Budget 2022 Expectations: Top Brokerages See Focus On Rural Economy, Capex And Job Creation
From farm incentives to taxes, here's what top brokerages expect in Budget 2022.
Budget 2022 will focus on supporting the rural economy, boosting income and job creation, maximising growth-supportive expenditure, and launching schemes for smaller businesses, according to analysts at top brokerages.
Finance Minister Nirmala Sitharaman will present the Union Budget on Feb. 1 when equity markets are volatile, there are concerns about inflation and rate hikes by the U.S. Federal Reserve, and India is battling a third wave of the pandemic amid an outbreak of Omicron variant.
Here’s what analysts expect from Budget 2022:
Motilal Oswal
Expect the government to keep its FY22E fiscal deficit at 6.5% of GDP, and set FY23E target if 6%. Anything less than 5.8% for FY23 may help bring down yields, and anything over 6.2% could push them higher.
Watch Out For:
Self-liquidating, temporary personal job/income supporting measures to boost private consumption in the immediate future.
Measures to support the rural economy, amid its weakening and the impending state elections.
Measures to revive the residential real estate sector.
HDFC Securities
In FY23, we could see the winding down of pandemic stimulus plus normalisation of economy and divestment of BPCL and LIC Corp. Hence, a fiscal target of anything around or just under 6% is achievable.
In case, this comes in at close to 5.5%, then the street may get excited. However nominal GDP growth may come in slower at 13% versus 18% in FY22.
Watch Out For:
Changes in REITs and InvITs taxation, specifically with the objective of bringing long-term capital gains treatment at par with other asset classes may be considered.
The budget could focus on maximising growth-supportive expenditure (capex and infra spend) and adequate allocations for the production-linked incentive schemes.
On-ground realities may nudge the government to roll out more supportive schemes for rural India and smaller businesses.
Healthcare infra spend could also see an uptick.
Fresh move to tackle inverted duty structures while focusing on reducing evasion as well as the compliance burden on businesses and individual taxpayers could be another objective.
Expect more clarity on impending privatisation of IDBI Bank and two public sector banks, which the government had indicated could happen in FY2022.
Clarity on operationalisation and scaling up of National Asset Reconstruction Company Ltd. and National Bank for Financing Infrastructure and Development is also expected, as is enhanced budgetary allocation for housing schemes such as the Pradhan Mantri Awas Yojana.
Trade, hotels, transport, and communication have been badly hit by the pandemic and continue to struggle. These may come under special treatment in the Budget.
IIFL Securities
In FY22, the government has had to step-up free food grain distribution as Covid-19 battered the economy. It had also announced additional subsidy on fertilisers. These may not recur in FY23 and open up fiscal space for increased capital spending.
There has been a significant lag in achieving the disinvestment targets set by Budget 2021. Expect a ramp-up next year which would open up further fiscal space.
Government will prioritise rural plus healthcare spending, capital spending, job creation and income support.
Watch Out For:
Relief allocation for healthcare, travel, vaccine coverage is likely due to emergence of Omicron wave.
Infra spending to continue and will be a key theme.
Expect incentives for exporters and custom duty rationalisation.
Incentives and allocation towards encouraging research and development, new technology development, sustainability, smart cities, etc.
Announcements on affordable housing schemes favouring both developers and buyers.
In Budget 2021, the government launched a scheme with outlay of Rs 3 trillion, to help debt-laden distribution companies; but not much has been heard about it since. There may again be some announcements for discom relief.
The upcoming budget is unlikely to carry any tweaks in the existing income tax rates, given the continued uncertainty around Covid-19.
The government is unlikely to announce capital infusion for public-sector banks as their financial health has improved on the back of reduction in bad loans.
ICRA
Under its adverse-case scenario on government's revenue spend, ICRA projects the revenue deficit and the fiscal deficit at 5.1% and 6.9% of GDP, respectively, compared to its baseline estimates of 4.2% of GDP 5.8%, respectively.
Expect the planned ceasing of GST compensation could cause the state governments’ fiscal deficit to rise to the cap of 3.5% of GSDP (gross/net state domestic product) set by the 15th Finance Commission.
Watch Out For:
Continued focus on improving agri cash flows through rural infrastructure development and greater allocation for income support schemes.
Effort towards boosting technology adoption and local manufacturing to achieve ‘Make-In-India’ goals.
Expect incremental SOPs and tax rebates for micro, small and medium enterprises sector.
Capital infusion for public sector banks in FY2023 unlikely.
Expect more clarity on impending privatisation of IDBI Bank and two PSBs.
Extension/continuation of Housing-For-All scheme.
Budget allocation towards rural development and agriculture sector expected to remain healthy.
Rationalisation of duty structure for raw materials, intermediates and finished products for chemical sector.
Budgetary allocation to meet the estimated fertiliser subsidy outgo of Rs 1,300-1,400 billion for FY23, amid elevated international prices.
Incentives to improve medical infrastructure in tier-2 and tier-3 cities, and train medical personnel to make healthcare more accessible.
Measures to improve availability of long-term funds to the infrastructure sector and capital allocation towards the newly set-up development financial institution.
Crude oil, natural gas and petroleum products to be brought under GST.
Reduction of GST rates for life-saving and essential medicines.
Anand Rathi
Due to global inflationary concerns, fiscal would be the main policy tool to foster growth.
Believe there is elbow room to maintain large fiscal accommodation.
With a longer-term vision, we expect the start of fiscal consolidation in this budget. The fiscal deficit target is likely to be around 5% in FY23, down from 9.4% in FY21.
Watch Out For:
Government may roll out more supportive schemes for agriculture, the rural economy, micro, small and medium enterprises, and social sectors.
We expect measures like Atmanirbhar Bharat and PLI scheme to continue rather than fresh measures for corporates.
Expect government’s stance to boost growth through investment rather than consumption in lagging sectors like hospitality to continue.
Budget to be neutral-to-marginally negative for equities in the near-term, but positive for the bond market.
Special measures to support the rural economy, MSMEs need to continue. Continued fiscal policy support needed for high growth to persist.
To improve farm prices, more aggressive minimum support price hike, higher food subsidy, and agro-marketing supports.
More spending on healthcare, education, and affirmative action likely to accelerate.
Efforts to revamp agriculture, boost to rural infrastructure, and job creation.
Aid MSME through cheaper funding, technology support and skill improvements.
Selective increase in direct transfer, measures to create rural jobs, boost income to support consumption.
No major tax SOP likely in the budget.
Emkay
We project FY23E fiscal deficit at 6.2% after 6.8% in FY22, implying net and gross borrowing of Rs 9.45 lakh crore and Rs 12.9 lakh crore, respectively.
We do not expect any major tax reforms, but there could be minor consumption incentives.
Expenditure focus will be on welfare, rural and MSMEs, and physical and health infrastructure. Revenue expenditure/GDP ratio will moderate.
Capex spends should remain significantly higher than pre-pandemic levels (2.3% of GDP).
Watch Out For:
Expect higher allocation in the road and housing schemes and rail sector from the Central government.
Enhanced tax deduction on home loan interest.
FII/FDI limit in PSBs could be increased to facilitate divestment in select PSBs on sale.
Exemption of health and term insurance premiums from GST.
Ayushman Bharat budget allocation could increase materially from Rs 6,400 crore to approximately Rs 10,000 crore.
Reduction in GST rate for two-wheelers from 28% to 18%.
Further lowering of excise duty on petrol-diesel.
GST waiver for underconstruction properties and tax incentive on interest/home loan rebate.
