No News May Be the Best News from Today's Budget | Value Research Your best hope from the budget should be that nothing much happens
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No News May Be the Best News from Today's Budget

Your best hope from the budget should be that nothing much happens

There will likely be just a few hours between the publishing of this article and the presentation of Mr Mukherjee's budget, so perhaps it's pointless of me to double-guess the future. However, it seems pretty likely that today's Union Budget will most probably be a non-event from a savings and investment perspective. It could well be a non-event in other ways as well, but that's a separate story. All things considered, it seems unlikely that the budget will introduce any significant changes that will affect what you save, where you invest your savings, and how much you earn on them. But if you think that this is an accusation of sorts, then you are wrong. This is actually good news. Or at least, this has the potential to be good news.

In India, the Union Budget has long been institutionalised as a sort of an annual political festival, no less important in its sphere than Diwali is in its own. It gives an opportunity to many people to be heard and seen which they wouldn't otherwise get. However, after the reformintensive budgets of the '90s were done, there's very little to justify the hype. In reality, nothing much happens in the budget nowadays.

The reason why this is good news from a savings and investment perspective is that stability and the ability to plan long-term is an important pre-condition for savers to manage their money well. In this sense, 2011 marks a turning point of sorts. With the Direct Taxes Code coming into effect from April 1, this year will see a big disruption in tax laws.

The DTC will be a huge wrenching change for almost everyone and for better or for worse, it is now a done deal. But at the same time, if the government lives up to the promise, then DTC could usher in a new era of stability. It's far more important to have a stable environment than receiving some little gift of dubious financial longterm value from the finance minister every 28th of February. But perhaps it's useless to expect stability. After all, the government likes to be seen giving something, even if it's actually not worth much.

In the current climate of besiegement in which the government is operating, the need to be seen giving something will probably be quite strong. Think about it, the logical thing to do would have been to link personal income tax brackets to some sort of an index, perhaps the same one used for capital gains. But clearly, finance ministers like to be seen magnanimously pushing up the slabs a notch or two, even if the net effect is only to give back a little bit of what inflation has already taken away.

It's hard to remember a budget which had this lethal combination of the need to do something coupled with the inability to do it. Nothing symbolises this more than contrast between the fate of the DTC and the GST.

While the DTC is a done deal, but won't affect anything fundamentally, the GST, which would be the most worthwhile reform for a decade is looking more and more like an undone deal.

Anyhow, your best hope from the budget should be that nothing much happens. The ground reality is that the Government of India's sustained inability to control its expenditure and deficits, coupled with back-breaking inflation will guide it to making some gestures that will be designed to sound good but not amount to much. So best of luck for later in the day, we'll probably need it.

This column first appeared in The Economic Times on February 28, 2011




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