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Budget 2009 – First Look

March 1, 2008

Short Term Capital Gains:The increase in Short Term Capital Gains tax (STCG) and the indirect increase in Securities Transaction Tax (STT) will disappoint the markets, in our view. On the positive side, the Finance Minister has succeeded in more than meeting his fiscal deficit targets and has forecast a fiscal deficit of only 2.5% of GDP for next year.

Waiver of farm loans – Indian Sub-prime:
The Finance Minister has announced a waiver and a one-time settlement of agricultural loans that will lead to a write-off of loans upto Rs600 bn. While details are still not clear, the Government has said that they will compensate the banks fully for these write-offs.

Autos – gain with excise duty cuts and personal Income tax cuts Autos will gain in the budget with a decrease in excise duty by 4% on small cars, 2-wheelers, buses and CVs. Also, helping autos would be lowering of personal taxes and the impact of the likely announcement of the Pay Commission impact.

Holding companies gain – Double Dividend Taxation set-off
Holding companies can now claim set-off of dividend taxes paid on dividend received by their subsidiaries. This should help companies like Jaiprakash which have presently many SPVs (and in future helps companies like Gammon, L&T etc) as well as finance companies like ICICI, HDFC.

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