VR Logo

A 'Low-Impact' Budget

Budget 2006 is a 'low-impact' budget, perhaps one of the lowest impact budgets in recent years, at least as far as investing is concerned

Budget 2006 is a 'low-impact' budget, perhaps one of the lowest impact budgets in recent years, at least as far as investing is concerned. For investors it's easy budget to understand simply because not much has changed.

The only changes are in the areas of investing overseas and in getting tax breaks on bank deposits. The government has expanded the scope for investing abroad through mutual funds. While in theory investing overseas is a good way to diversify, it is unlikely to invoke too much interest while Indian markets continue to do better than foreign ones. It is interesting to see that while removing the earlier caveat of funds being able to invest in foreign companies with an Indian connection, the government is now guiding such investment towards exchange-traded index funds.

The provision for bank deposits being a tax-saving investments is quite interesting. To a certain type of individual, being able to get a tax rebate by making a bank deposit will appear to be an attractive option. Although such an investment is convenient, I don't consider this to be a very progressive step. The lack of such options was actually turning investors to more productive channels like equity mutual funds.

Another change is the further hike in the Securities Transaction Tax. No one seems to mind it while the going is good. However, whenever the markets turn downwards, investors are going to find it painful to pay the government its pound of flesh even in loss-making transactions.