The Finance Minister Arun Jaitley has set a medium term fiscal policy framework in his Budget for 2016-17. At the time when investors are worried about the global economic situation, the Finance Minister has balanced the budget between India’s ambitions for growth and Bharat’s struggle to rise.
Highest ever allocation to MGNREGA, 100% electrification of villages, record allocation for road sector puts solid development agenda on track. These initiatives would have long-term positive impact on growth.
In the last eight quarters, rural demand was missing in the hustle and bustle of growth, most consumer companies reported slow growth in rural versus urban India. FM’s clear impetus on rural growth bodes well for structural growth in the consumer sector. LPG connections for women member of household is a strategic initiative. This goes a long way not only to achieve better health for the entire household in medium term but also ‘ease-of-living’ for the women in the household. LPG subsidy would be availed by these women households, for which a KYC-enabled legitimate bank account would be a necessity. These bank accounts would bring households under banking services gamut. Access to banking would not only empower the women but also keep them at the centre of financial happenings in households.
Initiatives on affordable housing through provision of higher tax sops, reduction of taxation on specified housing schemes are welcome in these trying time for the real estate sector. With the impediment of REIT structure is out of its way, struggling real estate sector could see revival. Further RBI may signal reducing interest rates in upcoming policy meeting.
Certain sectors like auto, jewelry and garments saw increase in taxation however discretionary nature of these sectors enables them to to handle this increase. Tobacco is another sector which has seen double-digit excise hikes for last five years – this year’s 10% increase was in a way lower than what was anticipated.
Government’s thrust on Information Technology was also seen clearly from its steps towards digitisation of land records, digital depository of certificates and IT enabled processes. Over period of time, increase in transparency and reduction in corruption brought by these schemes would reduce the cost of compliance and verifications. Further ease of doing business for startups is expected to encourage entrepreneurship.
Government has also provided a clear path towards sun-setting of tax incentives provided to SEZs. Allocation to OROP (One Rank One Pension) and 7th Pay Commission also took precedence over the capital spending towards defense modernisation and purchase of equipments. Though not necessarily a negative, continued revenue spending and delayed capital spending may not be in the best long term interests of the country, ‘Make in India’ would come in handy and should help us get the military prowess in future.
Finance Minister Arun Jaitley is expecting Rs 99,000 crore revenues from telecom sector. Considering the current stressed situation and strong competition it looks bit aggressive target to achieve.
(The author is Chief Investment Officer, LIC Nomura Mutual Fund)