By Rakesh Tarway
While GST rollout has made the Finance Ministry's job lighter this Union Budget, as most of the indirect taxes have been subsumed in GST, the government faces a tough challenge in order to create the right balance between fiscal discipline and spurring economic growth.
In a scenario of declining tax revenue seen in last two months and NDA's waning popularity among the rural population as perceived from the recently-concluded Gujarat Assembly election outcome, we expect the government to bring a announce of measures to provide a further boost to rural economy by means of higher allocation towards MGNREGA and micro irrigation funds, better coverage of Fasal Bima Yojana beyond 40 per cent, among others.
The above measures will not only help stimulate rural economy growth, but also drive rural consumption and in turn benefit sectors like consumers, building materials and white goods. A pickup in sales volumes can automatically address government's falling tax revenue.
In addition to the emphasis on reviving the rural economy, the Union Budget is likely to boost investment in the infrastructure segment, which is already moving in the right direction, especially in the roads, highway and power sectors.
Initiatives to provide an impetus to PPP projects were taken positively, as it aided the developers to come out of financial crunch for projects and also addressed the risk of future cash flow.
We expect allocation to National Highway Authority to rise substantially from Rs 649 billion along with higher allocation for railways, airports, urban infrastructure, Metro projects and national waterways.
We further believe the government may provide clarity on corporate tax roadmap for the coming years, as it had earlier guided for a gradual reduction in corporate tax but there has not been any meaningful dialogue so far on this front.
Further, most of the equity investors are on the tenterhooks about the return of long-term capital gain tax on equity. As this will be the last full Budget of NDA, it may also try to appease the middle class by offering tax-saving sops in view of the next general elections.
We expect companies in the agro, FMCG, infrastructure development, building materials and railways sectors to be biggest beneficiaries of the forthcoming Union Budget.
(Tarway is Head of Research at Reliance Securities. Views are his own)
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