BUDGET 2018 – RAISING A
TOAST TO INDIA’S HEALTH
AVENUESD
espite being the last
full budget for the NDA
government before the
general elections next year, the
finance minister walked a fiscal
tight-rope to present a balanced
budget wherein he proposed
various measures for the social,
rural and infrastructure sectors,
besides incentives for senior
citizens, corporates and the
salaried class.
A key announcement was the
launch of a flagship National
Health Protection Scheme to
cover over 10 crore poor and
vulnerable families (about 50
crore beneficiaries) providing
secondary and tertiary care
hospitalization coverage upto
Rs.5 lakh per family per year.
The anticipated re-introduction
of long term capital gains (LTCG)
tax on equities was announced
with a 10% tax on LTCG without
indexation benefits provided the
gains exceed Rs.1 lakh. Only gains
earned post January 31, 2018 would
be charged to tax. While securities
transaction tax (STT) was introduced
in 2004 in lieu of LTCG, it remains to
be seen how long both forms of tax
will be charged in unison. Introduction
of LTCG tax may lead to moderation
in asset prices as the market factors
in a lower level of realized post-tax
returns.
The budget also brought the
dividend distributed by equity
oriented funds under the tax net with
a 10% dividend distribution tax (DDT).
Thus equity oriented funds would now
be taxed irrespective of growth or a
dividend option as well as across
investment horizons. Introduction of
DDT may help to curtail the current
inappropriate practice of purchasing
equity oriented hybrid funds for the
lure of regular dividends. However,
by not bringing equity-oriented
ULIPs (Unit Linked Insurance Plans)
under the ambit of LTCG, the budget
has introduced an undesirable tax
arbitrage which may drive investors
towards ULIPs which may not be in
their best interest.
Besides taxing of equity funds,
the budget showed a focus on
developing the bond markets. Large
corporates being nudged to meet
about one-fourth of their financing
needs from the bond market and
permitting bonds with an ‘A’ rating
to be treated as eligible investment
securities (vis-à-vis ‘AA’ rated bonds
currently) should help deepen and
diversify the corporate bond market.
The government’s willingness to
explore the Debt ETF route for its
PSU disinvestment program isalso a positive development in
this regard. However, concerns
about rising inflation, a rate hike,
deviation from the fiscal glide path
and narrowing liquidity surplus
resulted in the 10 year G-Sec yield
moving up by 18 bps post the
budget announcement.
Senior citizens cheered the
incentives on additional exemption
on interest income from bank
and postal deposits, a higher
investment limit in an assured
return government backed
pension scheme and higher tax
benefit limits for health insurance
premium. Standard deduction also
made a comeback for the salaried
class after it was abolished in 2005.
The budget was very positive
on the infrastructure front with the
outlay increased by 20% from Rs.5
lakh cr (approx.) to Rs.6 lakh cr.
This will include roads, railways,
airports, smart cities, besides digital
infrastructure. This coupled with the
thrust on affordable housing reiterates
the government’s emphasis on
achieving the twin objective of growth
and employment generation.
What I missed in the budget was a
thrust on augmenting private sector
capex, and initiatives to improve the
health of the housing construction
sector (for urban middle class). A
focus on enabling retirement savings
via Mutual Fund Linked Retirement
Plans (MFLRP) is also a missed
opportunity. Such a scheme can
play a significant role in improving
the footprint of mutual funds as a
long term investment product and
help channelize household savings
to capital markets. Nevertheless, I
commend the budget for the balance
shown between populist measures
and fiscal prudence.<SANJAY SAPRE, President,
Franklin Templeton Investments, India