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Below is the Views On Pre-Budget 2020: Sectoral expectations from the budget By Mr. Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd
Given recent slowdown in the economy there are expectations that the budget would contain bold measures to boost the economy. Tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth which was further exacerbated post the IL&FS crisis and its fallout. This is reflected in the GDP numbers which slowed down to 4.5% in Q2FY20 from 8.0% in Q1FY19. Therefore it is expected that the budget would play an important role in revitalising the economy and help get it back on the growth path.
Given the shortfall in tax collections as well as lower non tax revenues (on account of shortfall in disinvestment targets), markets are concerned about fiscal slippage in FY20 and FY21. However in the backdrop of the current slowdown we believe that fiscal slippage is necessary and will go a long way inboosting growth given that India doesn't have a twin balance sheet problemlike 2013.
While the corporate tax cuts was a game changer move by the Government and would go a long way in attracting investments over the medium term we believe that more needs to be done in order to boost consumption demand which has slowed down sharply from 10.6% in Q4FY18 to 5.1% in Q2FY20. Given the severity of the slowdown we feel that expansionary fiscal and monetary policy is the need of the hour to revive the economy.
Sector expectations from the Union Budget
Agriculture is an important sector especially given that a significant portion of India’s population is still dependent upon the agriculture sector for its livelihood. We expect the Government to reiterate its focus on the rural sector. Full benefits of the “Pradhan MantriKisanSamman Nidhi (PM-KISAN)” would be felt in FY21 post full rollout of the scheme. We also expect some further measures like tweaking of the MSP programme. The Government is also expected to increase outlays on the MNREGA scheme and continue its focus on rural electrification and roads.
Though the recent slowdown has impacted virtually all the sectors, real estate has been the worst impacted given that purchases are done predominantly on financing. The realty sector contributes 8% to the nation’s GDP, in addition to being the biggest direct and indirect job creator in India. Thus, the real-estate sector is expected to be one of the prime focus points of this year’s budget announcement.
In order to turn around the sector the Government is expected to continue its focus on affordable housing and we could see greater allocation under the Pradhan MantriAawasYojna along with focus on execution. The Government could also increase the tax exemption limit on housing loan interest from current levels of Rs. 2 lakh. The Government could also look at expanding the scope of affordable housing by increasing the carpet area as well the ticket size
Another sector that will be under the lens during the budgetary announcement is infrastructure, with the government expected to increase the capital outlay in its favour.Given that Infrastructure is one of the key focus area of the Government, we believe that there is going to be increased budgetary outlays on capital expenditure for FY21 despite shortfall in revenues. We believe that the Government would use the Union Budget to highlight their plans and execution over the next five years. Recently released National Infrastructure Pipeline (NIP) gives us broad idea about investment by Government in Infrastructure.
The year 2019 was one of the toughest years the Indian automobile industry has had to undergo as a severe slump in sales affected almost all vehicle manufacturers. The auto sector was adversely impacted by the NBFC crisis as well as migration from BS4 to BS6. Some of the steps that the Government can take to revive the sectors are (a) Incentive-based scrappage policy; (b) Abolition of duty on import of lithium-ion battery cells; (c). Increase in re-registration charges of vehicles to discourage use of old vehicles; (d) Withdraw proposed hike in vehicle registration fees.
Given the Government’s focus on make in India we expect the government to hike import duties on various items like paper, footwear, rubber items and toys as well as address the issues of inverted duty structure in certain sector like chemicals, furniture, rubber paper etc. This would be in line with the recommendations made by the commerce ministry the Government.
Also the US-China trade war throws up opportunity for India, as different Fortune 500 and other companies are looking at diversifying their manufacturing capacities to preserve the supply chain. While effective tax rates nearing 17% for new manufacturing capacities are amongst the lowest in the world, more needs to be done. The Union Budget 2020, thus, could bring provisions for improving the overall manufacturing and export ecosystem. Structural reforms in the land and labour laws will help Indian better attract foreign investment and hopefully, upsurge the economy.
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