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

Budget 2018

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:

Banks

• 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

NBFCs

• 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

FMCG

• 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

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