In fact, debt waivers and relief to farmers, enhanced rural allocation and reduction in personal tax liability is expected to increase the disposable income and boost overall consumption demand in the economy. The implementation of sixth pay commission would further add to the consumption boom. This is expected to revive the growth in consumer durables and goods sector, which was showing a distinct slowdown and also to sustain the growth momentum in the economy. What's more important is the fact that the FM has also focused on controlling inflation by reducing peak excise duty rate. Moreover, the fiscal deficit target of 2.5% (as against Fiscal Responsibility & Budget Management target of 3% for 2008-09) indicates that the government might reduce its borrowing and thereby target the money supply in the economy to control inflation.
The FM has not tinkered with the corporate tax. The continued focus on spending on infrastructure and initiatives taken to boost consumption could have a positive impact on corporate earnings. In fact, there could be some upgrade to the earning estimates of consumer driven companies such as automotive and FMCG. This makes it a well-balanced budget that not only woos the vote bank but also provides fiscal stimulus to sustain the growth momentum in the economy with control on inflation. However, the budget has dampened market sentiments due to increase in the short-term capital gain tax from 10% to 15% and modifying the security transaction tax (STT) that could be unfavourable for traders and arbitragers.
