Man­u­fac­tur­ing, Pri­vate Capex Too Needed Push

Growth and low rates would lead to nor­mal­i­sa­tion of con­sump­tion EX­PERT TAKE

The Economic Times - - Front Page -


THE BUD­GET is a re­lief for mar­kets as sta­tus quo has been main­tained on long-term cap­i­tal gains in eq­ui­ties on both pe­riod of hold­ing and rate of tax­a­tion. Also, ap­pre­hen­sions of In­dia-fo­cused funds lo­cated abroad on in­di­rect trans­fer pro­vi­sions have been clar­i­fied, which is a pos­i­tive.

The big theme that stood out in the Bud­get is af­ford­able hous­ing. There are sev­eral pos­i­tive changes like con­sid­er­ing area as car­pet in­stead of built-up, and in­crease in pe­riod of com­ple­tion from three years to five years.

Ad­di­tion­ally, the sec­tor has been given in­frastr uc­ture sta­tus, which will help it avail ben­e­fits — one of the most im­por­tant be­ing credit at a lower rate. The im­proved vi­a­bil­ity of the sec­tor would help the sup­ply side while fall in in­ter­est rates and sub­ven­tion of in­ter­est would help on the de­mand side. This would au­gur well for real es­tate fir ms and banks in­volved in the sec­tor.

As we were ex­pect­ing, the fo­cus was on agri­cul­ture and ru­ral sec­tor. The tar­get for agri­cul­tural credit for FY18 is ₹ 10 lakh crore, an in­crease of 11%, while crop in­sur­ance tar­get is 40% of cropped area, com­pared with 30% in FY17. The al­lo­ca­tion for MGNREGA has been in­creased by 25% to ₹ 48,000 crore, the high­est ever.

It is com­mend­able that the gov­ern­ment is fol­low­ing the path of fis­cal con­sol­i­da­tion. While the mar­ket was widely ex­pect­ing fis­cal deficit to be 3.3-3.5% of GDP, the gov­ern­ment has cho­sen to peg it at 3.2%, which should go down well with for­eign in­vestors and rat­ing agen­cies.

What could be dis­ap­point­ing is the gov­ern­ment miss­ing an op­por­tu­nity to pro­vide an im­pe­tus to man­u­fac­tur­ing and pri­vate cap­i­tal ex­pen­di­ture. In the pub­lic sec­tor too, growth of capex was be­low ex­pec­ta­tions at around 10%, with rail­ways and roads ex­pen­di­ture see­ing an in­crease of 11% each. How­ever, what is heart­en­ing is that it has not re­sorted to hand­ing out dole-outs in the form of uni­ver­sal ba­sic in­come or re­duc­tion in cor­po­rate taxes.

Over­all, the fo­cus of the Bud­get on ru­ral growth and de­crease in in­ter­est rates would lead to nor­mal­i­sa­tion of con­sump­tion, which got af­fected post de­mon­eti­sa­tion. It has also fo­cused on widen­ing the tax base. The cap of ₹ 2 lakh on loss of prop­erty for let-out prop­er­ties would fa­cil­i­tate move­ment of in­vest­ments from phys­i­cal to fi­nan­cial as­sets.

Also, the ex­pan­sion of in­vestable in­stru­ments for park­ing cap­i­tal gains would chan­nelise in­vest­ments into fi­nan­cial as­sets.

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