Budget 2022: Expect the government to increase infrastructure capex spending

The FM had eased import duty on steel in budget 2021-22, but it got neutralized with the steep surge in the steel prices in the past one year.

With the revival in economic activity, domestic steel prices have risen.

By ML Mittal,

The previous year’s budget focused on health and rural infrastructure development. However, we hope that this year’s will give impetus to measures that will strengthen the economy.

Skyrocketing prices of steel have been hurting the automobile, manufacturing, real estate and the infrastructure sector. With the revival in economic activity, domestic steel prices have risen. Rise in global prices of iron and coking coal have also contributed to the up move. MSMEs have been drastically impacted by the steep increase in steel prices and are finding it difficult to stay afloat. They are surviving on wafer thin margins and are in dire need of support from the government. The government should consider including value-added steel products in the RoDTEP scheme; this measure will make exports more competitive. The FM had eased import duty on steel in budget 2021-22, but it got neutralized with the steep surge in the steel prices in the past one year. The FM should look at easing import duty for steel in the forthcoming budget as well, it will provide immense relief to the MSME segment.

With the government focusing on initiatives to boost economic growth, aiding infrastructure creation should be a key focus area. The FM will have to do the balancing act between tightening fiscal consolidation and providing sops to the manufacturing sector to generate employment. Last year the government had also introduced production linked incentive (PLI) schemes to incentivise manufacturing in India. Introduction of PLI incentives for other sectors such as the railways, airports, etc., manufacturers and exporters would accelerate the infrastructure growth.

In this budget we expect the government to increase infrastructure capex spending. India has been experiencing a high fiscal deficit, while the government will lay emphasis on taking measures to rein in the fiscal deficit, it should not shy away from undertaking capital expenditure. The planned INR 102 lakh crore spending on infrastructure has not materialized. To provide a boost to the sector, the government can take the route of providing guarantees to financial institutions for the private sector instead of direct lending. The FM should also focus on policy reforms that support private investment for boosting infrastructure spending. We expect the FM to raise the budgetary allocation for the development of highways and road infrastructure across the country.

In the wake of Covid pandemic, mirroring global trend, freight costs for Indian exporters have seen a manyfold increase. The exorbitant freight costs have been fueled by container shortage globally. Government should incentivize setting up of shipping lines and container manufacturing in India.

The government should also aim at adopting a liberal tax regime and provide subsidies to enable Indian exporters to take advantage of resurgence of industrial demand globally.

Real estate is witnessing a strong bounce back after a prolonged lull. The residential sales in top 8 cities are back to pre-COVID level. With strong demand revival in the housing sector, the government should act as an enabler in boosting the growth of the real estate sector. We expect the government to waiver or reduce GST on key raw material. The real estate sector seeks to be provided the industry status which will enable it in availing cheaper credit from financial institutions. Also, incentives for private investment in affordable housing will be a welcome move. Short term tax holidays and easing of liquidity will provide the real estate sector the much-needed shot in the arm.

(The author is ML Mittal, Managing Director, Bharat Wire Ropes. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)

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