MUMBAI // Expectations are running high for this year’s budget in India due on Monday.
Businessmen are hoping to see signs of progress and clarity on economic reforms and other measures to improve the business environment and infrastructure.
“We are looking forward to this year’s union budget with a lot of expectation,” says KG Krishnamoorthy Rao, the managing director of Future Generali, an insurance company. “I am confident that the budget this year will lay out a clear road map to set the right vision for Indian economy. Overall, the bar was already set high in last year’s budget. In this budget, we expect the government to take strong steps that will be the driving force to create and sustain high growth.”
His own wish list includes the government “continuing the reforms agenda to bring more growth in the industrial sector” and “significant initiatives for realising financial inclusion and delivering financial services to the poorest section of the society”.
Arun Jaitley, India’s finance minister, will present the government’s third budget.
“Last year’s budget unveiled several bold plans which we expect will be taken forward,” says Pranjul Bhandari, the chief India economist at HSBC.
She explains that the “three ‘Cs” are the “key expectations” for the union budget.
These consist firstly of “continuation”, referring to issues including progress on banks, capital expenditure and key bills, such as the bankruptcy code, the goods and services tax (GST), says Ms Bhandari. The second is “countryside revival”, or rural stimulus, and the third is “consolidation”, in reference to details on fiscal plans.
India has experienced poor monsoon rainfall over the past two years, which has negatively affected crops, and this in turn hits rural spending.
“We expect considerable focus on reviving rural demand through higher allocation to infrastructure – rural roads and irrigation – and a renewed focus on safety nets – crop insurance and job guarantees,” Ms Bhandari says.
Narendra Modi came to power in May 2014, following a campaign which promised to turn around the economy. The latest data shows significant improvement in GDP growth following a change in the methodology last year in how these figures are calculated, with a forecast of 7.6 per cent annual growth for this financial year. But business leaders are calling for swifter action when it comes to improving the business climate in the country, which would help to attract more foreign investment.
“India is on the threshold of exponential growth, with the entire world seeking an opportunity to collaborate with its growing might,” says Aliasgar Hajee, the managing partner of SHM Group, a shipping company headquartered in Mumbai. “Ease of doing business integrated with favourable tax reforms, which includes implementation of GST, removal of tax exemptions and keeping uniform tax rate across the board and reduction of unwanted red tape should be the areas of focus to attract FDI [foreign direct investment] and more importantly support Indian companies to invest in their capabilities and grow their offerings.”
Mr Hajee says infrastructure, rural development and enhanced security measures are the need of the hour and is hoping the budget prioritises these requirements.
Miranjit Mukherjee, the chief financial officer of Tata AIG General Insurance, agrees that India still needs to do much more to make it easier to do business.
“While the government is putting a lot of effort in removing blockages with a host of announcements, so that companies can move with speed, execution continues to remain a challenge,” says Mr Mukherjee. “The government must devolve more powers to the bureaucrats and encourage them to take quicker decisions so that the ease of doing business in India becomes a reality.”
He also hopes to see investment in infrastructure coming to the fore.
“The government must start investing in top-class infrastructure to attract investments. Most of India’s cities are crumbling owing to infrastructure that cannot sustain the growth that they are burdened with.”
In terms of economic reforms, business leaders are calling for some clarity on the long-delayed goods and services tax, which would deliver a uniform tax rate across India.
“The government must put a road map for introduction of the GST so that there is clarity on the date on which GST would come in place,” says Mr Mukherjee.
Naresh Bhansali, the chief financial officer of Emami Group, a conglomerate in India with interests ranging from skincare products to property, says he believes that “capital investments into the manufacturing sector and boosting rural growth” are priorities for the budget.
“While there is a challenge to balance growth and yet achieve fiscal objectives, one can expect government to focus on investments in infrastructure and other important sectors – health care, education, IT, metals, energy and so on,” he says.
One of Mr Modi’s pet projects is his “Make in India” campaign, which aims to transform India into a top global manufacturing hub, so manufacturers are hopeful that some of the announcements in the budget will benefit them.
“A robust manufacturing sector is an essential element of Indian growth story,” says Haresh Sippy, the managing director of Tema India. “To further increase the manufacturing activity in the country, we would urge government to announce more incentives that would encourage research and development initiatives in the country. The capital goods sector is the backbone of manufacturing industry for any country.
“In order to enhance competitiveness of capital goods sector the privileges and benefits of special economic zones should be extended to the companies exporting goods irrespective of the location of manufacturing.”
In terms of the property sector, CBRE in a research note outlined some key measures it would like to see in the budget, including indicators of how the government’s housing for all and smart cities schemes are moving forwards, and clarity on the passage of a land acquisition bill.
“Amid indications that the government will continue with its ambitious reform agenda in 2016, addressing core issues concerning affordable housing, land acquisition, taxation norms for real estate investment trusts, and opening up long term funding for the retail sector becomes imperative,” analysts at CBRE wrote.
To boost affordable housing, for example, cheaper mortgages and standardised costs for building materials are among the measures that could help, according to the consultancy.
“As the state lacks the capability to develop affordable housing at a large scale, private developers should be encouraged to enter affordable housing development by the offer of land at subsidised rates, tax incentives and rebates on construction materials.”
Shilan Shah, the India economist at Capital Economics, says he expects the finance ministry to reveal large public sector pay rises, which will lead to widening fiscal deficits over the coming years.
“We think that Mr Jaitley will, unsurprisingly, seek to reassure investors that the GST is close to being implemented, and that retrospective taxes will not be levied,” he says. “However, the key point will be to back up any pledges with firm action. It is perhaps a bit strong to suggest that the finance ministry’s pledges on longer-term reform will fall on deaf ears. But having previously failed to back up its budget pledges, the finance ministry will need to make meaningful strides on tax reform to boost investor confidence.”
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