, we have seen private sector banks zoom past their PSU peers, whether it is in terms of asset quality or growth. Much of this gap has been due to legacy systems and procedures that the PSU banks have had to contend with. To narrow this gap, the government needs to lay a roadmap to a) reduce the number of banks by mergers or acquisitions b) improve governance and accountability and c) attract the right talent for the long-term viability of these institutions.
Also, a clear disinvestment calendar for PSUs would provide future visibility in terms of funds being raised by the government and its consequent impact on the deficit numbers.
While the introduction of the IBC has been a great step in the right direction, more needs to be done to ensure that it meets its purpose.
The passing of the GST bill was a landmark reform. Initial teething issues notwithstanding, the government needs to further rationalise GST slabs and rates so that both, the businesses and the government, can maximise its potential.
Our nation is slowly migrating towards the financialization of savings. This has, in part, been accelerated by the large-scale adoption of technology and the mushrooming of various fintechs that operate across the investment value chain. However, from the perspective of an average individual, the government needs to provide further incentives that can encourage them to save and invest. Enhancing the 80C limit for providing income tax exemption to savings in certain instruments can help achieve the desired goal.
There are currently myriad investment products in the Indian market to fulfil different goals. Therefore, it is imperative that investments are chosen based on their characteristics and the goals they serve rather than based on tax efficiency. To achieve this, the government needs to bring uniformity in taxation of different savings products (ULIPs and Mutual Funds).
A well drawn-out map that clearly chalks out the twists and turn on the path can be very helpful in not only reaching the destination but in also making the journey smooth. We expect the budget to do just that!