Budget 2020: 'Expect the govt to announce measures to prop up rural economy'

There are some market expectations of a cut or some relief with respect to personal income tax, although we will have to see how much fiscal space the government has for any major relief.

Further, we feel that the government could announce some measures for the rural economy, which has seen some slowdown over the last few months.

With the government’s intent on reviving investment in the economy, we cannot rule out additional measures for the infrastructure sector as well.

Fiscal deficit estimates and the high likelihood of a slippage in the current year would need to be closely tracked in conjunction with the overall government borrowings for the coming year.

Over the past few months, the government has announced numerous measures to tackle the slowdown in economic growth, and we may see a continuation of this policy of announcement of reforms outside the Budget as well.

Do you think the government will be able to meet the fiscal deficit target?

The possibility of some fiscal slippage is high considering that tax revenue collections have been below Budget estimates so far, and the nominal GDP growth has slowed considerably.

The non-tax revenues although they have been healthy, helped by the RBI dividend. The government’s divestment would also aid in mitigating some of the fiscal slippages, though most of the strategic divestments announced may be pushed to the next fiscal.

Overall, we feel that some calibrated fiscal slippage is not a big issue at this juncture, as the focus needs to be on reviving growth in the economy.

Which are the sectors that are likely to hog the limelight in this Budget 2020 and why?

Broadly, we expect some announcements by the government to revive the rural economy which has been facing some signs of distress and this has resulted in a marked slowdown in growth in rural India. The infrastructure sector may also see additional measures, as mentioned.

Do you think infrastructure could turn out to be a strong beneficiary in the upcoming Budget?
The government has already announced a mega National Infrastructure pipeline of Rs. 100 lakh crore over a five year period (FY20-25). We may see increased allocation to the infrastructure and related sectors in this budget, along with some announcements of new projects.

With the government’s focus on reviving investment, we expect a gradual recovery in the CAPEX cycle, as the economy also recovers.

The govt struggled to meet the divestment target in FY20. What are the estimates you are factoring in for the next fiscal?
The government has announced some large strategic divestments, and the government’s present divestment push seems to be reminiscent of the push for privatization undertaken by the BJP-led NDA government between FY01-FY04.

This is a positive development, especially since the focus seems to be on using the strategic divestment route primarily (rather than PSU to PSU sale).

Strategic divestment has the potential to fetch healthy premiums from private entities (as has been seen in the govt’s FY01-04 divestment push).

Over the past couple of years, the government has also been increasingly using the ETF route for divestment. Yes, the divestment target for this fiscal year has been under-achieved so far, and we may see some of the major strategic divestments pushed to the next fiscal year—as these typically take longer.

However, the intent is what is important here, and we may see more PSU entities being announced for divestment over the course of the next year.

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