As Budget day gets closer, you may want to bring out your paper and pencil and get ready to understand how the Budget will impact the markets, the economy, and you.
The first number to watch out for will be the fiscal deficit. Markets are watching to see what the fiscal deficit for the current year ends up at. The government was targeting 3.2 percent.
Both bond and equity markets are anticipating some miss on the fiscal deficit for this year.
The more important question is – what will be the fiscal deficit target for the next year? Anything more than 3-3.2 percent of GDP will push up bond yields and weigh on equity markets too.
Linked to the fiscal deficit will be the government borrowing. The government can choose to raise additional resources from non-tax revenue sources, such as disinvestment. If they do so, they may be able to keep gross borrowings below Rs 6 lakh crore. That's the revised borrowing amount for the current year.
Equity markets may also be impacted if the government decides to change the rules on capital gains tax. So far, investments beyond one year are considered long term and don't attract capital gains tax. If the government extends the time limit from one year to three years to encourage longer term investments, markets and investors will take note.
If you are watching to see whether the Budget will impact your personal taxes, check if there is any change in the income tax slabs, and the rates for each slab. Also, take note of whether the deductions allowed for various category of investments have been changed.
As a corporation, you will listen carefully to hear whether there is any change in the corporate tax rate. In 2017, the government cut the corporate tax rate for small and medium enterprises to 25 percent from 30 percent. Could large corporations get the same benefit in 2018?
We await the finance minister's verdict on all this and more.
(This was first published on BloombergQuint)
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