Union Budget (2016-17) FM finally gets it right! Unlike the previous two occasions, the finance minister has finally managed to surprise positively this time by staying on course of fiscal prudence but still managing to find enough resources to propose a substantial outlay for capital spending, rural development and social schemes. In the Union Budget for 2016-17, the government has set a fiscal deficit target of 3.5%, in line with the fiscal consolidation roadmap. But at the same time, it has earmarked Rs2.21 trillion for total infrastructure spending (largely focused on roads and railways) along with Rs87,765 crore for the rural sector and Rs1.51 trillion for the social sector (namely, education and health sectors). To achieve the same, the government has preferred not to disturb the tax structure in any major way, rather it has relied on modest tinkering in certain categories and on introduction of cess wherever possible. The net government borrowing figure of Rs4.25 trillion for FY2016-17 is lower than the FY2015-16 revised estimate and a strong positive for the domestic financial sector in general and the bond market in particular. Consequently, it would provide enough room to the Reserve Bank of India (RBI) to retain its accommodative monetary stance and cut interest rates further. We expect the RBI to cut the key policy rates by 25-50 basis points in 2016. Budget math
The budget is building an 11.7% growth in the gross tax revenues which seems realistic, given the assumption of a nominal growth of 10% in the gross domestic product (GDP) during FY2016-17. However, the budget pegs close to a 25% growth in the non-tax revenues, thereby resulting in a growth of 15.5% in the total net receipts for the year. The government seems to be depending on receipts to tune of Rs99,000 crore from the spectrum auction (includes part payment of the earlier auctions) along with the savings on fuel subsidy due to soft crude oil prices. For FY2015-16, the government reported a comfortable position on the revenue deficit front with a revised estimate of 2.5% as compared with the budgeted estimate (BE) of 2.8% as presented last year. A sharp increase in the indirect taxes (18.4% year on year [YoY] over the BE, thanks to savings on fuel subsidy and excise duty hikes on petroleum products) positively affected the revenue deficit. The revenue deficit target is set at 2.3% for FY2016-17. More to cheer than fear
From the stock market's perspective, the thrust on economic stability, and focus on infrastructure and consumption are among the positive takeaways from the budget. The stress on increasing the savings rate and the shift towards financial assets are positive from medium- to long-term perspectives. Moreover, the government has not tinkered with the capital gains tax on listed equity investments and the basic service tax rate. However, there will also be grunt on more steps that could have been taken to revive the financial sector apart from increasing the dividend distribution tax for dividends receipts of over Rs10 lakh, the securities transaction tax (STT; 0.017% to 0.05% on options) and lowering the corporate tax rates (no change in tax slabs for large corporates). Going ahead, the market will pay heed to the progress on the key legislations like the Goods and Services Tax (GST) and the bankruptcy law along with the RBI's monetary measures which if goes through could repair the weak sentiment. | 
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