Analysis of Union Budget's Impact on the Markets

The first full year budget of the new government has attempted to carry forward the positive sentiments surrounding the Indian economy by providing a roadmap for the future. The broad measures/allocations announced, including the various social and welfare allocations, can provide for benefits in the long term as opposed to any significant changes in the immediate timeframe.

While recognising the various challenges faced, the budget has rightly focussed on 4 key areas – agriculture, infrastructure, manufacture and fiscal discipline, to realise its vision and trajectory for the country’s economy. The thrust laid on the infrastructure sector, the measures announced to stimulate the “Make in India” programme and the facilitation of “Ease of Doing Business” sets the tone for revival of the economy.

Macro Highlights:

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	Fiscal deficit target at 3.9% of GDP for FY16, 3.5% in FY17 and 3.0% in FY18. Current account deficit below 1.3% of GDP.
	Nominal GDP is projected to grow by 11.5% year-on-year (YoY) in FY16 over advance estimates of FY15.
	Planned expenditure is budgeted at Rs. 4.65 lakh crore, a decline of 0.6% YoY over FY15
	Gross tax revenues are budgeted to grow 15.8% YoY in FY16.
	Gross borrowings pegged at Rs. 6 lakh crore, while net borrowing is flat at Rs. 4.6 lakh crore.
	Divestment targeted at Rs. 69,500 crore.

Key Changes in Direct Tax

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Resident Individual Tax:

	Base income-tax brackets for the financial year 2015-16 on personal income remains unchanged, however an individual tax payer can get tax benefit of Rs.4,44,200.
	Surcharge has been increased from 10% to 12% on Income Tax for income exceeding Rs.1 crore, thereby increasing the effective maximum rate of tax to 34.61% from 33.99%, an incremental impact of 0.62%. The additional 2% surcharge is in lieu of the Wealth Tax which has been abolished.
	Transport allowance exemption is being increased from Rs.800 per month to Rs.1,600 per month
	Health Insurance Premium:
	Limit of deduction of health insurance premium increased from Rs.15,000 to Rs.25,000, for senior citizens limit increased from Rs.20,000 to Rs.30,000. Senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed deduction of Rs.30,000 towards medical expenditures.
	Limit on deduction on account of contribution to a pension fund and the new pension scheme increased from Rs.1 lakh to Rs.1.5 lakh.
	Additional deduction of Rs.50,000 for contribution to the new pension scheme u/s 80CCD.
	Investment made towards Sukanya Samriddhi Scheme, relating to education of girl child shall be eligible for 100% deduction under Section 80C.