Budget 2012: Need for innovative incentives

March 12, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Every year as winter gives way to spring, a nation of over a billion wakes up to different expectations on Budget day.

The salaried listen in to the finance minister’s speech looking for tax sops on housing loans and higher tax exemption limits.

The corporate sector would read the fine print on excise duty harmonisation, any changes in depreciation rates, dividend distribution tax changes and service tax items.

The curious FIIs, strategy heads of foreign banks and treasury heads of banks would try and decipher any algorithms amidst new investment provisions in the budget.

For the common man, it would be ‘mundane’ stuff including subsidies for gas, kerosene, PDS items.

What’s the Budget? A document that sums up the nation’s finances and provides an inkling of expectations in the next 12 months. Amidst strong headwinds in global financial markets, local inflationary pressures and runaway prices, what can be a set of reasonable expectations for Budget 2012?

Let’s see. To help fulfil fund requirements for a trillion dollar infra story, a much more vibrant debt market is a must. Some innovative incentives for insurance companies, pensions funds and infra finance companies would go a long way to help them raise greater volumes of long-term funds. The main drivers of growth in commercial banks over the last few years were retail banking and fee-based incomes. But rising NPAs have been playing spoilsport and some steps to help them manage their balance sheets would be timely. The “capital story”, wherein PSBs are in the throes of managing additional levels of capital under Basel III, could do with some ideas.

The stock markets never reveal their innermost secrets but it’s another matter to look for ways to bring in more participation from retail investors and support a larger primary market. Changes in STT (securities transaction tax), lower brokerages and better advice by market intermediaries can go a long way towards this. In a scenario of very low penetration of financial products, the market could do with some smart incentive models to help independent financial advisers help in informed selling.

Finally, to help raise revenues through fiscal measures and reduce fiscal deficit, a rationalisation of income tax slabs could serve the twin purposes of increasing the tax base and help reduce the sting of inflation for the salaried.

Full coverage of Budget 2012

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