The challenges before the Narendra Modi-led government, which has come back to power with a thumping victory in the Lok Sabha elections, is to bring the nation back on growth path.
Union Budget 2019: As the Indian economy is struggling with a sluggish growth rate of 5.8 per cent for the January-March quarter of financial year 2018-19 coupled with 45-year high unemployment rate of over 6 per cent, lagging exports, distressed farm sector etc, the challenges before the Narendra Modi-led government, which has come back to power with a thumping victory in the Lok Sabha elections, is to bring the nation back on growth path.
The expectations is high on the country’s first woman Finance Minister, Nirmala Sitharaman, to act fast and prepare a development oriented Budget to revive the economy.
“The biggest expectation from the new Finance Minister is to revive growth and bring the economy back on track,” said Motilal Oswal, CMD, Motilal Oswal Financial Services.
Pointing out that the market is looking forward to the first Budget from the NDA government after being re-elected as it would set the foundation for the policies and reforms for the next five years, Oswal said, “There has been an increasing pressure on the government to increase spending and to defer the fiscal deficit targets. However, going by the past track record of the NDA government, we expect the fiscal prudence to be maintained.”
Indicating that the BJP election manifesto that provides some perspective in the government thinking and its policy framework, is also focuses on continuity of the key reforms started earlier like – Housing, health, education for all, Make in India, MUDRA scheme, various incentives to farmers, etc, Oswal said, “The manifesto promised to invest Rs 100 lakh crore in infrastructure over the next five years, the details of which could be presented in the Budget.”
Arguing that for long-term economic growth, the government need to ensure that private investments also picks up as that would be a key driver, he further said, “Some of the other key factors to look out for in the budget would be the investment plans for job creation, increasing tax compliance, simplification of GST, attracting foreign investments, divestment plans, recapitalisation of banks, etc.”
Reminding that in the first budget presented during the previous regime, then Finance Minister Arun Jaitley had proposed to reduce the corporate tax from 30 per cent to 25 per cent, Oswal said, “The government gradually extended this benefit of 25 per cent tax slab to businesses with Rs 250 crore in sales, however, the large companies with sales above Rs 250 crore that contribute bulk of the corporate tax collections, continue to remain in the 30 per cent tax slab.”
“Any relief to these large corporates could help in boosting investments as well as corporate earnings,” he added.
While Sensex and Nifty are doing well, the broader markets, especially the mid and small cap stocks are lagging behind. In fact, a segment of Nifty is trading at 30-50 per cent discount to long-period valuation average, as weak earnings recovery leading to market polarisation, causing performance and valuation divergence entrenching further.
“The market would cheer if the Budget is able to deliver on the expectations and presents a strong reform agenda for the next five years,” said Oswal.