To discuss the markets’ and public’s expectation from the Budget, CNBC-TV18 spoke to Rahul Jain, President and Head of Nuvama Wealth, and Rakesh Nangia, Chairman of Nangia Andersen India.
Excerpt from the Discussion
Q: It’s been a difficult start to the year for investors and in the markets alike. So, before we talk about the bare basics of Budget 2025, just some opening thoughts regarding the wealth environment and the challenges that 2025 has gotten off with?
Jain: January 2025 has been very volatile, and one of the things is that volatility will continue for at least the next two or three quarters. So, investors should be ready. And there are a lot of events also coming, like the Budget. There are expectations from markets. There are also events like the RBI policy, etc, that will impact the market. So, investors should continue doing the basic philosophy on the wealth side, doing basic asset allocation well. Be patient. I think it’s a good time to review portfolios and take the laggards out. And it’s a common saying that a bad market is the best time to invest in markets. So, there is also an opportunity.
Q: Usually, we say that Budgets come and Budgets go; they don’t matter in the long term, and they don’t matter for the market. It’s a one-day phenomenon, and the market moves on. Is it different this time because of the environment?
Jain: Yes, it will be a little different for sure because there are a lot of expectations, and the expectations are getting built up because of the environment.
Markets or as an investor, the budget should be pragmatic, which should spur growth and be fiscally prudent.
Another thing that is very commonly spoken about is capital expenditure. There will be an increase, but there also needs to be some execution of the expenditure. If there’s a clear outline, that will get the market excited.
There is a lot of conversation about the slowing down of consumption. I think the middle-class pain we keep speaking about is that if there is some rebate on income taxes, etc, they have extra money to spend. These are things which markets are looking out for.
Q: Rakesh, your thoughts given the high expectations this time?
Nangia: The world is going through a tough time. It is a little unprecedented, and we need a momentous Budget. We need an extraordinary Budget because this is an extraordinary time. The growth rate is down. It is at 6% now, so it’s a challenge for the government. Tax collection and refunds are a challenge. Though tax collections are good, they are slowing down. And this quarter, if it’s a dampener, it will have a very serious bearing. The government will have to come up with many things, which will not be easy. There will be some compromises, and there will be no compromises that we can’t do. So, you’re walking on a tightrope.
Just in a few months, the global scenario changed. So, you will see this have a bearing on the budget.
Q: So, let’s talk taxes because we know that through the challenges, the growth in direct taxes has been very, very good, particularly in personal income tax. So, is there a case for some relief? And if you do expect something, where could it come from? New regime, old regime, deductions, housing, 80C?
Nangia: 89 million tax returns were filed in 2023-24. So, this comes close to 6.7%. Ten years back, only 1% of people filed their return. Now this year, the figure is around 7%, 8 crore returns we filed basically. And you will be surprised that the lowest strata, which is till ₹5 lakh, 5.25 crore out of 8 crore returns filed, which is close to 70% of the people who do not pay any taxes because their income is exempted. They get a rebate under 87A. And they don’t pay any taxes at all, but they have to file a tax return under the law. So now, if you take out this, the number of people paying taxes is just 3 crore. If you see the people filing returns beyond ₹5 lakh, ₹5-10 lakh, it is 1.5 crore, a reasonably good number. If you see from ₹10 lakh and above, it is 1 crore. So, the middle income is either filing a return and declaring the right income as they realise there’s no choice and there’s a growth of income. So, all these things have bundled together.
Q: Which is why this middle never gets anything. Usually, people at the bottom end get something, maybe people at the top end also. I remember the finance minister offered some sweeteners in the July budget for personal income tax. But the sweeteners were for the lower tax slabs in the new regime. She went on to hike the standard deduction. Again, that was in the new regime. Standard deduction went from ₹50,000 to ₹75,000. Again, there was relief. But now, relief was for the highest tax slab or earners because that is where they were given the choice that if the super-rich were going to move to the new regime, then the surcharge rate was lower. Their peak tax rate is about 37.5% because of that lower surcharge in the new regime. So, the rich are getting at least something to hold on to, and so are the bottom guys. But what about the middle?
Jain: Yes, so that is the expectation that the middle will also get some benefit this time. And that’s what I said also. That is one of the expectations which is being built out.
The middle-class segment is also helping the economy a lot from a consumption point of view. I think a lot of growth factors are also related to them only. So, in the investment part of the world, the middle class is also helping the markets be very consistent and sustained, even after the negative FII flows. So, it’s an important segment, and something should be done about it.
Q: If this middle, part is to get some help, what kind of changes realistically would you expect?
Nangia: I can only say lower people will get an exemption that goes without saying, whether it’s the need of the hour, whether it’s because of inflation, whether it is because of global reasons, local reasons, domestic reasons, you expect they will get a relief, that goes without saying.
Rather than tweaking the rates yearly, people will not ask for any rebates if you adjust for inflation. So, we have represented before the government several times to link the tax slabs to inflation and then round it off basically. Secondly, personal income tax collection has increased by 300% in the last 10 years. 60% of the current year’s tax comes from individual income tax, and 40% comes from corporate income tax. So, the government has targeted it.
Watch the accompanying video for the entire discussion.