Finance Minister Nirmala Sitharaman recently presented the Union Budget for the new financial year in hopes of reviving the economy. As we all know, the economy had come to a halt last year because of the global pandemic. For the entire investor community, , the year 2020 was unlike anything they have ever seen before.
And for that reason, investors have been waiting keenly to release the new budget and its impact on investment decisions. Here are some of the key announcements from the 2021 Union Budget.
Taxation for Investors
The 2021 Union Budget revealed the initiation of Tier-II of the National Pension Scheme (NPS). The Tier-II NPS was made available only for the government employees last year.
However, this year the investors expect the government to make the Tier-II available to all retail investors. This move could give them an option for investing in a tax-saving equity-related fund.
The investors also predict a change in the annulment of the present long-term capital gains (LTCG) tax structure. Presently, 10% tax is obligatory for long-term capital gains above the threshold limit of ₹1 lakh.
The relaunch of LTCG tax in the 2018 budget was seen as a confidence breaker for most investors. Therefore, reducing or eliminating the LTCG tax in the new budget release can boost their overall confidence in making investments.
Last year, the government discarded the Dividend Distribution Tax (DDT) that made dividends taxable for all investors. During that time, the interest rates dropped, and many investors experienced a major constrict on their regular fixed income.
And with the current pandemic situation, the investors will be required to increase their regular income portfolio section. So, suppose the 2021 Union Budget somehow advocates eliminating the tax on dividends or re-evaluating the DDT. The investors could then look at making equity investments as an alternative to replace the fixed income.
The finance minister also announced that the government and the Reserve Bank of India (RBI) would forge a better framework policy for claiming deposit insurance money if their banks file for bankruptcy. Last year, the budget for making insurance deposits had increased from ₹1 lakh to ₹5 lakh.
Nonetheless, it was only applicable for banks going through liquidation. So, it would be better if the banks devised a new methodology to help customers in bankruptcy.
Adhil Shetty, CEO of BankBazaar.com, recently said that the new budget has the right approach to protecting the banking customers from the situation we had experienced in the past, like when the RBI imposed a moratorium on banks and limited access to deposits.
Affect on Alternative Investments
The finance minister emphasized that there are six key pillars that the government will be focusing on with the release of the new budget. They are:
- Health and well-being
- Inclusive development
- Development of human capital
- Minimum government, maximum governance
However, the industry experts say that the real estate sector has been recently facing a financial crunch for quite some time now, and it needs to be resolved. This situation has not only caused the projects to get delayed but also inflated cost and property prices. The crisis does not end there.
The investors who were backing these high-level projects have also made considerable investments in the process. The experts also say that the government should ease the fund-raising norms and establish alternate investment funds.
The new budget has initiated positive reactions among all the sectors. For instance, companies like Lendbox provide alternative investments with low-risk investments. You can start investing with just ₹10,000 to earn up to 16% in returns.
The company is also an RBI licensed NBFC-P2P lending marketplace where potential Investors and pre-verified, creditworthy loaners connect and pursue bilateral transactions.
Stock Market Reaction
Vinod Nair, Geojit Financial Services Research Head, recently said that the pre-budget market had been affected by the growing concerns of weakened global trends and the slow economic recovery rate.
The Indian exports and FII inflows were also facing implications due to the slow pace of recovery in the US and Europe. He also explained that the new budget would provide the country's necessary strength to perform better than most during dire times. Besides, the expectations for maintaining the populist plan put forth by the government are high.
The Bombay Stock Market Exchange (BSE) Sensex was at its all-time low in March, but now, it has nearly doubled in numbers.
Remarkably, the Sensex has already exceeded the 50,000-mark after the budget. The experts also assume that further rallying with the new budget will pave the way in regaining the economic balance.
Furthermore, the Economic Survey of 2020-21 failed to impress the stock market. The survey indicates the state of the economy. The survey also states that the Indian economy could see a drastic change in the financial year of 2021-22. It even predicted a GDP contraction of 7.7%.
Ajit Mishra, VP-Research at Religare Broking Ltd., said that everybody expects new changes with the Union budget's introduction. And he further added that the union budget should focus on the revival and growth of the economy.
Analysis From Top Analysts
The primary focus of the new budget is to boost the economic growth and development of the country. And many analysts believe that the key to increasing economic growth depends on the tax cuts, higher capital expenditure and investments made on infrastructure projects.
Citigroup Inc. analysts expect the government to take the necessary measures to improve and boost the economy amid the pandemic. Sonal Varma, an economist at Nomura Holdings Inc., said that the expenditure could increase up to 9% compared to last year's 6.5% rise.
When the Union Budget was released yesterday, netizens took the privilege to express their views on Twitter. Many analysts are seen tweeting about the current Union Budget. Some of the tweets mentioned are from both before and after the announcement of the new budget.
Before the budget release, top Analyst Narendra Mertia tweeted that there might be zero relief in the upcoming budget for the taxpayers looking to the strained government financial status. At the same time, Mithilesh Kumar, a journalist from the Times of India, tweeted that the salaried workers and the pensioners must be given some form of relaxation with introducing the new budget.
Nilesh Mishra also tweeted that with the new budget release, the government should focus on R&D in agriculture to diversify farmers' crops.
In a tweet, Santanu Sarkar said that ₹25,000 crores in the Union Budget 2021 had been reserved to improve the State of West Bengal's roads and highways.
The Purchasing Managers' Index (PMI) data for the manufacturing and services sector and the auto sales numbers have been recently released to the public. And on the third of this month, the PMI data for the services will be presented.
Besides that, the RBI policy announcement that drives the domestic market sentiments will be revealed on Friday. And, the Monetary Policy Committee will start on the third and end on the fifth of February.
Moreover, the central bank will be expected to sustain the status quo and hold the monetary stance accommodative at the policy review, as seen in the 2021 Union Budget release.