Finance Minister Nirmala Sitharaman will be presenting the Union Budget tomorrow with high expectations across sectors. With the Indian economy registering its worst performance in the last six years, here's what market is expecting out of Budget 2020.
Corporate bond market
Although the government has already announced multi-billion infrastructure projects, the financing of such projects still remains a major concern as the commercial banks are still shying away from financing. In such cases, the corporate bond market may provide much-needed financing with the condition that the rating of the bonds is AA and above. The government may constitute a credit enhancement institution to realize such goals.
Guideline to address the governance issue of unlisted firms
There are enough guidelines for governance in the listed companies. In the last few years, unlisted companies have attracted a significant amount of minority capital. In order to protect the interest of the minority shareholders, the government should come up with an appropriate governance structure.
With no room for any increase in taxes, the government will have to find ways to monetize assets through privatization/ disinvestment and other ways including the introduction of Exchange Traded Funds (ETFs). The government may also look for establishing an investment holding company to allow flexibility in decision making of timing, sequencing, valuation and borrowing against a stock.
FDI limit in Insurance Companies
India is one of the worst-performing countries when it comes to penetration of insurance among the masses. Although in the last few years, the situation has got much better, an increase in foreign ownership from 49% to 74% can further spur growth in this critical sector for the Indian Economy.
Clarification over Long-Term Capital Gains Tax
In February 2018, after a gap of 14 years, the finance minister had announced the long-term capital gains tax on listed securities. The decision had a prompt response by the major overseas investors with the market witnessing a huge outflow of funds. Moreover, the decision did not yield a meaningful increase in tax collection. The current tax regime on markets includes Securities Transaction Tax (STT) and long-term capital gains tax (LTCG), a double whammy for the investors. The market is expecting some relief on this front.
