July 05, 2014
With thumping victory for
the NDA Government, expectations are high on how they will present an
adjustment to the former government's budget and execute and implement its own
strategy. The hype around the governments mantra of 'minimum government and
maximum governance' already announcing few measures to change the mode of
governance will be proved if we see some surprise measures in the Budget.
These issues would have
to be taken into account while making the budget. From various quarters there
seems to be a view that growth this year would be between 5-6 per cent, making
it a more realistic budget on the anvil to reduce the gross borrowings for
year.
There are currently two major concerns for the economy today
that have emerged in recent times. The probability of a sub-normal monsoon
coupled with elevated crude oil prices on account of the crisis in
Iraq. We need a robust fiscal policy to support growth and monetary policy going ahead. Global as well as the
domestic investors would also be looking for signals.
The government has
already increased railways tariffs which are an indication that the government
would be walking the path of fiscal prudence. They are most likely to link any
benefit to be given with a return in terms of fulfilment of economic objective.
It would be worthwhile to note that provisioning of food subsidy
and the implementation of the 7th Pay Commission would be the two major road blocks
towards attainment of fiscal deficit target going ahead. And given that growth
is expected to slowly recover at a modest pace during the year, there would not
be a significant revenue augmentation. However, if they announce any specific
measures which would either lead to broadening of the tax base or increase in
tax compliance, a modest increase in revenue cannot be ruled out.
Some key objectives the budget would try to address should be:
1) To invoke measures to
revive GDP growth.
2) To focus on increasing
infrastructure investment which can provide a big push to the economy
3) To take stance on
subsidies and hence indicate policy relating to fuel pricing.
4) To strike a balance
between fiscal consolidation & public spending while maintaining
sustainable inclusive growth.
5) Moving towards
implementation of GST and DTC
6) Resurrection of
financial savings such as Deduction of Interest on home loans which will
provide a boost to the home loan sector as well as housing industry, and
deduction under section 80C may be revised at a higher level to channel savings
into financial instruments.
7) Measures to revive
financial savings which have been declining in the last couple of years and
also getting reflected in pressure on CAD.
8) The Budget will be
looking at better targeting of the existing subsidy bill.
Budget Expectations for MSMEs:
1) The new government does clearly recognize that high inflation is essentially due to supply-side
constraints in terms of inadequate infrastructure. With this in the back of
their mind, the Budget will be expected to set a roadmap for the infrastructure
sector in particular. There are innumerable number of MSMEs serving the Infrastructure
Sector and are expected to be benefited by this. Coal, power with special focus
on nuclear power as well new and renewable energy, transport and information
technology besides urbanization is expected to receive a boost in the upcoming
budget
2) Linked to the subject
around infrastructure, is the need to look at NBFCs, especially the Asset
Finance Companies and Infrastructure Finance Companies. Within the
infrastructure financing plethora, these companies play a very critical role in
addressing the credit needs of numerous MSMEs that provide crucial support
services in infrastructure projects and but continue to remain outside the
purview of institutional funding channels. In case there would be announcement
of measures that could enable NBFCs to easily mobilize resources from various
sources, both domestic and foreign, it would play a great role in reviving the
sector.
3) Cost and access to bank credit and markets,
besides red-tape, labour and taxation remain the main challenges faced by the
MSMEs in the country. While export opportunities are expected to open up for Indian companies with the
expected revival in the global economy, SMEs are doubtful about exploiting
these opportunities in the absence of a platform to showcase their capabilities
and tap the potential overseas customers.
4) Greater support from
the Government is expected in boosting exports, in the form of a marketing
platform to identify potential buyers.
5) With the imminence of
a sub-normal monsoon there will be pressure on the Budget to make provisions
for relief for farmers. There can be a switch between accounts of allocations
for bank capitalization with disinvestment to free resources for interest
subvention or loan waivers for farm loans.
6) The sector also expect
a dedicated MSME bank to go a long way in solving their basic credit related
challenges, particularly for raising credit without collateral.
The least we can expect from the government is outlining a clear
strategy and also stating its execution plans as it is the implementation that
holds the key to success.
(Rajiv Janjanam is Vice President and Portfolio Head, SME &
Retail Lending, Capri Global Capital Ltd.)
