Why was #TaxTerrorism trending?
Edition #6
Welcome back to the 6th edition of Beyond Markets! Taxes, Jobs and Macro-Stability a lot of opinions have been flying around since 23rd July so let’s fly straight into it.
Topics:
Events this week:
Chief Economic Advisor's Insights on India's Economy
In his preface to the Economic Survey 2023-24, Chief Economic Advisor V. Anantha Nageswaran provides a comprehensive overview of the state of India’s economy and the challenges ahead. The idea is to revisit the context before the budget which will help understand why the budget was turned out to be how it did. Here is a summary from his insightful piece:
Continued economic growth: 1. India’s economy is on fire with an estimated 8.2% real growth in FY24, following impressive rates of 9.7% and 7.0% in the previous two years. 2. With Prime Minister Modi’s third-term mandate, we’re looking at steady and consistent policies. 3. Inflation is under control overall, though specific food items remain high.
Investment dynamics: 1. Both public and private sectors have been key in sustaining capital formation. 2. Private sector investment in machinery and equipment has rebounded after previous declines, but growth has slowed in recent years. 3. Foreign Direct Investment (FDI) remains robust despite a slight decline, aligning with global trends.
Employment trends: 1. Employment in factories has grown, particularly in larger factories, but more data is needed to understand job creation comprehensively. 2. Employment in unincorporated enterprises has slightly declined, but manufacturing jobs saw a significant increase recently.
Global and domestic challenges: 1. Higher interest rates in developed countries and active industrial policies elsewhere pose challenges for FDI growth in India. 2. Geopolitical uncertainties add to the complexity of maintaining capital flows.
Corporate sector’s role: 1. The corporate sector has seen significant profit growth but needs to focus more on job creation and worker compensation. 2. Investments in intellectual property and machinery are crucial for boosting manufacturing and creating high-quality jobs.
Technological evolution and AI: 1. The rise of AI brings uncertainty, especially concerning job displacement. 2. The corporate sector should focus on how AI can augment rather than replace human labour.
Education and skills development: 1. There is a need for a collaborative effort between the government, private sector, and academia to revamp education and skill training. 2. The Apprenticeship Act and the New Education Policy 2020 aim to improve higher education quality through market oversight.
Corporate Social Responsibility: 1. Indian retail investors have become a stabilizing force in the market, and long-term investing should be nurtured. 2. The banking and insurance sectors must avoid short-term profit pursuits that harm customer trust and service quality.
Agriculture and sustainability: 1. Current agricultural policies need reorientation to better serve farmers and the environment. 2. A return to sustainable farming practices can enhance value addition, boost farmer incomes, and create new opportunities.
Policy alignment for energy transition: 1. Aligning policies across ministries and states is crucial for energy transition and mobility issues. 2. Challenges include dependence on hostile nations for resources, technological hurdles, and fiscal implications.
Governance and letting go: 1. The government needs to streamline regulatory burdens, particularly for small and medium enterprises, to unleash their growth potential. 2. There is a call for the government to trust the private sector and for businesses to reciprocate with long-term and fair practices.
Conclusion: A tripartite compact among the government, private sector, and the public is essential for India to become a developed nation amidst global challenges.
Nageswaran emphasizes the importance of cooperation, innovation, and strategic investment to shape up India’s future to be a prosperous one. I hope this give you the context of our Economy before we move onto the highlights from Union Budget 2024
Budget 2024: Shock and Awe…some?
If you checked the trending hashtags on X around the ‘Taxation’ segment of Budget '24, you'd understand the wave of discontent sweeping across India. The finance minister's announcements sent shocks through the market, causing a sharp nosedive across indices with declines far outpacing advances.
While we are chock-full of with data, analysis, and endless opinions on each segment of the budget, let’s keep it relevant for our investment community. We’ll briefly have an overview and then we’ll move on to the impacts on traders and investors.
Overview
Let's start with the good news: macro-stability is holding strong. The budget reflects robust growth, impressive revenue, and a steadfast commitment to fiscal prudence. It might sound a bit dull, but these factors are the backbone of our current bull run.
And finally, some action on job creation! For more context, check out topic from Edition 5: Can the budget heal my bleeding wallet? Link: (https://www.dhirubhai.net/pulse/can-budget-heal-my-bleeding-wallet-getblinkx-snzbf/ ), spoiler alert! It didn’t. The apprenticeship project and employer incentives to create jobs are seen as major positives. Encouraging companies to offer meaningful jobs is a win for the economy that could pay dividends for years.
However, while there were higher allocations on programs like PMAY and PMGSY, there weren’t many ground-breaking announcements for the economically disadvantaged.
And here’s a tidbit: Andhra Pradesh and Bihar, key states in the NDA’s return, were allocated ?15,000cr and ?26,000cr respectively. That’s it. That’s the announcement.
On a positive note, the income tax deduction increase from ?50,000 to ?75,000 under the new regime is a welcome move, likely to boost consumption. There are rumours that this might just be a start of multiple initiatives the government will undertake in order to boost consumption by increasing the disposable income in the hands of its citizens.
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Sanjay Agarwal - Chairman of the CBIC, was quoted by Bloomberg on Wednesday saying, "Too many rates in goods and services tax are leading to classification disputes and that needs to be resolved,"
Our understanding is that The government is planning to simplify the current GST structure by taking the existing slabs of 5%, 12%, 18% and 28% and combining it into three rates. Too many rates in GST are leading to classification disputes, hence the plan to simplify.
Many changes have been made to GST since its introduction. Now that compliance has improved, and revenue growth has stabilized, it provides the government an opportunity to reassess and improve the tax structure.
Budget 2024: Earn more, Pay more
EFFECT ON TRADERS AND INVESTORS
Let’s look at how the Union Budget '24 affects traders and investors, focusing on three key areas: STT, STCG & LTCG, and Buybacks.
The new budget has revised STT rates significantly:
These figures don’t look that bad on the face of it all but let’s not forget the regulator is still mulling further changes to cool down the speculation market. The ongoing consultation paper is looking at reducing the number of expiries per week and more importantly they looking to increase lot sizes.
Cost of trading so far:
What’s next?
The initial shock isn’t the end of it. SEBI is contemplating additional changes to cool down speculative volumes in the F&O segment. They are considering reducing the number of expiries per week and increasing lot sizes. This could lead to higher margins, increased turnover fees, higher stamp duty, and elevated brokerage costs. Trading expenses will rise further maybe even as soon as Q3.
Interestingly, SEBI’s latest study, 'Analysis of Intraday Trading by Individuals in Equity Cash Segment,' reveals:
We have all seen those pictures of the FM and the SEBI chair right? What do you think they discussed??
Short Summary of the Study: https://x.com/getblinkx/status/1816111507287204338 Official SEBI Report: https://www.sebi.gov.in/reports-and-statistics/research/jul-2024/study-analysis-of-intraday-trading-by-individuals-in-equity-cash-segment_84946.html
2. STCG & LTCG
This wonderful table was put out in the Mint by Pranay Bhardwaj (24th July ’24). Full credit to them. We tweaked it slightly to provide a snapshot of all the changes that will come into effect.
The annual LTCG exemption limit has been raised from ?1 lakh to ?1.25 lakh for stocks and equity MFs.
The biggest concern has been around real estate, but it appears to have no effect on genuine home buyers or those who reinvest sale proceeds. This change mainly impacts real estate investors who flip properties for profit. According to CLSA’s Kunal Lakhan, the new LTCG regime is higher when the holding period is under 10 years and property appreciation is below 10% annually. However, it could be beneficial for longer term investors with higher appreciation rates.
3. Buybacks
Income from buybacks will remain tax-free for shareholders until 1 October 2024. After that, any income from a tendered buyback will be taxed in the hands of shareholders. This change is expected to reduce the number of buybacks going forward, primarily affecting the largest shareholders.
While the budget introduces some short-term shocks, it ultimately sets the stage for long-term growth. Since corporate earnings remain unaffected this budget is touted to be a signal from the Government to the private sector to put out Capex from their end.
That covers most of the important highlights from the budget. This is by no means an exhaustive piece a lot of analysis and impact still remains to be calculated. ?Yes, Union Budget 2024 has come with certain shocks but upon a second glance it seems to be awesome for the Indian Economy!
Infotrend:
Overview of Key Government Schemes in India, along with the number of beneficiaries who have availed these schemes:
That's all for this edition of Beyond Markets by blinkX! Let us know in the comments what you think and what would you like us to cover in the next edition? Have a great week!