It's not the budget

A: The budget is terrible. Long-term capital gains tax has been increased from 10 per cent of gains to 12.5 per cent.

B: But look at the incredible infrastructure buildout that's happening. And look at the way that the government has maintained fiscal balance despite Covid and so many other challenges. No other large economy around the world has managed to do so. Look at the growth rate!

A: So what does that have to do with my tax? I made profits on the markets and now the tax on those profits will be 25 per cent higher.

This conversation about the budget is not a real, literal one but it's quite representative of many exchanges on social media and in real life. I find it fascinating that a large number of people seem unable to make connections between what's happening in the economy at large and the money that they make from their equity and mutual fund investments.

I'm sorry to put it so bluntly, and I'm sure many people will hate me for it, but the biggest input in you and I making money in the markets is not our supposed genius as investors but what I call the "India tailwind". We made money not because we are great (or even good) investors but because the Indian equity markets are up 3x - 4x in ten years. As one wag said on X, a sure shot way of avoiding capital gains tax is to buy high and sell low. This is not just a joke. If we did not have the good fortune of living through this high-growth economy, then 'buy high, sell low' would have happened automatically for many more of our investments and then we would not have gotten the opportunity to complain about capital gains tax. I don't know about you but I know I'm thankful to be living in a high-growth, well-run economy rather than a no-gains, no-tax one.

Suggested read: Capital gains tax changes

The other market-related tax increase is the increase in the Securities Transaction Tax on derivatives trading. If this can indeed tamp down the uncontrolled gambling that is going on in the derivatives markets, then that will be a good thing. Perhaps it will have some effect, or perhaps the addiction is too much for many people. The other day, I saw someone on TV say that STT and capital gains tax are like the statutory warnings on cigarette packets. The hardcore addicts understand what they are doing, they know that the diseases are on their way, but most of them cannot help themselves. It's the same with individuals addicted to trading derivatives. My comparison with disease is not casual. If you search online for 'compulsive gambling disorder', and look at the symptoms that are listed you'll see what I mean. Of course, if the government really does want to curb this then it has to look at restricting the supply rather than trying to just reduce demand. It cannot be that the stock exchanges and the brokers go on encouraging this activity and we pin our hopes on STT to dissuade the gamblers.

Suggested read: A black hole for your money

One interesting new investment avenue that this budget has created is the new 'NPS Vatsalya' scheme. Essentially, it's an early starter NPS option whereby parents can start an NPS account for their minor children and when the children turn 18 years old, the account gets converted into regular NPS. NPS also got a boost by allowing higher employer contributions. While changes like this don't get much mention compared to the headlines of the budget, they will eventually have a greater impact on lives.

All things said, when the dust settles, it's a budget of modest changes, which is as it should be. I'm not going to tell my readers that here's something that will be a bonanza or here's this thing that will ruin you. We have a stable, high-growth environment, which will continue to be the real source of investment returns, just as it has been in the past. That's where the returns are coming from, and will continue to come from.

Also read: Budget 2024 was a decidedly mixed bag