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Fiscal consolidation & Infrastructure push to be key focus

We expect the Union Budget 2022-23 will focus on gradual fiscal consolidation though there will be continued focus on critical sectors like housing, infrastructure and manufacturing along with continued thrust on boosting the rural economy. We also do not expect any major changes in personal income tax rates given the fiscal constraints though there could be some minor tweaks which will boost disposable income in the hands of the consumers.

Tax revenues for the financial year till Nov’21 are up by 50.5% YoY to `15.4 Lakh cr., led by 66.3% YoY growth in direct tax collections. As a result revenue receipts for the Government were up by 67.2% YoY to `13.6 lakh cr. While disinvestment revenues for till Nov’21 at `9,330 crore is well below the budgeted `1.75 lakh cr. figure buoyant tax collections has led to fiscal deficit being contained at 46.1% of budgeted estimates.

Due to likely shortfall in disinvestment targets for FY2022 we expect fiscal deficit to be marginally ahead of budget estimates of 6.8% with a likelihood of 10-20bps slippage in the deficit figure. However in case the Government is able to push through the LIC stake sale this year then we are likely to see fiscal deficit below the budget estimates of 6.8%.

Major expectations from the Union Budget

1) Infrastructure – We expect infrastructure will continue to remain a key focus area for the Government and we will see increased allocation to capital expenditure for FY2023. We expect continued focus on defense, railway and road infrastructure. Addition to the National Infrastructure Pipeline is also possible in the budget.

2) Housing – We expect increased allocation to Padhan Mantri Aavas Yojna (PMAY) and extension of tax holiday for affordable housing projects by one more year. There are also expectations of increase in deduction limits for interest paid on self occupied house from current levels of `2 Lakh. However given the fiscal constraints we do not envisage any major increase in deduction limits if any.

3) Manufacturing – The government has already announced PLI schemes for ~14 sectors to make India a manufacturing hub. We expect the Government will further expand the scope and include more sectors under PLI schemes in the budget.

4) Personal Income tax – In order to boost consumption and support higher disposable income in the hands of individuals, while we do not expect any major changes in tax structure, there can be some minor increase in deduction limits which will result in higher disposable income in the hands of the consumers.

5) Auto – Given the slowdown in the 2 wheeler space it is expected that there is likelihood of some incentives to boost demand, including possible reduction in GST rates. Given the Government’s focus on electric vehicles we expect benefits for the sector which will accelerate the adoption of EVs.

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