The Union Budget for the year 2023-24 will be presented by Finance Minister Nirmala Sitharaman in the Parliament on February 1. The last full Budget of the Modi government before the 2024 general elections is likely to be growth-oriented with a focus on capex, manufacturing, infrastructure and rural economy.
Budget 2023 Expectations: From hike in tax benefit on home loan interest to focus on infra, here's what ICRA expects
Against the backdrop of a global growth slowdown and geopolitical uncertainty, ICRA believes that the FY24 Union Budget needs to balance supporting growth in economic activity and fiscal consolidation. ICRA foresees the government’s fiscal deficit at 5.8 percent of GDP in the FY2024 Budget, lower than the 6.4 percent of GDP expected in FY2023.
Here's what ICRA expects for some of the key sectors in the Union Budget:
ICRA expects the government to continue with its thrust on green mobility, infrastructure projects and job creation in the upcoming Budget, which would consequently support the automotive sector. The domestic automotive industry has seen a healthy revival in the current fiscal, aided by a recovery in economic activities and increased mobility.
The demand sentiment for the majority of the automotive segments viz. passenger vehicles, commercial vehicles and tractors, has remained healthy, aiding in improved offtake for the industry participants. However, the two-wheeler industry continues to struggle as the industry volumes are still below the pre-Covid peak levels, even as improved offtake in the recent festive and marriage season has provided optimism, noted the rating agency.
It further noted that amid the ongoing electrification transition, the OEMs are expected to incur significant investments to develop ground-up electric vehicle platforms and enhance manufacturing capacities. The government is likely to make more announcements in this area, such as better financing terms for electric vehicles, as it continues to work towards its ‘Make in India’ goals, added ICRA.
Banking and Finance
With the capital and solvency position of the public sector banks being the best in the last eight years and is expected to improve further, ICRA does not envisage any budgetary allocation for recapitalising public sector banks. Additionally, with the profitability of the banks expected to remain strong, the incremental capital generation should be sufficient to take care of growth requirements, it said.
With housing for all continuing to be a focus area, targeted incentive schemes such as the higher deduction for housing loans could help in boosting the demand as affordability has got somewhat impacted by rising interest rates and increase in property prices, it noted, adding that infrastructure finance will continue to be a thrust area for the government and thus demand credit from infrastructure-focused NBFCs is expected to remain high.
Also, to raise the resources for infrastructure financing at competitive costs, an increase in deductions allowed under Income Tax for long-term saving instruments like NPS/80C/tax saving bonds/infrastructure bonds, etc. could be considered. This will also help promote long-term savings and raise resources for funding the infrastructure sector. Similar concessions could also be considered for the promotion of debt funds, which have the mandate to invest in debt instruments issued by ESG-compliant companies, it predicted.
Finally, ICRA stated that the government infused fresh equity capital of ₹5,000 crore in March 2022 in PSU general insurance companies to augment the solvency profile. However, some entities continue to remain weak and would need further government support in the form of fresh capital infusion.
ICRA notes that the chemical sector is a critical manufacturing sector with high potential for increased domestic production as well as exports and meets the government’s ‘Atmanirbhar Bharat’ policy. Further, global factors, like the China+1 strategy and European energy crisis will also support export growth in the sector, apart from expected domestic demand growth.
In recent years, the government has taken several measures, including the rationalisation of duty structures under FTAs and trade protection measures in the form of anti-dumping duties, etc. to leverage opportunities in the sector. However, there is scope for further duty rationalisation of raw material/intermediates and finished products, ICRA said. Specific schemes/budgetary support for MSME players in the chemical sector may also help such companies scale up their operations and move up the value chain, it added.
The FY2024 Budget is expected to have a continued focus on the farm sector, including a focus on initiatives to improve crop realisations and non-farm income. With agriculture remaining the focus, the agri-input sector i.e. agrochemicals, fertilisers, etc. are expected to benefit.
The subsidy requirements witnessed a sharp increase in FY2023, driven by elevated prices of international raw materials and finished fertilisers amid high gas prices. ICRA expects the fertiliser subsidy allocation for FY2024 to remain elevated - upwards of ₹2 lakh crore. The government may not allocate the total amount of the expected subsidy at the outset of the Budget for FY2024 and may calibrate the allocation during the course of the year, as in the past, depending on the evolving subsidy requirements, it added.
According to ICRA, the infrastructure sector expects the government to continue taking steps toward achieving the Gati Shakti and NIP targets. The capital expenditure is expected to be increased by 15-20 percent from Rs. 7.5 trillion in FY2023 BE. A major focus is expected to be on key infrastructure segments like roads, railways and urban infrastructure, it added.
Dedicated allocations for specified large infrastructure projects announced such as High-Speed Rail, Jal Jeevan Mission, Bharat Mala, Sagar Mala, Smart Cities, and Inland Waterways development can help expedite these programs, noted the agency. The infrastructure sector also expects measures to improve long-term funding availability for the sector. For this, the ramp-up in lending/investment by the newly set up DFI – NaBFID - and the NIIF and incremental allocations towards these will be important, it said.
Incentivising debt raising by select infra PSUs similar to infrastructure bonds/tax-free bonds may also support funding availability for the sector. Measures to revive private sector interest in taking up new projects, including faster resolution of disputes, are also expected.
Increasing the income tax benefit on the interest paid on the housing loans to ₹4 lakh from ₹2 lakh can support the growth of the sector and have spillover benefits for other sectors, said ICRA. Additionally, raising the deduction limit under Section 80C could provide higher income tax benefits on the principal payment on home loans. Further, enhanced tax concessions on income from renting housing properties and removing taxation on notional rental income on the second house (completed, non-self-occupied) can boost demand for new properties, it added.
Schemes such as PMAY have played a pivotal role in improving home ownership and continued focus on budgetary and extra-budgetary allocation to such schemes can improve access to housing in the low- to mid-income segments of the population, ICRA further said.
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