The budget needs to focus on providing sops to MSME’s and the agri segment, which comprised the largest populace in our country. It is vital to help enhance their profitability and efficiency as it forms the backbone of our economy. This will propel more credit to the sector from the NBFC sector, which is the principal source of funds to these two sectors. MSME’s have had a double whammy due to demonatisation and GST roll out, which led to many businesses having to shut shop and become unviable and there is a urgent need to understand their pain points and address them. A game changer for the economy could be the governments focus on affordable housing, its continued support to the affordable housing segment, in various forms namely, interest relief and tax breaks to promote self-construction in rural and semi-rural areas.
Over the last five years, the Modi government made some key departures in the budget process. Firstly, the Railway Budget was scrapped and subsumed into the main budget. Secondly, the Budget presentation date, was brought back from February 28th to February 01st. This year, we could see one more departure from tradition. Despite being an election year, the FM will present an interim budget on February 01st rather than presenting a vote-on-account.
Considering that it will be an interim budget till the full budget is presented post the elections, not too much is expected in terms of fresh reform initiatives. The first expectation is that the budget could give a big thrust to the agriculture and rural sector. Secondly, the budget is also likely to be a big booster for the MSME sector, considering their employment potential. This could come in the form of direct tax exemptions as well as a more friendly GST regime. The government is unlikely to make any major changes to the direct tax code considering that there will be a full budget coming up.
Capital markets will be hoping for a reversal of the capital gains tax on equities that was introduced in the previous budget. For more granular expectations we may have to wait for the full budget after the new government is in place.