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A Peek Into Budget 2020-21 Wish List Of Investment Firms

India faces global as well as domestic headwinds, and the union budget for the next financial year would be an opportunity to arrest the decline in growth and bring it back to the levels seen prior to the ongoing slump.

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India’s GDP growth rate came down to a six-year low of 4.5 per cent in the second quarter of FY20. To understand how fast this deceleration has been, we need to know that the economy grew at a commendable rate of 8 per cent in the first quarter of FY19. Certainly, India faces global as well as domestic headwinds, and the union budget for the next financial year would be an opportunity to arrest the decline in growth and bring it back to the levels seen prior to the ongoing slump.

There are several issues – cyclical as well as structural – that the government needs to address to ensure that it meets the target of turning India into a $5 trillion economy by 2024.

In its planning for the next financial year, the government needs to take into account the shortfall in GST collections over the last one year and the impact of corporate tax rate cut on the overall tax collections. The latest reports suggest that the government is staring at a revenue shortfall of Rs 2 lakh crore in the current fiscal.

Against this backdrop, here’s a list of expectations from the Union Budget from the industry’s perspective.

Tax relief to improve consumer spending

After the corporate tax rate cut, there’s heightened demand for a cut in personal income tax rates as well. Regardless of the concerns about the shortfall in GST collections, an optimum rate cut in personal tax can boost demand in the economy, leading to higher GST collections in the next financial year.

A recent survey by Local Circles, a social media platform, found that a majority of industry participants want a reduced tax on salaried income due to rising commodity prices. The decrease in consumer spending would adversely affect the economy. A large percentage of India’s population hails from the middle class or lower consumer slabs. Offering them some relief in the taxes by restructuring it or increasing the limit of deductions under Section 80C would go a long way in improving consumer spending.

Affordable housing

India’s realty sector has not been in good shape for over a decade now. A ray of hope for this sector came in the form of Pradhan Mantri Awas Yojana that provides tax incentives of Rs 2 lakh on interest payment to those purchasing a home in this category. It has had a positive impact on the residential market so far and the government could explore increasing the tax exemption limit for buyers to further boost the demand for affordable housing. Another measure could be to expand the scope of affordable housing by increasing the carpet areas as well as ticket-size of the homes in this category.

Overhaul for the automobile sector

The automobile sector has had a rough ride in 2019 – one of the worst in recent history – leading to job losses and the drying up of capital investment from the original equipment manufacturers. Given the importance of this sector for the Indian economy, the government could bring down the GST rate from the existing 28 per cent (on vehicles) to 18 per cent. Introducing a sunset clause would be even better. Other measures that could be introduced include incentive-based scrappage policy, the abolition of duty on import of lithium-ion battery cells, an increase in re-registration charges of vehicles to discourage the use of old vehicles, and withdrawal of the proposed hike in vehicle registration fees.

Push to drive infrastructure growth

A key priority of the current government has been to invest in the infrastructure sector. It’s visible in the Rs 100 lakh crore plan that the government wants to implement for this sector. We believe that there would be a continued focus on capital expenditure within this sector in the FY21 budget as well.

Make in India

One of the flagship schemes of the government, ‘Make in India’ is expected to be a priority area in the union budget. To promote domestic manufacturing, we expect the government to increase import duties on specific items and rationalize inverted duty structure in certain sectors.

Rural push

Over the last 6 years, the government has focussed on improving the distribution model for rural India by fixing leakages. It would be imperative for the government to continue its efforts to increase the income of the rural population. This will have a cascading impact on all sectors, including automobile, FMCG and consumer durables.

It’s expected that the union budget will announce some measures to boost the rural economy. It could come in the form of tweaking of the Minimum Support Price (MSP) programme and higher outlays for the MNREGA scheme.

Challenges to keep in mind

While planning the budget, concerns regarding fiscal slippages would have dominated the minds of the policymakers. The fiscal deficit estimate of 3.1 per cent for the current financial year was well above the glide path for FY20. But, given the current situation, when the economy is seeing subdued demand and several macro indicators including Index for Industrial Production, Core Sector Data, and Gross Fixed Capital Formation registering either negative or marginal growth, it makes sense for the government to focus only on growth. Because only a high growth rate in the GDP can generate the revenue that is required to keep the fiscal deficit under control.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Jyoti Roy

The author is DVP Equity Strategist, Angel Broking

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