While the Budget 2016 did not have much to offer to the MF industry, the Finance Minister Arun Jaitley has proposed a number of measures to accelerate the growth of the economy. Here’s what MF honchos and experts have to say about the Union Budget 2016.
Milind Barve, Managing Director, HDFC Asset Management Company
Fiscal prudence in the Budget signals a commitment to macro-economic stability. This will also open up space for monetary easing in the near future which is positive for the rates market. Various measures for resolution of tax disputes will pave way for lower outstanding tax litigation. Combination of consumption push (7th Pay Commission and rural economy) and continuous focus on capex by the government should see higher growth next year. We welcome relief on service tax for small distributors earning less than Rs. 10 lakh per annum.
Navneet Munot, CIO, SBI MF
This Budget strives to harness India’s demographic dividend by investing in social and physical infrastructure, social security and job creation. While adhering to fiscal discipline, the Budget has provided necessary growth impetus by spending more on infrastructure which will have a multiplier impact on the economy. We also expect an inter-meeting rate cut by RBI to provide further boost. There is a clear focus on ease of doing business and promoting entrepreneurship. The Budget will create a feel good environment amidst a challenging global environment.
Ritesh Jain, CIO, Tata AMC
The Union Budget 2016 has a clear thrust for the rural economy while taxing urban and the top of the pyramid consumption. It carries the highest ever allocation to Mahatma Gandhi National Rural Employment Guarantee (MNREGA) Act –MNREGA expenditure has been coming down in the last three years, adding to the rural stress. The allocation to agriculture and allied sector has been increased but the subsidy route is avoided (efficient spending). The thrust is on job creation. The good thing is that the government is sticking to its initial disposition of clampdown on black money, subsidy rationalization and push for job creation. Various estimates have put the black economy at par with and even higher than the real economy. The thrust on bringing back black money into productive use in the real economy can rejuvenate the economy and put us back in growth trajectory. This Budget has a clear emphasis on making taxes more efficient, reduce opaqueness in tax dispute handling. While the Budget is structurally positive in medium term, no room to spend and a tight fiscal stance could act as a dampener for capital markets. Ultimately, execution remains the key.
Murthy Nagarajan, Head-Fixed Income, Quantum AMC
The government has stuck to its fiscal deficit target of 3.5% of GDP. The debt market has taken it positively as there was some fear of the government not adhering to its fiscal deficit target as it was keen to re-capitalise the banks and provide another round of capital spending to boost growth. The total gross borrowing is targeted at Rs. 6 lakh crore, this is lower than market expectation of Rs.6.5 lakh crore. Thus, we expect RBI to cut repo rates by 25 basis points as it has stated it will look at the fiscal deficit numbers for cutting rates.
Vidya Bala, Head of Mutual Fund Research, FundsIndia
The Budget nudges investors to move from traditional small saving (tax-saving) products to contemporary way of investing by dissuading investors from investing in physical gold by making gold-based financial products more attractive. The government is leaving no stone unturned to ensure investors relinquish their desire for gold and instead move to gold-like financial instruments with superior tax benefits.
The fixed return small savings schemes are no longer blessed by the government nor tax authorities in terms of providing an EEE status (tax free through the life of your investment). That means investors will have to move to other superior earning products to build a good retirement kitty that delivers good post-tax returns.
Ranjeet S. Mudholkar, Vice Chairman & CEO, FPSB India
The Finance Minister did a commendable job by presenting new radical ideas like the Health Protection Scheme for the senior citizens, setting up of Financial Data Management Centre (FDMC), Higher Education Financing Agency (HEFA) and also by proposing to increase outlay on various social security reforms which will benefit the industry and consumers alike in the long run.
I commend the Union Budget 2016-17 for maintaining fiscal prudence with emphasis on boosting infrastructure spend, stressing on social security schemes, development of rural economy while trying to address issues surrounding tax disputes.
Ashish Mehrotra, CEO&MD, Max Bupa Health Insurance.
This year’s budget takes forward the Government’s clear resolve to accelerate the momentum in the health insurance space and make quality healthcare affordable and accessible to all sections of the society. Healthcare needs of the rural sector and those of senior citizens have been declared as of the critical pillars of the Union Budget 2016-17. The government has announced a universal health insurance programme that will cover the BPL population. Given that the category is seriously underpenetrated, this will provide health protection to one third of the country’s population. With this scheme, the existing health coverage limit for BPL families (Rs. 30, 000 under RSBY) has been significantly increased, with the provision of one lakh health coverage for each BPL family. This will boost health insurance penetration which is currently under 5% and mostly restricted to urban areas, curtail OOP expenses, stimulate industry growth and provide access to those below the poverty line to avail quality healthcare.
An additional top up cover of Rs 30, 000 for senior citizens will help extend adequate coverage to the elderly, who are more likely to utilize the health cover. This is an important move given that, at present, there is no such scheme that exclusively entitles health protection to senior citizens. As a committed healthcare partner to millions, we look forward to partnering with the government to make quality healthcare accessible and affordable to all.
These are pertinent measures given the double digit increase in health inflation year on year. In the long term, these steps will help curtail issues like escalating healthcare expenditure and control personal insolvency rates in a developing economy like ours and boost our GDP.
Rajiv Shastri, Managing Director & CEO, Peerless Funds Management Co
Almost every measure in the Budget seems to be aimed at transferring income from the urban areas to the rural areas, given that most infrastructure expenditure happens outside the urban areas. This is not necessarily a bad thing.
It is a known fact that the marginal propensity to consume decreases as income increases. As such, any transfer of income from the rich to the “not so rich” results in increased consumption, provided the transfer is efficient and with minimum leakage. This is where the most significant challenge for this government lies.
If the transfer is efficient, we should see a grass root revival in consumption, with the lag of a couple of quarters. If inefficiency creeps in, as has happened in the past, the economy as a whole will lose. However, even in the latter case, the silver lining in the long term persists.
If one includes the spend envisaged in the Railway Budget, the proposed outlay for physical infrastructure is unprecedented (over Rs. 3.4 trillion compared to Rs. 2.8 trillion last year). These investments will have a future payoff which goes well beyond the immediate increase in consumption. This is a continuation of the thrust on capital expenditure visible in the current year as well, with the revenue deficit standing at a very attractive 2.5% of GDP as against the budget estimate of 2.8%. This implies that the outlay on capital expenditure expanded significantly in the current year as well.
This Budget can be given an 8/10 for intention. However, as mentioned earlier, implementation is the larger challenge and needs to be monitored closely.
