The tax on super rich makes Nirmala Sitharaman's budget a bitter one for the market

  • Both Sensex and Nifty gave up the initial gains as Nirmala Sitharaman delivered her budget speech.
  • The Benchmark index gave up the morning gains and fell to the day's low, down over 400 points by 1:30 pm.
  • The tax on the country's super rich has dampened sentiment in India's equity markets.
Finance Minister Nirmala Sitharaman's first budget for the Narendra Modi government's second term cut down the tax on 99% of all firms in the country, proposed to infuse fresh money into the banks, helped assuage a lot of fears around the solvency of some good shadow banks, helped small taxpayers with sops on home loans and promised to make room for corporate borrowing in India by taking a part of the government borrowing abroad.

All of these lifted the market's spirits but it all came crashing down as soon as she proposed more tax on the country's super rich. The impact on people earning ₹2 crore to ₹5 crore a year will be 3% and 7% on those earning more than ₹ 7 crore.

Market fears this will further worsen the exodus of millionaires from India into tax havens.

More money supply

Banking stocks jumped as Sitharaman announced fresh capital infusion plan for PSU banks of ₹70,000 crore. She also proposed to take away the regulation housing finance companies from the National Housing Board, and hand it over to the RBI in the wake of the recent crisis.

The Finance Minister also proposed to improve the liquidity in the market and reduce the panic with the following measure. "For purchase of high-rated pooled assets up to ₹100,000 crore, government will give PSU banks one-time partial guarantee for loss up to 10%, Sitharaman said.

Sitharaman has proposed that government will borrow money abroad in foreign currency because India's sovereign debt to GDP ratio is among the lowest in the world, less than 5% of GDP. When the government borrow from banks in India, as it has done so far, it reduces the amount available for other businesses. When the borrowing is high, it increases the lending rates for the private enterprise.

Now, if government takes part of its loans abroad, it will reduce the pressure liquidity in the domestic market.

Lesser corporate tax

Budget has also proposed 25% corporate tax on companies with revenue up to ₹400 crore, up from the earlier threshold of ₹250 crore.

To tackle the rising corporate debt, the FM said that stock exchanges should allow AA rated bonds as collateral. She also called for regulators to come together.

"There should be inter-operability between Reserve Bank of India (RBI) and Securities and Exchange Board of India (SEBI) which will allow retail investors to invest in treasury bills," Sitharaman said in her speech.

Railways infrastructure boost

In a big boost to railway stocks, the government has proposed to open up the crucial railway sector to private partnerships to fast-track infrastructure development. Sitharaman also promised to start a railway station modernisation programme this year.

FM says Central government's land parcels across the country can be used to develop affordable housing and public infrastructure. They can be used in the form of joint development and provide concessions.

She also announced pension benefits to retail traders. with annual turnover less than ₹1. 5 crore.

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