A celebration of expectations or calibration of expectations – nothing really matters unless it is real.

Will the finance minister...? Won't the finance minister...? Why shouldn't the finance minister...? On Radio, Newspaper, TV, What Not and Whatsapp, you will be hearing to the expectations people have from the budget. Frankly, a budget or an ideal budget if ever there could be one will still not be an everlasting solution to the current economic situation of rising inflation, slowing growth, declining corporate profits. If it were so, then we would really be not expecting so much year after year when the budget day comes.

In the 4 factors of production i.e., land, labour, capital and entrepreneurship, the budget does not have any significant influence on land and labour as they need structural reforms and the budget can only point towards the fact that both land and labour need structural reforms. Given the political situation at present, it is almost impossible that we will have a helping group of Opposition political parties and trade unions (which also have political affiliations), willing to help pass labour and land reform bills in a timely manner. To this extent, the budget has no control over the improvement of the two important factors of production. Without resolving the land and labour issues, the manufacturing sector is not likely to see double-digit growth and the envisaged dream of previous budgets of massive employment opportunities for a demographically young country like India are not likely to be seen anytime soon.

In an ever-increasing machine and robotic driven manufacturing segment, it makes sense for the government to focus on the services side of the economy because there the workers can be skilled up fast and mechanical superiority does not impact much. In short, sectors like tourism and the financial services sector should be incentivised as they can provide massive earnings opportunity for the rapidly growing % of unemployed youth among graduates.

So then there remains only two factors, Capital and Entrepreneurship, which the budget can definitely influence.

The budget can create a match for the demand and the supply of capital by offering longer-term investment opportunities in infrastructure development and better effective return on capital for the retail which can come from lower tax rate on final maturity.

Clarity on how the government plans to raise finances for and clarify its participatory role in the ?102-lakh crore 5-year infrastructure development plan, the National Infrastructure Pipeline (NIP) will show the government intent much beyond what the capital expenditure estimates would suggest in the Budget document.

A leaner government spend and participation on infrastructure can actually reduce the corporate interest rates due to the lesser crowding in the debt market. India is no Singapore and therefore privatisation of government companies with the government shareholdings in the PSU's transferred to a separate holding company is a long-long ask.

The government can look at external borrowings given that there is surplus liquidity abroad which itself comes to India via the equity market route with scant worry on neither valuation not the inherent risk in equity. The structuring of the external borrowings can be designed with lower coupon payments and higher maturity value as that would buffer the offerings from the currency fluctuations. Anyways, government debt is repaid by borrowing again and so this should not be a problem in the long run.

There is certainly room for modifying the tax rules on direct taxation. This includes the treatment on dividends from the taxation at source to the taxation at the receipt. The continuance of both STT (Securities Transaction Tax) and LTCG Tax at present is indeed beyond logic when the reason for introducing the STT in 2004 was the removal of LTCG tax in the budget of the same year, 2004.

The budget can focus on simplification of the tax-related processes, less interpretation on a retrospective basis and improving tax compliance with a less rigid tax structure could go a long way in attracting capital and encourage entrepreneurship.

Tackling the NBFC situation or indicating that the RBI will soon act to ease the credit shortage and interest rate transmission post rate cuts can result in the availability of funds for the credit-starved small and medium enterprises (SME's).

Slowly but steadily, the last few budgets have focused on building entrepreneurial ability through increasing focus to the start-up ecosystem in the country. The budget may focus on increasing government spend/investment on artificial intelligence, machine learning, Blockchain etc. and facilitate reskilling and relevant skill development in emerging technologies domain.

Lastly, from an investor’s viewpoint, a budget will always have some positives and some negatives. A reform-oriented budget will help the markets at some point in future if not now. One can be sure that if there is something drastically wrong then the immediate market reaction will make the government soothe the angry market participants with rollbacks and reversals or sometimes somethings even better, like the reduction in corporate tax rates last year thus completely nullifying the fall due to budget proposals.

Stay invested.

The writer is the CIO of Mitraz Financial and can be contacted through micontact@mitraz.financial