Budget 2018: From rural focus to corporation tax, MF industry expectations

Finance Minister Arun Jaitley will present Budget 2018 on February 1 and there are several expectations coming from various sectors of the economy. Will the finance minister deliver a people-pleasing Budget this time? Or will he be prudent and focus more on the fisc, despite this being the last full Budget before the next general elections? Quantum AMC fund managers Nilesh Shetty and Pankaj Pathak list out the priorities for this Budget and the most important Budget expectations from FM Jaitley.

Focus on Farm income and lowering corporate taxes

The finance minister had set a roadmap of doubling farm income by 2022  and lowering corporate taxes in his initial budget, one expects him to announce measures to try and move further along the stated objectives that he has laid out.

 

Increased thrust on Infra and Rural India

Private participation in large infra projects continues to remain limited. Government remains the key driver of infrastructure creation and one expects the trend to continue in this budget as well. Rural India continues to remain in distress and one expect measures to address discontent and revive sentiments.

Measures to shore up revenue base

With GST Revenues falling short of expectations one expects government to look at alternative ways to boost revenues. Imposition of Long Term Capital Gains tax on Equities will be perceived negatively by equity markets.

Risk of a populist tilt

With this budget being the last one before national elections there is a risk the government adopts a populist tilt. Given the limited fiscal space and major deterioration in the fiscal deficit may be perceived negatively.

By raising the market borrowing in current fiscal, government has made a very clear statement that expenditure cut is not an option. And it seems even more unlikely in next year when the rural distress is taking centre stage ahead of general elections in 2019. So the burden of managing the fiscal math in FY19 will shift to revenue side.

 

Direct tax collections are showing encouraging trend and will likely to remain buoyant with rising tax payers’ base. But the uncertainty on indirect taxes will continue in FY19 as the GST system evolves. Our base case is that government will target fiscal deficit of 3.3% to GDP in FY19. However we cannot rule out the possibility of 3% fiscal gap projection with significantly higher disinvestment target.

 

Although the economy is showing early signs of revival, the government will have to be mindful of the challenges emerging from the rising crude oil prices and turning inflation trajectory. Government’s fiscal plans can significantly alter the RBI’s stance over inflation and policy rates. Hence, it will be essential for the government to strike a balance between the fiscal discipline and supporting rural economy.

Nilesh Shetty is Associate Fund Manager (Equity Funds) and Pankaj Pathak is Fund Manager ( Fixed Income) and Quantum AMC.