Losing steam: on impact of budget on
markets (The Hindu)
Mains Paper 3: Economy
Prelims level: Angel tax
Mains level: Impact of budget on market
- Many investors who were hoping for business-friendly reforms were not
too impressed by the maiden Budget of the second Narendra Modi government.
- After a moderate negative reaction when the Budget was presented in
Parliament on Friday, both the Sensex and the Nifty witnessed their biggest
fall in over two years on Monday.
- The Sensex incurred a huge loss of 792.82 points while the Nifty shed
about 250 points.
- Sectors such as banking, automobiles and power were the worst-hit, each
witnessing a loss of over 3%.
Impact from Tax burden
- Investors were spooked by a variety of proposals made by Finance
Minister Nirmala Sitharaman that are expected to increase the tax burden on
- These include the proposal to increase long term capital gains tax on
foreign portfolio investors and to tax the buyback of shares by companies at
- The negative signal sent by the increased surcharge on people earning
over ₹2 crore a year also weighed on markets.
- This tax on the “super-rich” is unlikely to make much of a difference to
the government’s fiscal position.
- However, it does damage the image of the present government as a
pro-business one and can affect fund flow into the country if the wealthy
prefer to move to other countries.
- The proposal to raise minimum public shareholding in listed companies
from 25% to 35% is also seen as an unnecessary intervention in markets.
- Global factors like strong jobs data coming from the United States which
lowers the chances of an interest rate cut by the Federal Reserve, and the
potential systemic risk posed by the troubles faced by Deutsche Bank may
have also weighed on the markets.
Issues arising from global markets
- However, the losses experienced by western markets on Monday were
nowhere as heavy as the losses faced by the Indian markets.
- The larger issue bothering the Indian investor may be the Budget’s
supposed tilt towards populism as the government expands the size of its
welfare projects instead of taking steps to revive private investment in the
- Apart from a few words from the Finance Minister on simplifying labour
laws and relieving start-up investors from the regressive “angel tax”, the
Budget was largely bereft of any major structural reforms that could instil
confidence among investors.
- The trajectory of markets in the coming months will depend on the kind
of reforms the government manages to push through, and on the actions of
central banks across the globe.
- While the Reserve Bank of India looks to be easing its policy, any
global liquidity tightening can affect foreign fund inflows.
- Despite lacklustre company earnings and other fundamental issues,
markets in the past have been pushed up aggressively by the ample liquidity
provided by central banks.
- But without enough reforms to strengthen the fundamentals that can back
lofty valuations, it may be only a matter of time before markets begin to
Q.1) A person to be qualified for the membership of the Rajya Sabha should
posses which of the following qualifications?
1. He/She must be not less than 35 years of age.
2. He/She must be a citizen of India.
3. He/She must possess such other qualifications as may be prescribed in that
behalf by or under any law made by Parliament.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
Q.1) How the markets react negatively to the Budget’s populism and
inability to force reforms?