Thread by @anavrta

Ok let’s tackle the elephant in the room first. And primarily there are two of them.

1. Non Starter Personal Income Tax Cuts; and

2. Cues from Equity Markets.

The non starter personal income tax is disappointing for the middle class. It’s unlikely many will opt for new rates

For people to shift to new structure, their effective tax rate should have been lower than the proposed new structure.

While it doesn’t make sense for high income earners availing housing loans/HRA exemptions to shift, even many below 15lakhs won’t likely shift to new rates.

Essentially, the decision comes to minimizing the Tax Outgo for a salaried individual.

Rather than giving ones earnings to the government, one would rather invest, even at the inconvenience of lower near term personal disposable income.

Proposed DTC rates fail the threshold.

While the changes in the DDT are positive for MNCs and foreign investors, domestic salaried high income earners are worse off after today. After being worse off in Jul-19!

Significant disenchantment among the narrative builders, even among BJP supporters, links to this aspect.

Apart from this, the consumption boost which was required with lower tax rates, hasn’t come through.

While the rural consumption green-shoots are visible and will likely come through in another 2 quarters, urban consumption turnaround will likely take longer to recover.

The cues from the equity markets highlights this disappointment in addition to the expectation (or wishlist) of relaxing the LTCG.

Now we are sailing with world on the legitimate Corona Virus scare which seems likely to derail near term growth.

Chinese markets will lose 5-10%

The selling in global markets has just about started, if Corona Virus scare turns to global panic.

Indian markets were hopeful that budget might deliver on the near term steroid boost of tax cut led consumption thrust to insulate Indian growth conditions.

Hasn’t come through.

Thus, the salaried will continue to grumble since investment portfolios are also likely to suffer.

But beyond the expectation of sugar rush, how is the budget?

Barring Smart Cities, quite credible!

Has done a fine job in methodically structuring investment cycle turnaround.

The assumptions are far more credible and it should not be a challenge to meet them.

Gross direct tax collections growth of 13% + 11% indirect tax collections growth isn’t a stretch on 10% nominal GDP growth.

₹2.1trn disinvestment figure is quite possible as well.

The spillover of disinvestment shortfall of FY20 + LIC IPO should help the government achieve the figure.

₹30.4trn expenditure is positive. Keeping aside the interest payments part, 18% CapEx growth in FY21 is encouraging. Translates to ₹632trn of spend vs ₹412trn in FY20.

Opinions suggesting ‘No Stimulus’ are misplaced.

Essentially, the government has administered the economy with a stimulus of 1% of GDP since Oct-19 begins with Corp Tax Cuts.

The combined 1% slippage of erstwhile targeted Fiscal Deficit of FY20/21 is the result of stimulus.

Interestingly, the projected gross market borrowings of ~₹8trn isn’t really off the charts from what the debt market was expecting.

Going into next week, bond yields may not slip significantly from Friday’s levels.

Importantly, the RBI will continue the accommodative stance.

Tax incentives to SWFs, FPIs, NRIs to participate in the Indian Infrastructure Initiatives and Bond Markets are likely to generate significant interest in FY21 onwards.

Coupled with time bound incentivized 15% Corp Tax regime, FDI/ FII interest will remain high (annual basis).

Over the last 6 months, the government has amply demonstrated that policy and reforms continue outside the Budget Sessions as well.

In the pipeline seem to be measures on Scrappage Policy and measures for declogging the NBFC/HFC balance sheets.

Will we see growth turnaround in FY21? Yes!

Will the turnaround be on a firm footing? Yes, the structural drivers are delivering the green shoots.

Could it have been expedited with sugar rush of PIT Cuts? Certainly!

Given the constraints, Sustainable Positives > Disappointment