At a time when India's economy is suffering from an acute slowdown, there is much to hope for from this budget, especially for the financial sector. The Union Budget 2020, to be presented by Finance Minister Finance Minister Nirmala Sitharaman on February 1, may give a push to policy reforms to improve the business environment, which will cheer D-Street.
The upcoming Budget should focus on reviving sentiments in the financial sector, consumer confidence, real estate sector and capital markets, brokerage firm Edelweiss said in a report.
Budget 2020: For the financial sector, the biggest challenge for the government will be to boost non-banking financial institution (NBFC) sector to ensure faster flow of credit to the economy.
"With regards to markets, we have been arguing to take on risk. Fiscal slippage/expansion would further bolster our conviction as it will only improve growth prospects. Barring short-term reaction, we expect bond markets to take fiscal expansion in its stride, especially if Mint Street remains accommodative," the report said.
Policy related expectations from Budget 2020
Enhancing risk appetite
The NBFC crisis severely hurt risk appetite in the system and one is yet to see meaningful improvement in the same. Some of the measures announced by the government such as credit risk guarantee for NBFCs and Rs 25,000 crore stress fund for stalled housing projects are good measures.
However, the scale is too small to turnaround risk sentiments. The government need to provide comprehensive backstops for stressed pockets in the economy (real estate, NBFCs, etc.). Also, it is essential that government clears private sector dues on a timely basis to ease their working capital situation.
Consumption boost-Taxes or direct spending?
The common chatter has been of some relief on the personal income tax front in order to boost consumption spending in the economy. According to analysts at Edelweiss, a more effective measure to boost aggregate demand is to ramp up government spending significantly at the bottom of the pyramid. This has a much higher multiplier effect than income tax cuts.
Sector wise expectations from Budget 2020
Auto sector: The auto sector is in the grip of one of the sharpest slowdowns in recent years. Some incentives from the government (e.g., scrappage policy, GST rate cut for BS VI vehicles, etc.) are required to revive the sector. Also, this has been one sector which has not received any relief so far.
Real estate: For a full fledged economic revival, it is imperative that the real estate sector is given a sizeable boost. Real estate capex has declined from around 8 per cent of GDP in FY12 to nearly 4 per cent in FY18, as per Edelweiss report.
Capital markets: The common expectation across market participants is some rationalisation of capital gains tax. The holding period for long-term capital gains (LTCG) is likely to be increased to two years from one year currently.
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