Budget 2015: CEO Opinion Poll shows expectations run high, says CII survey

With three days to go for the Union Budget, expectations are running high. In a CEOs’ Opinion Poll – conducted by the Confederation of Indian Industry (CII), the results show that industry is pinning its hopes high on the budget.

The recently conducted CII poll had questions revolving around ‘Government Finances’, ‘Policy Reforms’ and ‘Processes and Implementation’ as the key heads.

Sustained GDP growth is essential for tax revenue buoyancy, and growth recovery needs a capex stimulus. Capital expenditure was budgeted at Rs 2.3 lakh crore in FY'15 and is still falling short. According to CEOs polled, the majority believe that an increase in capital expenditure outlay in FY16 will be budgeted at Rs 70,000 crore.

To fund this Capex, apart from subsidy rationalization, revenues can be augmented through aggressive disinvestment of government holdings in PSEs. While the disinvestment target in FY15 was Rs 63,000 crore, CEOs expect this to be Rs 75,000 crore and above in FY16.

It is generally believed that the government needs to reduce revenue expenditure and increase spending in Capex. The revenue deficit metric is critical from fiscal consolidation point of view. The Kelkar Committee target for revenue deficit is FY15 was 2 percent of GDP. The budget was 2.9 percent.

According to majority of CEOs, the revenue deficit target for the coming year would be between 2.6–2.8 percent.

On the critical figure of fiscal deficit, the majority of CEOs believe that this would be between 3.7–4 percent of GDP.

Significantly, the CEOs believe that a framework for GST would be announced, which would tilt the balance towards higher GST rate, in the interest of revenue neutrality.

On GAAR, the CEOs were unanimous in their expectation of a two year deferral.

Pinning hopes on the government’s ability to navigate key policy reforms through Parliament, majority of the CEOs believe that the government would be able to regularise the eight ordinances that were issued between the last and this session of Parliament.

As important as it is to repair corporate balance sheets, it is equally imperative to improve banking sector’s asset books. The ability to recover the maximum value from unviable assets as well as the ability to quickly resolve viable stressed assets will improve banks’ ability to make fresh loans. On this majority of industry leaders believe that the budget would fast track resolution mechanisms for banks and other financial institutions.

Funding the massive investment needs in India without unduly high recourse to overseas borrowing will require incentives for increasing domestic financial savings, particularly long term savings. On this the CEOs were divided in their opinion. Almost half of them think that giving provided and insurance funds more flexibility on investment portfolios, especially on higher allocations to equity markets would help, while the other half seem to prefer facilitating foreign investments in REITs and other long term infrastructure investment vehicles.

Payments to contractors for government projects have often been struck, many times due to disputes, creating cash flow problems for small and medium enterprises. In this regard, the industry expects the Budget to fast track dispute resolution mechanism for expediting payment to vendors and contractors.

The Budget proposals to be presented by the finance minister would go a long way in reviving investors’ sentiments and set the ‘Make in India’ tone for providing fillip to manufacturing. The steps announced now will only be the beginning of a journey towards a sustained high growth trajectory along with macroeconomic stabilization, opined the CII CEOs Opinion Poll Survey.