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FM should keep fiscal deficit for next year below 3.5%

Sandeep Nayak     February 25, 2016

Sandeep Nayak, ED and CEO, Centrum Broking
On the macro economy front, the expectation is that the Finance Minister keeps our fiscal deficit for next year within 3.5 per cent of our GDP. This is the single most important number all investors would watch out for.

The main focus of the budget needs to be on (a) building infrastructure (b) ensuring that the private sector is comfortable in commencing expansion and increase capital expenditure (capex) and (c) strengthening the weak PSU banks which need to be recapitalized after taking huge hits on account of bad loans.

Tax Holiday for Infrastructure Projects: The need of the hour is to build our infrastructure quickly, as it is vital to boost the economic growth. There is an urgency to do it as the commodity cycle is at its bottom and the infrastructure could be built at probably half the cost.  Rolling out the red carpet and offering 20 year tax holidays for infrastructure projects where the outlay is beyond Rs.1,000 crore could see some action in this space.

Private Sector Capex: To fire the capex by the private sector, the government could initiate a subvention of 2 per cent per annum on the capital outlay in excess of Rs. 10 crore, incurred by manufacturing startups in the private sector. This subvention should be extended for 5 years to make sure the private sector comes to the party.

Strengthening Banks: Banks play an important role in ensuring economic growth. It is important that the government allows private and foreign capital to flow into the banks, so as to meet their recapitalization requirements. To keep the unions at bay, the government should not dilute their holding below 51 per cent. This would be a win-win for the investors, government and also employees, who want the government to own and control the banks.

The budget 2016 is crucial from an equity market standpoint and a great opportunity for the government to deliver on its initial promise. The biggest wish for this budget is that this opportunity should not be frittered away by the Finance Minister.

(The author is ED and CEO, Centrum Broking)

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