Mr Chidambaram has continued the steps he initiated in his earlier tenure as finance minister in the late 1990s, in his last budget.

Overall the macro economic picture is buoyant, with 8% economic growth over the last 4 years and forecast of 9.2% economic growth in this financial year. The thrust on education, rural development, infrastructure and urban renewal in the last budget was a welcome move.

The cut in custom and excise duties and no increase in direct tax rates was a positive for the markets. The increase in service tax rates and STT has been taken in its stride by the market. The intention to evolve a consensus on the three areas of subsidies - food, fertilizers and petrol demonstrated both coalition dharma and political maturity. However, this was not addressed in the course of the year.

The macro economic positives of reduced revenue and fiscal deficits, increase in plan expenditure by 20% while holding non-plan expenditure increase to 5% proved to be attractive for long term investors in the Indian market.

The increased flexibility to invest abroad, the alignment of close-ended fund's tax treatment with open-ended funds and the ability to invest in foreign ETFs were positive moves for the Mutual Fund Industry. Gold ETF guidelines were finalized and we have had the first launch as well. Real Estate Investment Trust guidelines are expected shortly.

This year, the expectations from the Budget are as follows:

• Infrastructure: The infrastructure bottlenecks can choke our entire growth momentum. Strong funding, public-private partnerships, plus tax incentives for infrastructure investments are expected in the budget.
• Rural Development: This is critical, as 60% of the population is producing less than 20% of the GDP and unless we can create meaningful employment and development opportunities, the India/ Bharat divide will continue to hold back the country.
• Urban Renewal: This is another significant requirement. The Delhi Metro Rail has shown what can be done. This needs to be rolled out for the top eight metros.
• Subsidies: Food, Fertiliser and Petrol subsidies are exploding .We expect little action on this front given the coalition nature of the government.
• Tax Reforms: We expect a reduction in Corporate and Personal Tax rates and raising of the Individual taxable income thresholds, especially for women and senior citizens.
• Customs Duties: These will be lowered in keeping with our Asean aspirations.
• FDI in key sectors: This is a wish list; again coalition politics may hamper this.
• Pension Reforms: A critical need, political objections are holding these back. Will be a huge boost to the markets if these go through.

Expectations of the mutual fund industry from the Union Budget 2007:

The mutual fund industry has seen a strong growth over the last five years. With policy support, the industry can leap frog to the next level of growth and maturity.

Some expectations of the Mutual Fund industry with the Union Budget this year include:

• Rationalisation of Double Incidence of STT on Mutual Fund units and the underlying share purchases. This anomaly should be removed this year around.
• Treating Funds of Fund, which invest more than 50 % of their corpus in other Equity Mutual Funds, as equity funds for taxation purposes.
• Review of the Sec 80 C ceiling of Rs 100,000 on ELSS, with a view to taking it up further.
• Bringing Equity Funds and Debt Oriented Funds on par with respect to capital gains treatment.
• Sanction to new products like Commodity Based Funds, Real Estate Investment Trusts is awaited eagerly by all players in the market.
• Overall, expect a pragmatic, growth-oriented budget with the above streamlining and positive measures for Mutual Funds.

The author is chief executive officer, Lotus India Asset Management Co Pvt Ltd.

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