FDI Norms Simplification After Historic Low, Ratings Agencies Say New Fiscal Deficit Target In Reach

Ratings Agencies Say Fiscal Deficit Target Of 4.9 Per Cent Achievable

Rating agencies noted that the fiscal deficit target of 4.9 percent set by the government in its July 23 Union Budget will be achievable, but a rating action would require a sustained consolidation, leading to a reduction in government debt, Moneycontrol.com reported.

“Sustained fiscal consolidation, which supports a downward trajectory in the government debt ratio over the medium term would be supportive of India’s credit profile,” said Jeremy Zook, director and primary sovereign analyst for India at Fitch Ratings.

The finance minister reaffirmed the government’s commitment to bring down the fiscal deficit below 4.5 percent by the next fiscal. The government lowered the fiscal deficit target to 4.9 percent from 5.1 percent earlier. More here 

New Norms Needed To Simplify FDI After 5-Year Low In Inflows

The Union Budget has proposed to simplify norms surrounding foreign direct investment and overseas investments in a bid to boost capital inflows from foreign shores, Business Standard reported.

“The rules and regulations for foreign direct investment and overseas investments will be simplified to facilitate foreign direct investments, nudge prioritisation, and promote opportunities for using Indian Rupee as a currency for overseas investments,” Union Finance Minister Nirmala Sitharaman said in her Budget speech.

The announcement comes at a time when FDI equity inflows into India have fallen to a five-year low in FY24 to $44.42 billion. This also comes against the backdrop of the Economic Survey arguing in favor of promotion of FDIs from China to benefit the manufacturing sector and tap the export market. Read More 

Long Term Capital Gains Tax Rejig Leaves Investors With Heartburn

The budget has delivered a rude shock to most taxpayers. In the guise of rationalisation of capital gains provisions, there has been a significant increase in capital gains tax liability in most cases, Livemint reported.

Relatively straightforward is the increase in the rate of tax on long-term capital gains and short-term capital gains on listed equity shares and equity-oriented funds from 10 per cent and 15 per cent respectively to 12.5 per cent and 20 per cent. Given the buoyant stock markets in recent years, this may be a tax increase that investors may shrug off and bear with a little heartburn.

The big shock lies in the complete elimination of indexation of cost for all other long-term capital assets, which include unlisted shares, immoveable property, gold, overseas shares and units, etc. More here 

Rural Consumption Surge Expected After Budget, Says FMCG Sector 

The budget’s focus on infrastructure, rural outlay and tax savings is likely to fuel rural demand, according to companies in the fast moving consumer goods sector, the Economic Times reported.

Rural demand is crucial for sustained revival of packaged consumer goods and two-wheelers, and the focus on job creation will spur consumption in tier-2 and 3 cities, company executives said.

The announcements increasing investment on rural development, investment activities supporting one crore urban poor and schemes for youth employment would serve potential consumers in nine out of ten households, analysts said. This will have a multiplier effect, driving consumers to spend more on consumption. More here

Gaza Ceasefire Deal Brings Down Oil Prices As Biden Plan Gains Momentum

Oil prices fell for a third consecutive session on Tuesday, as growing expectations of a ceasefire in Gaza and demand concerns offset potential September interest-rate cuts and supply threats from Canadian wildfires, Business Standard reported. 

Brent crude futures for September fell by 84 cents, or 1 per cent, to US $81.56 a barrel by 1409 GMT. US West Texas Intermediate crude for September dropped 93 cents, or 1.2 per cent, to US$77.47 per barrel. In the Middle East, efforts to reach a ceasefire deal between Israel and militant group Hamas, under a plan outlined by US President Joe Biden in May and mediated by Egypt and Qatar, have gained momentum over the past month. More here