The Union Budget is expected to be a game changing scenario for the newly elected Government at the Centre. The industry and the corporates are expecting a lot to be delivered by the BJP led Government in a scenario of benign inflation levels and declining interest rates. A positive macro-economic environment is expected to revive growth for the Indian economy and at the micro economic level the industry is expected to drive this growth in the time to come. Some sectors are expected to be direct beneficiaries after the announcement of the policies in the Union Budget scheduled to be delivered on 28th February 2015. The other sectors that would not be direct beneficiaries would indirectly gain from the positives and strengthen the linkages between industries.
It would be interesting to take a look at the sectors of the economy and what to expect from the Union Budget 2015 so that the industry and the economy show a sustained growth momentum for a long time to come.
Infrastructure sector is expected to be the big beneficiary of the forthcoming Union Budget as it requires a big boost in implementation and planning activities so that stalled and fresh projects in the construction of roads, rails, bridges, tunnels, water supply, electricity transmission and telecommunication get up and running. If the Government gives special attention to support low cost housing and development of smart cities in the infrastructure space it would be an added advantage for the allied sectors.
The indirect advantage would accrue to sectors such as Cement, Metals and Mining that supply the necessary equipment and raw material to infrastructure companies in India. These sectors would on priority add further capacity in production citing higher demand in the near future from higher infrastructure spending by the Government. The focus of the government is on making the road sector less risky by issuing Engineering Procurement and Construction contracts which would improve the balance sheets of private sector players.
The rise in the infrastructure spending for the economy would accelerate the growth momentum in the Automobile and Auto Ancillary industry that has been reeling under intermittent growth for the past one year. Roll back in the excise duty for the Auto industry has spooked fears of inconsistent growth in the sales of vehicles in the year 2015. A falling interest rate scenario augurs well for the Commercial Vehicle manufacturers that have seen decline in sales since a long time till now.
Rise in infrastructure spending is expected to revive demand for credit in the economy and give boost to the banking sector in the economy. The credit revival in the infra space would improve the recovery of non-performing assets for banks.
Rise in the income tax limit coupled with rise in the investment amount under the tax saving category is expected to increase the disposable income of the households. More money in the hands of the individual is most likely to increase the demand for consumer products. Durable Goods and Fast Moving Consumer Goods would witness a rise in demand. Reduction in the customs duty for Gold would increase the demand for jewellery products in the domestic space.
A road map on the implementation of Goods and Services Tax (GST) in the upcoming budget would be helpful for the industry. The focus on Make in India campaign of the BJP led Government add to the advantage for most of the sectors in the economy.
The government in the month of December 2014 permitted 100% foreign direct investment (FDI) under automatic route in medical devices sector to encourage the manufacturing of equipment, including diagnostic kits and other devices. The government is expected to announce an incentive package, including tax benefits, in the forthcoming Budget for domestic manufacturers of medical devices.
The government has set an ambitious target of 100GW of solar power and 60GW of wind energy by 2022, with an estimated investment of USD 200bn. In line with these targets the government is expected to promote the renewable energy sector by extending various tax incentives in the upcoming Budget. The case of subsidies and low cost financing may even be considered for renewable energy sector.
The aviation industry has ushered in a new wave of expansion driven by low cost carriers (LCC), modern airports, FDI in domestic airlines, cutting-edge information technology interventions, growing emphasis on no-frills airports (NFA) and regional connectivity. The last Budget announced schemes for development of new airports in Tier I and Tier II cities and expects more sops in 2015. The airlines representatives also want infrastructure status for the industry to enable access to funds with lower rate of interest through external commercial borrowings.
All sectors in the economy expect incentives in various forms for themselves but as a matter of fact the Government is constrained to delimit them because the fiscal deficit continues to be high with a target of 4.1% for FY 2014-15 and 3.6% for FY 2015-16. Most of the sectors would directly or indirectly get benefit from policies that will be announced on the last day of this week. Investors would have to wait and watch what the new Government has on its agenda for the industry and corporates.