Budget 2012: Market seeks fiscal fitness, end to securities transaction tax
Investors are also hoping for more asset sales by the government to control the nation's widening fiscal deficit, stock brokers said.
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Fiscal consolidation and removal of securities transaction tax (STT) on stock trades top the list of demands of market participants for the upcoming Union Budget. Investors are also hoping for more asset sales by the government to control the nation’s widening fiscal deficit, stock brokers said.
“The key challenges facing the government while crafting this year’s budget would be to choose between controlling the fiscal deficit and providing momentum to growth,” said Rashesh Shah, chairman and CEO, Edelweiss Financial Services.
India’s fiscal deficit is expected to exceed the target of 4.6% of the gross domestic product (GDP) for FY12 by 1% to around 5.6%, a top government official had said recently. The government’s poor fiscal management and markmanship have been a major concern for both foreign and local investors who are worried about the prospects for an economy which had grown at an average of well over 8% between 2004 and 2009.
Morgan Stanley said India’s consolidated fiscal deficit, including deficit of states, will be at 8.3% of the GDP. “Compared to FY11, we believe the government will have a major challenge on the revenue side,” said Upasana Chachra and Chetan Ahya, economists at Morgan Stanley in a note to clients.
Brokers said the government should refrain from raising taxes to make good the increase in expenditure and decline in revenues. “The government should not increase corporate taxes to boost its revenues. Instead, it should stick to disinvestment to reduce the fiscal deficit,” said Motilal Oswal, CMD, Motilal Oswal Financial Services. Edelweiss’ Shah said disinvestment will also help kick-start the moribund primary market where activity has dwindled because of the turbulence in the equity market.
Brokers are hopeful that the government will do away with STT, which was introduced in 2004-05 when P Chidambaram was the finance minister. All cash market transactions on stock exchanges are levied STT of 0.125%. This levy on derivative trading is 0.017%.
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“Removal of STT will definitely revive intra-day trading and engender healthy speculative activity that is seriously required for the functioning of the market and revival of sentiments,” said Nirmal Jain, chairman, IIFL.Investors expect the government to go ahead with the implementation of goods and services tax (GST), brokers said. “The government should go ahead and implement GST with innovation and leave out the few states that may continue to act funny,” said IIFL’s Jain.
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