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BW Businessworld

Targeting Disinvestment

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One thing is certain; this year's Budget is going to be pro-poor since elections are round the corner. The Finance Minister would like to please the aam admi. Everyone would like taxes to be abolished, subsidies to go up, inflation to be under control, stock market to scale new height and so on.

But is it possible for the FM to accept the wish list as above?

It is said that if wishes were horses, beggars may ride. Our wish list may be unending, but given the constraints of high deficit financing, high rate of inflation, low rate of tax collection to GDP ratio, need for higher allocation to infrastructure, lower agricultural output etc, the FM has an unenviable task of handling numerous problems at the same time. Keeping in view the prevailing situation, what do we expect the FM to do? Here are some reasonable expectations from the Budget:
 
Although Indians have a higher level of propensity to save, it is seen that in the last few years, there hasn't been an increase in GDS to GDP ratio. It has come down.

FM may announce some incentives for direct savings to save tax. The Limit of 80(C) of 1 lakh has not been increased for a long time. It is likely to go up. A separate slot may be earmarked for insurance premium and annuity plans.

The RGESS (Rajiv Gandhi Equity Saving Scheme) announced in the last Budget has not taken off due to various restrictions. The FM himself has said that investments will be made hassle free and the scheme may be modified for the good. We can therefore expect the present limit of Rs 50,000 to go up to Rs 1,00,000 and the scheme to continue next year as well. The availability of tax relief to those with an income of below Rs 10 lakh may also be removed. It may thus become more attractive to the common man. These steps will help the share of individuals in the equity market to go up which has been pegged at about 8 per cent for a long time.

In order to check inflation, deficit financing may be brought down to 4.8 per cent or so. Cash to subsidy will also help bring down the allocation for subsidy.

The disinvestment target may be set to Rs 50,000 crore next year. Many PSUs that are listed have promoter's holding over 75 per cent .The government can generate a lot of money through disinvestment, in line with SEBI's expectations.
 
(Nilesh Sathe, Director & CEO, LIC Nomura Mutual Fund)