The Budget will be announced on February 1, 2020 by Finance Minister Nirmala Sitharaman. The markets are currently undergoing a correction and have over the year witnessed the effects of a slowing economy. This year's Budget has a lot of hopes riding on it for a revival and a boost to the stock markets and the economy for the country.
It would answer and hopefully address pressing issues such as how will the fiscal deficit be maintained, if not reduced while providing relaxations to individuals and corporates. A boost for ailing sectors such as auto and telecom can also be expected this year.
Following are a few of our expectations in this regard:
Infrastructure & cement industry waiting for funds
Finance Minister Nirmala Sitharaman last month unveiled a plan to invest Rs 105 trillion over five years in developing socio-economic infrastructure, but in order to achieve the government's ambitious plan to make India a $5-trillion economy by 2024-25.
We need extensive private participation investment. The first and foremost step to be taken care of is to reduce GST on cement. Modi government will most probably focus on connectivity via highways, waterways. Bharatmala Pariyojana which was announced by FM in last budget is expected to get more funds in this budget for highways as government's target for Phase I is to be completed by 2022.
Fiscal Deficit to be tackled
Inflation and fiscal deficit - are two challenges that will be in focus which will impact traders and long-term investors. We are neutral for both growth and inflation. The government is likely to try keeping the fiscal deficit under 3.8 percent of gross domestic product.
India's economic growth slowed for six consecutive quarters to 4.5 percent in July-September, despite a 135-basis-point cut in interest rates by the central bank since February 2019. A major announcement is expected to limit fiscal deficit.
Commodity and Stock Markets hope tax reductions
It has to be noted that Commodity Transaction Tax (CTT) is imposed on commodity market transactions since 2013. Due to this the commodity volumes have failed to estimate the pre-CTT levels. It is an additional cost and commodity traders have been demanding scrapping of CTT.
Budget 2020 is expected to bite this bullet. A similar expectation can be made in the budget for Security Transaction Tax (STT) which affects the stock markets.
Hopes for Exemption on LTCG
India needs to foster an equity culture for enabling the economy to raise risk capital for financing its faster growth. Exemption of Long-term Capital Gains on securities held over one year or more is a measure which demands consideration in this Budget to achieve the purpose of improving liquidity and volumes on commodity exchanges. An exemption was expected even in the previous year’s Budget but there is still hope that the FM would consider it this year.
More rebate under section 80C
The budget is also expected to increase the Chapter VI deduction limits for Section 80 C of the income Tax Act, 1961. This section currently allows a total deduction of Rs 1,50,000 and it might be increased to Rs 2,00,000 in the budget. If the deduction is not increased, we may see a reduction in the tax rates or a realignment of the slabs in regard to tax rates.
A boost to Green technology
The government has also been increasing its focus on green projects and green technology. The same was visible previous year as well. Taking a step forward, we may see a chunk of road and infrastructure development and building constructions strictly to be done using green technology. This would help companies such as L&T, DLF and HUDCO. L&T had previously bagged several government tenders too. A push towards going green might boost the revenues for the company further.
(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.