FM may offer customs duty, indirect tax cuts: Principal MF

By Sudipto Roy, Business Head, Principal Mutual Fund

While a common man still looks at the budget with lot of expectations, the Union Budget has increasingly resembled an accounting budget. This is because as the finance ministers have cut income tax slabs and rates over the years, there is lesser and lesser scope to do lower it further.

Besides this, all major policy decisions have been taken as on ongoing exercise outside the budget announcement. Yet, the Union Budget is still used as a statement of government’s policy stance towards growth and targeted policy initiatives for specific industries/consumer segments etc.

This year’s budget will be keenly watched for relief on inflation. Infact, inflation is one factor which is on everyone’s mind. Be it RBI, Government or domestic household. This is where most Indian households will be looking at the government for relief in the budget provisions. While for the government and RBI fighting; inflation is an ongoing exercise, yet budget is one event where the government can take further visible steps to fight inflation and connect with common man by aligning itself with their cause.

There are two ways a common man can be provided a direct relief against inflation. First, by increasing the disposable income, lowering taxes. Second, by lowering of direct and indirect taxes to ease the burden of inflation. After the previous budget's move to bring down the income tax impact; there is limited room for further lowering of taxes (Slabs and Rates). Government therefore; may have to take visible steps by lowering of indirect taxes and customs duty on essential household items.

While this will have an impact over the already stressed fiscal situation, yet it appears that the government’s hands might be forced to appear on the right side of fight against inflation. This may take care of the needs of India’s burgeoning middle class, a more direct support may be in the works for the residents below or about poverty line.

We might see government announcing provision for food grains at below market prices through Public Distribution System (PDS). While the efficiency of PDS is a suspect, yet such a move will have a direct impact on the market prices of such products

Source: http://www.moneycontrol.com/news/mf-experts/fm-may-offer-customs-duty-indirect-tax-cuts-principal-mf_523075.html