'The government will have to walk the tightrope in the upcoming Union Budget'
BW Businessworld conducted an impactful personal finance pre-budget round table discussion yesterday, in association with News X. The elite panel included Surya Bhatia, CEO of Asset Managers, TanwirAlam of FinTech venture Fincart, Preeti Khurana - Chartered Accountant & Chief Editor of ClearTax, Chenthil R. Iyer, Founder of Pune based Horus Consultants, and Samant Sikka - Founder of Sqrrl, a popular robo advisory platform. The discussion was anchored by Rishabh Gulati of News X.
Bhatia kicked off proceedings by suggesting that in the end, it is the "country's behaviour" and macros like fiscal deficits, that go on to determine just how much a particular year's budget can be expected to benefit the common man. He suggested that headwinds such as burgeoning oil prices and global liquidity tightening, have thrown a spanner in the works in recent times.
Khurana began by stating her concerns about "taxes as a percentage of GDP" being fairly low in India, adding that she was "quite positive" that the FinMin would be able to successfully manage expectations from all sides, given his track record.
Sikka said that the recent "heavy lifting" done by the government in recent times - specifically, in terms of Aadhar linking and GST implementation, have given retail investors a hard time. He suggested that some form of "compensation" was likely to be seen in this year's union budget, but it was unlikely that the budget would veer towards being too populist in nature.
Alam commented that the Government would have to "walk the tightrope" in this budget, given that this would be their last one before the country goes to vote again in 2019. He was of the view that there is limited room to cut taxes, adding that retail inflation has been the chief dampener of late.
Iyer, on the other hand appeared fairly optimistic about a cut in tax rates. "It's been a tough four years, with a lot of well intentioned reforms going awry in terms of implementation. In light of the impressive quantum of GST collections, tax rates may be cut", he said. Countering Iyer, Sikka expressed his view that the elbow room for rate cuts is limited, given that the country is unlikely to achieveits 3.2% fiscal deficit target for the year. "The glamour is likely to be missing from the fashion show", he said - implying that he expects the budget to be more of a non-event from the personal finance perspective.
Bhatia was of the view that a "non-event" would in fact, be a good outcome. "The Finance Minister should in fact make sure that the budget is boring", he said - driving home the need to spread reforms through the year rather than making the Union Budget some sort of "big bang" event for the personal finances of the common man.
The panel debated the relative merits and demerits of tinkering with tax rates. While Alam was of the view that reducing tax-rates would draw more people into the fold of tax payers, Khurana disagreed with this hypothesis. According to Khurana, the government needs to essentially focus on the "big fish". Iyer, while making it clear that he isn't a big fan of direct taxes, spoke in favour of a 5% reduction in tax rates across slabs. Khurana countered Iyer'sviewpoint, opining that direct taxes are "essential for every economy"
Sikka brought up the valid point that considering that we're a country of savers, the percentage of our collective household savings that flows into the capital markets is abysmally low - and the budget needs to take definitive measures to buck this trend. Alam agreed, while adding that reforms in the NPS (National Pension Scheme) architecture were the need of the hour, and the FinMin must take steps in that direction in this budget. "The NPS, in it's current form, is not lucrative as two-thirds of the corpus is essentially not tax-free", he noted.
All in all, the panel seemed to concur that no big bang personal finance related measures are on the cards in the Union Budget 2018. It's likely to be a fairly well-balanced budget, rather than an overtly populistic one that would hurt the exchequer too much. Iyer concluded the discussion succinctly, advising clients to "let tax-saving be a by-product of prudent Financial Planning, rather than an end objective in itself". Wise words indeed.