Budget 2016 expectations: From OROP, 7th Pay Commission overhang to sectoral impact, here are 10 points to note
1. The FM’s priority in the 2016-17 budget will be higher growth,
with fiscal rectitude, we believe. With the private sector capex yet to
pick up, he will budget for higher plan capital expenditure
(investments), in addition to the higher spends on OROP and 7th Pay
Commission, which need to be factored in. These will be proposed to be
financed by higher revenues from divestment/privatisation, higher
indirect tax rates, telecom auctions and better tax compliance, apart
from a cut in non-plan expenditure (subsidies) via DBT.
2. A lower fiscal deficit will leave more money available for the
private sector, help in easing inflation, and moderate interest rates
further. We expect targets under the FRBM Act to be largely maintained.
We expect the FM to target a fiscal deficit of 3.7% for FY17 and budget
for a gradual reduction in fiscal deficit per annum to 2.5% by FY19.
3. Expect FM Arun Jaitley to target real GDP growth of 7.7% in FY17 and
bring it to over 8% next year. Larger and targeted plan expenditure
capital outlays, with strict implementation timelines, would likely be
announced, to ensure economic recovery and sustainable growth. We expect
plan expenditure target to increase by 30% over FY16RE.
4. The budget will aim to provide an investment – led supply aid to
growth (with private sector participation via Make in India campaign) as
well as a consumption – led demand pull growth via 7th Pay Commission,
OROP and DBT of subsidies.
5. On taxation front, we expect the Government to initiate reform
process in direct taxes, in line with the announcements of the previous
budget. The tax rate is expected to gradually come down from 30% to 25%,
with a corresponding removal of exemptions / deductions available
currently. On indirect taxes, we expect increase in service tax rate to
bring it in line with the proposed GST rate of about 17-18%. Similarly,
excise duties will likely be levied on various exempt items and
increased for various items which are currently taxed at concessional
rates. We are not expecting change in base rate of excise duty.
6. FM Arun Jaitley will have to restrict non plan expenditure to meet
his FD targets. While the food subsidy burden will be taken up, we
believe the FM will budget for lower fuel subsidy bill on the back of
lower crude prices. He will also better target subsidies through the JAM
trinity. The government has already announced on January 1, the launch
of DBT for kerosene subsidy in a bid to cut down the diversion and black
marketing of the fuel. The kerosene subsidy in FY15 was pegged at about
Rs.248bn. As per reports, Direct Benefit Transfer (DBT) for LPG had
resulted in savings of about Rs.140bn in FY15. We expect DBT to be
gradually used for more subsidies. Implementation of DBT for fertilizer
and crop subsidy could result in substantial savings.
7. To provide higher employment opportunities and to make the workforce
employable, we expect measures to promote the ‘Make in India’ and ‘Skill
India’ initiative. We also expect higher allocations towards
agriculture and rural sector to support rural growth, after two
continuous drought years in the country.
8. We expect the divestment target to be increased to Rs 500bn in
FY17 v/s the FY16RE of Rs.200bn. Tax revenue targets (net) may be set at
Rs.10.2trn, an 8% growth over FY16RE. Customs duty may be tweaked on
several items to further the ‘Make in India’ cause. We expect
implementation of GAAR to be postponed to FY18. We also expect tax
benefits for the export-oriented sectors, in view of the consistently
falling exports and some measures to restrict dumping.
9. SENSEX AND NIFTY TODAY: The 30-share index on Thursday opened
154.60 points up at 23,536.47 on account of firm global markets.
10. We believe that, the budget may have the following implications
for the sectors: BUDGET IMPACT POSITIVE: Sectors – Auto, Banking/NBFCs,
Capital Goods, Cement, Construction, Metals & Mining, Oil & Gas,
Paints, Power, Shipping & Logistics. BUDGET IMPACT NEUTRAL: Sectors
– Agro Chemicals, Aviation, FMCG, Information Technology, Media,
Pharmaceuticals, Real Estate.
PTI Via
financialexpress
