Prashant Sharma, CIO, Max New York Life

Stable direct tax rates: No major changes in direct taxation expected due to fiscal compulsions. However, there could be some tax relief in income tax slabs for the “aam aadmi” given the high inflationary scenario. A comprehensive review of tax rates is scheduled for next year. The DTC and GST are scheduled to be implemented in FY2013E. The forthcoming budget will help the government lay down a road map towards long term taxation policy.

Increase in indirect tax rates: We expect an increase in excise duties esp. cars, white goods, cap goods, metals. Indirect taxes are lower than the peak rates in FY08 and the Government has sufficient leg-room to increase rates. However given the economy faces pressure on account of inflation and a volatile global economy, in case the government rolls back the entire stimulus, it could have an adverse impact on the economy.

Higher productive expenses: In the budget we will look for a better mix of expenses. Currently ~65% of expenditure is sticky – due to interest payments, wages, defence and subsidies. We wish the FM would increase spending on productive investments like roads, irrigation, health, education and progressively control expenses on maintenance activities like salaries, pension and subsidies.

Enunciation of anti-inflation measures: Inflation has been high for the FY11 largely driven by supply-side constraints with loose economic policies also contributing. The budget can help relieve pressure on the supply side through agri market reforms and providing funds for irrigation facilities. The central bank has been trying to manage the situation but its success has been limited to date. We wish to see the Union Government acting on inflation through institutional changes. The budget will be the best place for such an action.

High though stable deficit: Fiscal deficit in FY12 could be flat at Rs4trln (higher subsidies being offset by higher tax revenues) and net borrowing could be Rs3.6trln (compared to Rs3.3 trln in FY11). The Government may face challenges in financing deficit and hence supporting the growth given the tight liquidity situation.

Facilitate investments esp in infrastructure: Over the last two years the popular perception is that infrastructure investments esp. private investments have suffered due to slow decision making and financing difficulties. We believe the Government will stress investments in this budget. The last investment cycle from FY03-08 was the longest since 1952 and lead to strong GDP growth. India could rebound strongly in case various approvals come across smoothly and financing is supported the capex cycle.

Clarify Government’s stance on other key policies: In our view, the budget will be the appropriate forum to reaffirm Government’s position on key reforms/policies like the land acquisition, FDI cap on insurance, retail, mining act & black money.