Budget 2022: Dalal Street has a ‘bundle’ of expectations from Nirmala Sitharaman

Union Budget 2022-23: The Budget has to focus on growth-oriented expenditure, which implies capital expenditure on building infrastructure and reviving the capex cycle

Sharad Chandra Shukla January 27, 2022 14:31:22 IST
Budget 2022: Dalal Street has a ‘bundle’ of expectations from Nirmala Sitharaman

Indian Union Budget 2022: Indian indices are going through a tricky phase. Reuters

Budget 2022 raises a lot of hopes in India as the Budget speech has several policy announcements that give us direction of thinking of the government. During the pandemic, the focus has been on relief to needy and badly impacted segments. Some of the announcements on disinvestment and privatisation were not fulfilled, so there is a disappointment on the reforms front.

We expect a GDP growth of 9 percent in the year 2021-22. But the growth in 2022-23 is expected to be more relevant for the Budget exercise. The Budget has to focus on growth-oriented expenditure, which implies capital expenditure on building infrastructure and reviving the capex cycle. Adequate allocations are to be made for the recently announced production-linked incentive scheme. This is a major hope for the Indian manufacturing segment if we want to replace or compete with China as a manufacturing hub for the world.

Health sector to get precedence

We understand the social compulsion for the government during a pandemic is to improve health infrastructure and increase healthcare spending, greater allocation may go to healthcare and other social-oriented programs. The government will also have to allocate additional funds for MGNREGA and food subsidies in this budget.

Stable and predictable tax regime

On tax policy, with the objective of a stable and predictable tax regime, not many changes should be expected but a move to correct inverted duty structures is an initiative that should continue to support local manufacturing. On the indirect tax front, the impact of recent duty relief will restrict the growth in collections. Government indirect taxes are likely to rise by 4.5 percent in the years 2022-23. Receipts from the telecom sector will be impacted by the relief measures announced.

The National Monetisation pipeline was estimated at an indicative value of Rs 1.5 trillion. The pipeline covers sectors such as roads, airports, railways, gas and product pipeline, power generation and transmission, mining, telecom, etc. So, the other non-tax revenue portion of the government will improve. Taking these factors into consideration, government revenue receipts to grow by 4-5 percent.

As far as miscellaneous capital receipts are concerned, there is a likelihood that IPO for LIC will get completed in the next fiscal year. The longstanding expectation of taxpayers is to broaden the tax base and reward the taxpayers for greater compliance. Though it is a valid expectation not much progress has been made on this front. We hope some steps are announced towards the same to motivate the taxpayers and make them feel that they are being treated fairly.

Give a push to affordable, rental housing

Government should give a push to affordable and rental housing and focus on an aggressive disinvestment process. With the improved asset quality of PSU Banks, the capital requirements for some of these banks should be tapped from the buoyant capital market. This will require steps to be taken to give greater autonomy to the banks' boards.

Cut unnecessary expenditure to improve efficiency

In our understanding, the government will continue with efforts to cut unnecessary expenditure and improve efficiency. Accordingly, the fiscal deficit in the Budget for 2022-23 could be budgeted at 5.5 percent of GDP. This is an acceptable number in the pandemic but a future path has to align us to the fiscal responsibility act direction. To sum up there is a lot of uncertainty regarding the pandemic, if another wave emerges then there is a risk to all our estimates.

Ease of access to credit

To propel growth, the government will focus on making credit available easily, thereby boosting economic growth and households’ savings in the long run.

Deductions for additional expenditure due to Work from Home

The new normal these days is ‘Work-from-home’. The budget should introduce a standard deduction for additional expenditure incurred by salaried classes to meet communication and infrastructure requirements.

Increase limit on interest cuts on home loans

The government should consider increasing the limit of interest deduction paid on home loans as the pandemic has accelerated demand for bigger new homes to accommodate working space. So, incentives to support the real estate sector may include higher tax exemptions on interest and principal payments on housing loans. This will help the real estate sector immensely.

GST rate cut in auto

The auto sector will anxiously look forward to a reduction in GST rates that makes costs more competitive amid a sharp rise in vehicle prices over the last two years. Also, all eyes will be on the roadmap for scrapping old vehicles and most importantly, on the sops for the electric vehicle industry.

Strengthen supply chain capacity

The government will also look to come out with aggressive policies to emerge as a viable option for foreign firms exiting China. To bolster the theme the Indian government will look to the building and strengthening India’s supply chain capacity, and most importantly, simplifying legislation supported by a liberal tax compliance regime. Production linked incentive (PLI) scheme details including investment and production thresholds for the extended sectors are awaited. The PLI scheme is currently extended to several sectors including auto components, telecom and networking products, advanced chemistry cell batteries, textile, food products, solar modules, white goods, and specialty steel.

Re-examine LTCG on equity schemes

The biggest trigger for Dalal Street in the upcoming Union Budget 2022 would be a re-examination of LTCG on all equity schemes.

Disinvestment in four PSUs

Disinvestment revenue is likely to be Rs 1.75 trillion in FY23; factoring in the divestment of Rs 1 trillion in FY22, assuming the LIC divestment goes through. The Street will eventually look to the strategic disinvestment in four public sector enterprises — Minerals & Metals Trading Corporation, National Mineral Development Corporation, MECON & Bharat Heavy Electricals. These disinvestments will be an avenue to fill the government’s coffers and make the fiscal math easier for Finance Minister Sitharaman. Meanwhile, the Cabinet Committee on Economic Affairs has also given an 'in-principle' nod for all the four public sector enterprises.

The author is Director at Mehta Equities. Views are personal.

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