Impact of the economy on Investment opportunities

Recession: Fall in the country’s economic activity, for at least two consecutive quarters, as shown in a lowering National Income, Gross Domestic Products etc.

Economic Indicator: An economic indicator is always a measurable variable that is used as an index of a different variable to which it is related and that is somewhat difficult to estimate.

The state of the economy has strong influence on investment opportunities. If the economy is under recession or likely to be, stock prices will be heavily affected and investors can observe a fall in the stock prices. If a strong economic expansion is underway, the investor can observes a sharp rise in the stock prices. The impact of the economy on investment opportunities is measured through economic indicators.

Budget 95-96 and its implications: Illustration

A budget is a quantitative expression of plans. It is commonly used by business firms, non-profit institutions etc. State governments and the central government also make budgets. The budget is usually prepared for a period of one year. The budget of the central government is also called the Finance bill. This bill will be presented by the finance minister in the parliament on 28 February every year. The budget has a lot of implication on the economy and corporate profits as it involves either increase or decrease of taxes, restricting or liberalizing of imports etc. Many industrialists and economists commented on the budget 95-96 of Dr. Manmohan Singh as a budget from a politician rather from an economist. In this article we limit our discussion to the highlights of the budget and the impact of the budget 95-96 on various industries.

Highlights of the Budget:

1. Income tax exemption limit has been raised to Rs 40,000 from Rs 35,000
2. Exemption on income by way of interest and dividend from certain specified financial assets increased to Rs 13,000 from Rs 10,000 under section 80L.
3. Exemption limit raised from Rs 20,000 to Rs 40,000 under section 80 U. Income is exempted for trade unions for the welfare of the employee
4. Tax deduction at source (TDS) extended to time deposits with banks at a rate of 20 percent plus surcharge for domestic companies and 10 percent for individuals. The TDS will be applicable to all deposits earning interest income of Rs 10,000 and above per annum.
5. Tax concession for contributions to welfare measures, for the handicapped, minorities, literacy and poverty eradication.
6. Textiles, plastic products, cosmetics, cool drinks, dry cells, audio and video tapes and paper to be cheaper.
7. Peak rate of customers duty reduced from 65 to 50 percent
8. Duty on LPG, chemicals and molasses reduced.
9. Concessions for computers, electronic goods, life saving drugs, medical equipment, auto parts industries.
10. Five year tax holiday for the enterprises which builds, maintains and operates infrastructure facilities in the areas of highways, express ways, and new bridges, airports, ports and rapid mass transport system provided operations commence from April 1, 1995.
11. Exemption from tax on income of dividend and long term capital gains from equity investments made by approved venture capital funds or venture capital companies.

Customs Duty: Customs duty is the tax imposed by central government on import of goods to India and import of goods from India.

Venture Capital: Investment in new un-started business carrying considerable financial risk but with above average prospect of reward.

Concept of investment:

Investment can be defined as the process of sacrificing something now for the purpose of gaining something later. According to our definition there are three dimensions to an investment – time, today’s sacrifice and gain from investment tomorrow.

For example, a government officer buys ‘units’ of Unit Trust of India worth of Rs 4,000 or an office clerk deposits Rs 5,000 in a post office savings account. In both the examples something is sacrificed now for the purposes of gaining something later.