Budget 2018: Expect rural boost, relief for middle class through tax cut

The focus on infrastructure spending to revive the capex cycle should see higher allocations for roads, railways, power programmes


We expect Budget 2018 to provide a boost to consumption via higher allocation for rural-oriented schemes. Some relief for middle-class through a cut in tax rates/higher exemptions for tax savings cannot be ruled out either, given that this is the last full Budget before the general elections 2019. The focus on infrastructure spending to revive the capex cycle should see higher allocations for roads, railways, power programmes. We also anticipate some relaxation of fiscal deficit targets as this is the first year of transformational and disruptive reform like GST. However, overall the glide path for fiscal consolidation should continue in the medium term.

Sector-wise expectations from Motilal Oswal Institutional Equities:
* Increased incentives and budgetary allocation to encourage flow of credit to MSMEs.
* Inclusion of a wider income range under affordable housing schemes and further incentives to developers for the same
* Incentives for long term project financing by banks with focus on roads and railways
* More clarity over recapitalisation bonds for state owned banks’
* Reduction in the tenure for interest tax free deposits from 5 years to 3 years
* Digitisation initiatives including special focus on promoting UPI based payments across a broader platform

* In order to give a boost to affordable housing, the government might announce steps to make land acquisition easier for affordable housing developers
* PMAY allocation was raised from INR150b in FY17 to Rs 230 billion in FY18. We expect increased allocation for the same.
* If there is any announcement of higher import duty on gold, it could impact gold prices and in turn gold financing companies
* Exemption limit for interest deductible for housing loans u/s 24 for tax calculation purpose may increase from the current level of INR0.2m
* Infrastructure bonds may be reintroduced for increasing the allocation towards infra spending

* Increase in total budgetary allocation towards rural and MNREGA will also be an interesting factor to note. We expect significant increase in allocation.
* Two years ago the government had announced plan to double rural income in the next 5 years. Clarity on how they propose to do that with revised time frame, if changed, would be appreciated
* Change in personal income tax slabs or income tax rates would be watched out for as it has the potential to boost consumption
* Any timeline on proposed reduction in Corporate Income tax rate to 25% will be keenly watched out for as many consumer companies are in the peak tax bracket
* After steep increase in cigarettes GST from earlier proposed levels it would be interesting if the budget continues stringent policy towards cigarette consumption or takes a breather.

Oil and Gas
* Subsidy on LPG/kero amounts to INR90b for H1FY18. Higher crude oil prices are expected to result in INR470b under-recoveries in FY19. Govt is expected to give clarity on what proportion of these are they expected to provide for.
* India wants to increase penetration of gas. Last year, customs on LNG was cut to 2.5%. Expect this to be further cut in order to boost consumption.
* Upstream companies have been asking for lowering cess. Low probability of this one happening though.
* Govt had increased excise on auto fuels when oil prices crashed. But excise duty hikes have not been rolled back. Expect some relief on that front.
Capital good and infrastructure sector
* Increased allocation for infrastructure sector like Roads, Railways, Housing and Urban development. Rail capex seen at INR1.46trn in FY19 vs. INR1.31trn in FY18 while the road ministry is looking for a 10-12% higher budgetary allocation from the finance minister
* Increased allocation to major programmes of the Union Government such as a. Pradhan Mantri Awas Yojna for urban and rural housing, b. Electrification schemes of IPDS and DDUGJY, c. AMRUT and Smart Cities, d. Namami Gange, Metro and MRTS projects

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