Budget 2018 Impact on Investments

The first budget post introduction of GST and last full-fledged budget of the current government is being followed by the markets with much curiosity and anticipation. The government is expected to do a balancing act in this budget with an objective to continue with spends on growth initiatives while increasing social spends for alleviating rural distress that has become a cause of concern. Proposal to double farmers’ income by 2022 makes rural economy elevation as the central theme for the Budget 2018. Given that the Government has to balance inflationary trends, it is logical that secular increase in MSPs is unlikely and the segments like animal husbandry, dairy farming, livestock farming, and poultry are expected so as to supplement the income of the farmers. Measures or incentives to encourage the investments in these business segments cannot be ruled out. The budget might also entail tweaking of export and import policies for agricultural commodities to protect the interests of the farmers along with higher spends on social infrastructure, a likelihood of hedging prices on MP model etc. Improving infrastructure like setting up new cold storage, creating food processing parks around the areas with high growth for specific commodity like potatoes in UP or Bengal, creating deeper rural markets to prevent excessive price volatilities etc., higher spends on MNREGA, rural roads, improvement of sanitation and drinking water, developing irrigation, electrification and power availability for longer duration and providing dwellings besides boosting credit availability, and making crop insurance available to the farmers' in rural India etc. can be expected from the Budget 2018.

From a tax payer’s perspective, an increase in personal income tax exemption limit is expected. With the implementation of GST, people are now paying indirect taxes on almost every purchase and hence few measures to improve their purchasing power are expected to be a part of this budget. In order to encourage higher compliance, a simplification of Direct Tax laws can also be looked forward to.

From the perspective of the equity markets, steps to revive industrial capex are being watched out for. Towards this end, infrastructure sector is likely to receive a significant push in the Budget 2018. To continue growth momentum of the Indian economy, significant investment to overhaul our infrastructure, be it ports, roads, railways or airports, is likely to be a major focus area in the budget. Infrastructure projects serve the dual purpose of creating employment opportunities as well as making the country a more attractive destination for investment and business. Apart from infrastructure, structural reforms are expected to gain momentum to breathe fresh life into the private investment cycle. The markets also expect fiscal to have a minimum slippage from its trajectory decided in the last budget.

Pointed measures to strengthen the three pillars of government expenditure, public consumption, and private investment should be targeted in Budget 2018 for giving a major thrust to overall economic growth. Improvement in the rural economy, consumption-led demand along with the revival of private capex, and expenditure led infrastructure build-up are expected to drive earnings growth that may have a positive impact on the market performance.