Budget 2014: No Room For Sops, Tax Cuts, Says Kotak

Finance Minister Arun Jaitley's maiden budget on July 10 will have no room for sops and tax cuts, says Kotak Institutional Equities.

"No room absolutely (for cutting indirect taxes), on the one side we are talking about fiscal consolidation, how can we have sops at the same time, the industry always gets too excited before the budget, starts demanding all sorts of rubbish and honestly it makes no sense to give any tax cuts," Sanjeev Prasad, senior executive director and co-head, Kotak Institutional Equities. (Watch)

The government last week, in a relief to car buyers, extended the excise duty cuts that were implemented by the earlier government in February till December 31, 2014. The excise duty cut was set to expire on June 30.

In the interim budget, excise duty on small cars, scooters, motorcycles and commercial vehicles were cut to 8 per cent from 12 per cent earlier. The same for SUVs (sports utility vehicles) was slashed to 24 per cent from 30 per cent, while on large cars it was reduced to 24 per cent from 27 per cent earlier and mid-sized cars to 20 per cent from 24 per cent previously.

The Indian economy is exposed to "shocks" on account of high fiscal deficit and the country's credit outlook will depend on government's initiatives in the budget to contain expenditure and reduce exposure to global commodity prices, rating agency Moody's had said last month. The deficit last fiscal was 4.5 per cent.

Kotak warned against further excise duty cuts and said, "We have seen the impact of that last time around in 2009-10, the government reduced excise duty from 14 to 8 per cent and combined that with a lot of populous spending, loan waiver schemes etc. and look at what's happened to the economy."

India's economy is grappling with its worst slowdown in 25 years after it grew at sub-5 per cent for the second year in a row last fiscal.

"What we don't want to see is any short-term knee-jerk policies which look good on paper for one or two months and then create problems down the line. What we want to see a is a more comprehensive medium-term for the economy," Mr Prasad said.