Corporate India’s crying out for a stimulus Budget from Finance Minister Arun Jaitley on Wednesday, which can boost growth as demand and investments remain anemic. While private investments have been down thanks to the ongoing corporates deleveraging their balance sheets, consumption, too, has taken a beating after demonetisation.
Demand for homes, automobiles, consumer goods or loans have come off since November as sentiment has taken a beating. With two key drivers of economic growth – consumption and private capex — in trouble, Corporate India is looking to the government to stimulate growth.
Reviving demand seems to be on top of India Inc’s wishlist this time around. Higher government spending and lower taxes are being seen as two key drivers of growth. In an interview to Moneycontrol, AM Naik, Chairman of Larsen & Toubro Group, said he expected the government to come out with a Budget that will stimulate the economy, following the slowdown in economic activity that was triggered by the note ban. The ask remains the same across sectors, as demand has significantly come off since November and analysts do not expect it to revive in a meaningful way in the near-term.
The Street is hoping that the government would consider relaxing its fiscal deficit target for the year and give away some goodies. Arundhati Bhattacharya, Chairman, State Bank of India ( SBI ) said that the government can incentivise home loans and could provide some relief on direct taxes.
Rana Kapoor, MD and CEO, YES Bank said, “Financial savings must be promoted by improving tax incentives (enhancing 80C limits to Rs 3 lakh from current level of Rs 1.5 lakh), increasing their inflation adjusted post tax returns.”
Arijit Basu, MD & CEO, SBI Life Insurance, explained that since insurance as a product is still not understood properly in the country. “Tax sops for the industry will go a long way to boost insurance as a product,” he said.
“Lower income tax and the focus on rural markets could put two-wheeler industry back on the growth path. This, coupled with the benefit of normal monsoon and Seventh Pay Commission, could drive two-wheeler volume CAGR of 10-12 percent over FY17-19E,” says Motilal Oswal in its pre-Budget report.
Given that large Indian corporates are still in the process of deleveraging, capex cycle is not likely to revive in FY18. Order inflows will have to depend on government spending, which has a cascading effect on the broader economy.
A higher allocation under flagship schemes like MNREGA and housing schemes could give a boost to several sectors like consumers, cement, steel, housing finance and banks. According to IDFC Securities, the thrust on “Housing for all” would be positive for housing finance companies as well as banks doing mortgage financing, but more for lenders who focus on affordable housing.
Speaking to Moneycontrol Ravi Pisharody, Executive director, Tata Motors, said, “Last year, the outlay on government spending was very high and we have seen the benefits of that. Because of that spending the construction tipper segment was not impacted even during the demonetization phase. Road construction, building of airports, and ports should continue.”
Lower taxes are not just a way to revive consumer sentiment. Corporate India hopes that the Finance Minister will set a roadmap in the upcoming Budget to bring corporate tax rate down from the current level. Kanchana TK, Director General, Organisation of Pharmaceutical Producers of India (OPPI).
“Expectations from the 2017-18 Union Budget are high, in setting the tone and direction. Some of that is about building upon intent already announced as well. In the past, the government has said it would bring the corporate income tax down to 25 per cent. At OPPI, we hope to see a roadmap to this end.”
Corporate India and the Street is keen to get more clarity on the rollout of GST in FY18 as well as it its implementation is expected to lead to some disruption, too. Implementation of Goods and Services Tax (GST) will be a key positive for the automotive sector which has been struggling since the start of demonetisation in early November. GST could reduce multiple tax slabs ranging from 12-30 percent at present to perhaps just two slabs making cars cheaper by at least two percent.
Considering the likely GST implementation from July 2017, there is not any expectation of changes in indirect taxes. However, there could be an increase in income tax exemptions and higher allocation toward rural-focused schemes, which would give a boost to at least two-wheeler consumption.
Companies will need a six-month transition period for implementation. The pharma industry expects that with the GST, the inverted duty structure that the industry has to deal with will become a thing of the past. This year hopes are that greater clarity will be provided in whether input tax credits will be refunded if unutilised at the end of the assessment year.
Ranjit Shahani, Vice-Chairman and Managing Director, Novartis India, hopes the Finance Minister will increase the healthcare Budget from one percent to 2.5 percent, which is a promise made a long time ago. On corporate tax reduction – directionally that’s the right way to go, it encourages investments into manufacturing, which will certainly help.