Budget 2019: Easing liquidity crisis and creating jobs should be FM's top priority

It will be Modi 2.0 government's first budget, but all eyes will be on Nirmala Sitharaman's first budget speech as the finance minister. While Dalal Street welcomed the Modi government, it isn't a smooth ride for the government. Multiple micro-macro factors have come into play in FY'20 including geopolitical tensions, global trade wars and volatile crude prices which have a huge impact on global as well as domestic growth.

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Everyone expects the FM to distribute sweet savoury. However, the key challenges ahead of FM that will need immediate action would be to arrest the dwindling GDP growth, addressing the agrarian distress and fixing the financial sector woes.

A clear five-year road map on tax reforms, especially corporate tax rates, and measures to bring the stuck capital back into the production process by fast tracking the resolution of non-performing assets of the banking sector will go a long way in reviving the incremental private capex and growth of the economy.

However, elevated banking sector NPAs and now the defaults on debt repayment in the non-banking finance sector (NBFC) has created a crisis in the financial sector.

Infusing more capital into the public sector banks, removing roadblocks for the speedy resolution of IBC cases and incentivising banks to buy good quality NBFC assets may ease the financial sector woes.

Similarly, focusing on shadow banking and housing finance companies by creating a liquidity pool would act as a catalyst for growth. Any announcement to this effect would be a welcome move. While everyone expects the government to be spending to revive growth, FM will have to exercise fiscal prudence.

Meanwhile withdrawal of long-term capital gains tax would be a cheer for the market. This would lead to higher equity participation by companies and help in channelising household savings into the economy.

Sectorwise expectations are given below.

Automobiles

•      Scrap Scheme: Incentivise replacement of old vehicles (>15 Years)
•     Concessions for hybrid/electric vehicles
•     Increase in agricultural support/credit to spur rural demand

 BFSI

•     Measures to improve deposits in the banking system by way of taxation
•     Digitization initiatives and incentives to push digitisation across a broader platform
•     Higher refinance support from NHB to HFCs/banks

Cement

•     Impetus to improve rural economy by way of higher MSPs, income transfer or farm loan waivers may drive cement consumption further
•     Further increase in infrastructure investment allocation to aid sector
•     Emphasis on rural infrastructure including rural roads

Capital Goods

    Increase Capex of Railways and defence, higher allocation to smart cities and rural electrification schemes

B Gopkumar is ED & CEO at Reliance Securities