Indian stock markets have rallied strongly ahead of the Union Budget, which will be tabled in Parliament on July 10. The Nifty is up around 28 per cent since February 17, when former Finance Minister P Chidambaram presented his interim budget.
A clear majority for the NDA government has revived sentiments and sparked huge expectations that the government will deliver on reforms and come out with steps to revive India's economy. Finance Minister Arun Jaitley's maiden budget is coming on the back of chances of a worst possible monsoon in the last decade and escalated crude prices triggered by Iraq crisis.
Expectations seem to suggest that markets want more emphasis on the road map for the next five years rather than just a financial statement of profit and loss. The key expectations from Mr Jaitley are,
1. A clear roadmap for implementation of goods & services tax (GST)
2. Guidelines and calendar on disinvestment of PSU holding, with more emphasis on strategic sell off in non-core sectors.
3. Growth revival, job creation & control of inflation, with set timelines to tackle demand-supply mismatch.
4. Quick implementation of real estate investment trust (REIT) to revive reality sector and clear thrust on affordable housing with tax incentives to revive demand.
5. The Central Board of Direct Taxes should clarify on earlier contentious excise duty rules pertaining to the auto sector.
6. Impetus on capital expenditure revival. For this, the government should ease norms to raise capital through foreign currency convertible bonds (FCCB). Domestically, removing bottlenecks in infrastructure sector with better coordination between environment & other ministries will help.
7. Income tax exemption limits for individuals should be raised to revive demand. .
8. Clarifying anomalies in general anti avoidance rules ( GAAR) and removing retrospective tax amendments, which will lift investment sentiments.
9. Removal of the import duty on gold. This will reduce the arbitrage of almost 15 per cent in domestic and overseas spot gold prices. It would reduce smuggling and reflect the rupee in better terms.
10. Reviving market sentiment by cutting securities transaction tax (STT) and reworking tax incentives on the Rajiv Gandhi Equity Scheme, which did not take off.
Stock markets would be happy if Mr Jaitley can deliver on these expectations. Foreign fund flows seem unabated and markets' momentum will falter only if the budget is perceived to be "worse-than-expected". That possibility seems "highly improbable" considering the way the Modi government has functioned in the first 50 days.
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