India Budget - Focus on Attracting Foreign Capital/Reducing FinMkt Volatility

Initial thoughts on the Indian budget:

• Increase in capital gains tax for investments in financial assets held over one year from 12.5% from 10%
• Increase in capital gains tax for investments held less than one year to 20% from 15%.These measures are aimed at dampening speculation in financial assets.
• A $2tn rupee jobs program providing financial support for first time job seekers
• Employment related incentives for employers and employees in manufacturing sector
• The government pledged to maintain strong fiscal support for India’s infrastructure sector, with spending seen at 11.1 trillion rupees, or 3.4% of India’s gross domestic product.
• Abolishment of tax on capital raising for start ups
• Small reduction in personal income tax rates
• Corporate tax on foreign companies reduced from 40% to 35% to support Foreign Direct Investments
• Reduced fiscal deficit target to 4.9% from 5.1%
• All in all, a fairly neutral budget. With the potential Trump administration becoming more protectionist and focusing on China, the reduction in Foreign Companies Tax could be aimed to positioning India as an alternative destination for foreign capital, whilst the changes to the tax structure for investments is seen to dampen speculation and hence volatility in financial markets.