India budget to focus on rural economy, jobs
Modi's government will announce the budget on Friday.
The government of Indian Prime Minister Narendra Modi will present a budget on Friday that is expected to focus more on the rural sector in order to accelerate economic activity to generate more jobs in the country.
Analysts and experts said the government is expected to cut taxes on business and raise spending in a bid to shore up domestic consumption and faltering economic growth during its second tenure after winning general elections in May.
M.R. Raghu, managing director of Marmore Mena Intelligence, said the government is likely to make some announcements to boost agriculture and manufacturing activities in the country.
"There is limited space for manoeuvring as direct tax collections in 2018-19 fell short with lower corporate tax collections," he told Khaleej Times on Wednesday.
"The upcoming budget is expected to be focused more on the domestic rural economy to accelerate GDP growth," he added.
In January-March, annual growth slumped to 5.8 per cent, the slowest pace in 20 quarters. Growth for the financial year that ended in March was 6.8 per cent - a five-year low, and indicators such as plummeting industrial output and automobile sales, have stoked fears of a deeper slowdown. The fiscal deficit target is expected to rise from 3.4 per cent of GDP in February to 3.6 per cent as the spending is expected to surge.
India's rural economy did not see any major benefits in terms of reforms during first term of Modi government. The government has made a commitment to invest Rs25 trillion for improving productivity of the agricultural sector. However, disbursed farm loans is currently stagnant at only 50 per cent to small and marginal farmers for a period of three years now.
The interim budget may have made financial allocation for distributing an annual sum of Rs6,000 to 125 million small and marginal farmer households, but the benefit has gone to less than 25 per cent of farmers so far. Now the scheme has been extended to all farmers in the country, irrespective of the size of their holdings.
"The focus of the budget will be to boost domestic consumption, address the rural crisis and support small manufacturers," said Gopal Krishna Agarwal, BJP's economic affairs spokesman, who been quoted by Reuters.
The general consensus is that the Modi government will have to adopt some major confidence building measures. "The macroeconomic fundamentals over the few quarters have been a cause of concern and we expect the finance minister to address these issues, especially with reference to areas like - unemployment, consumption slowdown, improving liquidity of banks, provide adequate rural credit, PSU disinvestment etc," Krishnan Ramachandran, CEO of Barjeel Geojit, said.
Another important segment that needs boost is the reforms in real estate sector, which the NRIs invest so heavily into developing and ready projects. "To bring back growth in the realty sector which is so vital to any developing economy, we expect government to impart industry status to the sector which would enable developers to cut capital costs and pass on the benefits to consumers. The government should speed up its measures for infrastructure development which will ensure cheaper land for housing and push affordability," Surendra Hiranandani, founder and director, House of Hiranandani, said.
Dr Azad Moopen, founder chairman and managing director, Aster DM Healthcare, said healthcare is also expected to catch the attention of the Modi government. "I sincerely hope that healthcare shall achieve the required focus in the union budget being a critical sector affecting the marginalised population," he said.
"There has been lot of discussion on healthcare spending, which is one among the lowest, globally. However, there is a clear intent in this sector through the strategically conceived Ayushman Bharat last year to benefit the economically underprivileged strata of the society. The allocation of funds for this has not been matching the size of the problem. There is a requirement for this to be funded completely if it has to be a success," he said.
A Edelweiss research note, says it expects to see an increase in social, rural and direct distribution spends (moderated significantly over the recent past); a relative easing in investment spends, albeit still high; more policy support in a few specific areas such as affordable housing; farm incomes and productivity, health and resolutions for NBFCs; and bank capitalisation and consolidation moves.
India will release its full-year budget for FY19-20 (Apr 2019 - Mar 2020) on July 5, with the focus likely on reviving the weakening growth momentum. We believe that the new finance minister Nirmala Sitharaman will have to raise the fiscal deficit target for FY19-20 to 3.5 per cent of GDP (interim budget: 3.4 per cent) to provide some stimulus to the economy. Even if the government maintains its deficit forecast at 3.4 per cent of GDP for FY19-20, we see a risk of fiscal slippage. We believe that the fiscal slippage will emerge primarily from the shortfall in tax revenues due to slowing growth, rather than excessive spending. However, the government's shift in focus toward non-tax revenues, including transfers from the RBI and spectrum auctions for 5G services, may in part offset the tax revenue shortfall. On the spending side, we expect off-balance sheet activities to increase in FY19-20 to help meet fiscal targets.
Monica Malik, chief economist, ADCB
NRIs have a lot of grouses against the way they have been treated by successive Indian governments. Those who are still citizens feel discriminated when they face restrictions on buying agricultural land or plantations. The same situation is there in financial markets where a single NRI is permitted to own a maximum of 5 percent in a company and collectively their stake is capped at 10 percent. In the financial derivatives market of options and futures, they are not even allowed to trade. NRIs would also like the tax ceiling on rental income to be raised since real estate is a major investment for them.
Bal Krishen, CEO, Century Financial
Co-working spaces are experiencing a high growth trajectory in India. These spaces have the power to improve a city in multiple ways, from stimulating further economic growth to nurturing a more supportive community of professionals. We are expecting that the government would introduce policies in the budget that would be favourable to them in the areas of de-regulation, taxation and input tax credit. The firms are looking to lease a greater amount of space as the current demand is high. An important concern is the need to cut through paperwork as the ease of doing business will determine the growth rate of co-working firms in India over the next few years. Coworking has been a game-changer and because of its nature and flexibility, it will continue to thrive.
Manas Mehrotra, Chairman, 315 Work Avenue
During its first term, the Modi government had introduced major reforms such as Demonetization, RERA, GST, Benami Transactions (Prohibition) Act, etc in order to support the real estate sector. The expectations are quite high this time, too, as the government will present its first budget after winning with a thumping majority in the recently concluded Lok Sabha elections. In the past few months, the NBFC crisis has spread its wings in almost all the sectors including real estate. The government needs to take fiscal measures to address the deteriorating NBFC liquidity crisis. If the crisis is not dealt with soon, it will impact the recovery of the real estate sector. A reform that has been long due is granting the industry status to the real estate sector for a proper overhaul. This move will complement the government's recent initiatives to bring structure to the industry.
Rajat Rastogi, executive director, Runwal Group.
While incentives have been provided to boost the affordable housing segment, there needs to be a reduction in the cost of land, development premiums to incentivise developers to build budget homes. Additionally, interest rates on housing loans should be reduced to benefit a broader segment of homebuyers and increase demand. The Government also needs to allocate more funds for Pradhan Mantri Awas Yojana (PMAY) which will help them achieve the target of 'Housing for All by 2022'. Apart from this, we are expecting a more determined infrastructure push from the Government not only in the form of more funds but with strict guidelines on actual infra deployment. This will certainly boost the real estate sector and also generate more jobs that the Government had committed to deploy.
Navin Makhija, managing director, The Wadhwa Group
During its last tenure, the Government had swiftly pushed several reforms which will eventually prove to be positive for the economy in the long run. The outlook on India's economic growth in the coming years looks very positive with the Government renewing its tenure for yet another time. The upcoming budget needs to be more attractive to foreign investors as it will be an ultimate platform to announce further incentives which will attract more foreign investments into the sector. Considering the rupee's recent weak performance, this budget is an ideal time for reforms targeted at foreign inflows into India.We expect the government to reduce the tax on interest income which will help accelerate capital inflows to India. Liberalizing foreign investment norms in real estate is another widely expected move.
Sarojini Ahuja, VP, Sales & Marketing, Transcon Triumph
Housing loans need to become more affordable as even a 50 basis points drop in the interest rate allows for a significant reduction in EMI per Lakh. Currently, housing Loans are not being provided to certain segments that don't fall amongst the salaried individuals. They inevitably secured loans from various NBFCs. But, now with the NBFCs being hit by curtailed liquidity flows, this alternative is being restricted. Overall, the mid-income Indian is already being suffocated by taxes paid. It would help to help the Income Tax Exemption raised from the current rates given the current inflation in the country.
Tushad Dubash, Director, Duville Estates
This being the first union budget by newly appointed Nirmala Sitharaman as FM, her focus area for sure will be to take forward PM's mission of housing for all by 2022 and hence she should give more impetus for affordable housing, which will result in some momentum in the beleaguered real estate sector. Second, we would want real estate industry to be granted infrastructure status which will ensure easier access to institutional credit and help in reducing developers' cost of borrowing for affordable projects, presently under tremendous pressure owing to NBFC crises. At present real estate sector is choking of liquidity taking its toll on real estate companies financial health and new FM should come out with quick corrective remedies to pump in enough liquidity in the system to get the sector on track. Lastly, as an industry on the tax front if the losses from House Property that can be set off against other heads of income are allowed only up to Rs.2.00 Lakhs. This is an arbitrary restriction and limiting investments into the house property, which should be removed.
Gaurav Gupta, Director, Omkar Realtors
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