Manufacturing, Private Capex Too Needed Push
Growth and low rates would lead to normalisation of consumption EXPERT TAKE
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.