With Union Budget 2023 a little over two weeks away, the market is discussing which sectors are likely to undergo reforms and what kinds of policies the government would bring in.
In light of the recent rural distress and the upcoming general elections in 2024, brokerage house Nirmal Bang Equities Pvt Ltd expects more funding for various rural programmes with an emphasis on the development of rural infrastructure.
The brokerage outlines its sector-specific expectations from the forthcoming Union Budget. Let's take a look at them.
For the automobile sector, the brokerage expects policies to encourage the development of electric vehicles (EV) charging infrastructure as well as initiatives to promote the adoption of flex fuel and EVs.
Also, remission of duties or taxes on export products scheme (RoDTEP) and duty drawback benefits should be increased in order to promote the export of auto parts.
Further, the brokerage anticipates that policy will increase infrastructure spends and allocate more money to welfare programmes, hence boosting rural incomes.
Given that many EV and hybrid components now have an inverted duty structure, rationalising the GST rates for these components is essential, according to the brokerage.
Banking and financials
For the banking and financial sector, the brokerage house expects measures to support credit flow to the micro, small, and medium enterprises (MSME) sector, which will include extension of the emergency credit line guarantee scheme (ECLGS) to sustain overall growth.
It hopes to hear about the establishment of a formal organisation to regulate the activities of fintech players. Also, the brokerage looks forward towards higher assistance from the government to build better relationships between fintech players, banks & non banking financial companies (NBFCs) to support credit growth.
The brokerage stated that it could anticipate an announcement that mandates to share credit information of small borrowers with rating agency to formalise financing to marginal borrowers.
More support for digitisation and steps towards Unified Payments Interface (UPI) are anticipated with the announcement of the Central Bank Digital Currency (CBDC), as per the brokerage report.
Capex, capital goods & consumer electricals sector
The brokerage firm anticipates a rise in the budgetary allotment for capital expenditure (capex). According to the report, there may be a stronger budgetary push for clean and green energy. The Budget calls for continued assistance from the government for the investment cycle.
Regarding customs duties, the brokerage is of the opinion that easing restrictions on the import of goods will improve operational effectiveness and further boost India's competitiveness in the world market versus nations like Vietnam, Thailand, and Mexico.
Proposals for cutting personal tax outlays may be brought to light in order to increase consumption and support higher discretionary income in the hands of individuals. According to the brokerage, this may increase consumer demand for electrical and durable goods.
The brokerage says that for large infrastructure projects, budgetary allocations should be established together with costs, schedules, funding, returns, and milestones.
According to the brokerage, the sector also expects measures to improve long-term funding availability for infrastructure, including ramp-up in lending/investment by the newly set-up Development Financial Institution - National Bank for Financing Infrastructure and Development (DFI – NaBFID) and the National Investment and Infrastructure Fund (NIIF).
Fast-moving consumer goods (FMCG) sector
Due to persistent inflation and weak rural demand, FMCG companies have suffered a fall in volume over the last three to four quarters. Hence, the brokerage expects higher government spending on rural infrastructure to strengthen rural demand sentiments.
According to the report, the FMCG industry expects the upcoming Budget to take measures that would enhance disposable income in the hands of consumers and improve rural infrastructure, which could lead to demand generation and acceleration in consumption.
Further, the Confederation of Indian Industry (CII) in its pre-Budget expectations has already asked the finance ministry to lower income tax rates to help revive consumption demand, the brokerage stated in its report.
The industry that has been severely hit by COVID-19 has long demanded that it be granted infrastructure status so that it can benefit from cheaper taxes, lower utility rates, and an easier approval procedure.
The key expectations are as follows:
1. Extension of loan moratorium with lower interest rates and rationalisation of taxes.
2. Revise the loss carried (during Covid period) and thereby availability of tax benefits from existing 8 years to 12 years.
3. Increase interest rate (interest income) from current 3 percent to 10 percent on net foreign exchange earnings for the next 3-5 years.
4. Allow investment in land as capex and record 125 percent of all investments as capital write-back.
5. Allow corporate bookings and meetings, incentives, conferences and exhibitions (MICE) to come under the Integrated Goods and Services Tax (IGST) regime. This will help companies to avail GST input credit, which will encourage them to spend their annual budgets in India rather than opting for overseas destinations.
6. Fast track execution of the UDAAN scheme.
The Union Budget is anticipated to be 'neutral' for the pharmaceutical industry, with the emphasis being placed on funding initiatives to eradicate diseases and providing a boost to the 'Atma Nirbhar Bharat' programme under the Production Linked Incentive (PLI) scheme.
The brokerage expects the following measures for this sector:
1. The government may consider compensation for the rollback of export incentives to pharma companies under the Merchandise Exports from India Scheme (MEIS) by enhancing tax incentives of R&D.
2. With Covid-19 bringing about importance of self-reliance and innovation in the pharma sector, the government may look to enhance its PLI scheme and try to chart out incentives for novel drug research and development (R&D).