Arun Jaitley, the Finance Minister has presented the Union Budget for 2017-2018 on the 1st of February, where more money has been offered for welfare schemes. The budget also presented tax sops for small firms and working individuals and presented a fiscal deficit of 3.2% of GDP.
Finance Minister spoke about the various steps that have been undertaken for the housing sector and MSMEs. In the fourth budget presented by Arun Jaitley, the focus was mainly on 10 distinct sectors. The Union Budget also allocated Rs. 3.96 Lakh Crore towards the development of infrastructure sector which would help spur the economic activity, thus creating more job opportunities. The impact of the budget on Indian Economy will depend on its impact on individual sectors that drive our country. Let us now have a look at the budget impact on sectors like Agriculture, Automobiles, Banking and Finance, and Real Estate.
On The Agriculture Sector
The budget impact on the agricultural sector is expected to be positive. The sector witnessed an impressive rabi output along with a good southwest monsoon, which in turn resulted in a good crop. Though there was an impact from the initiative of demonetization, the farm sentiments have recovered as the budget 2017 has made an allocation of Rs. 1.87 Lakh Crore towards the agriculture and allied sectors. The government has also committed towards doubling the income of the farmers in the next five years. By increasing the credit target, funds are more accessible to the farmer community now.
The Finance Minister has also increased the allocation for the irrigation projects in the budget, which would for sure show a positive impact in the coming years. The budget 2017 also focused on the crop insurance that would be beneficial for farmers during the times of natural calamities when the crop gets affected. The allocation for the ‘Pradhan Mantri Fasal Bima Yojana’, has also been increased from Rs. 5500 crore to Rs. 13, 240 crores.
The Finance Minister also stated that Rs. 8000 crore fund will be utilized in the set of diary processing in the next three years. The government is also providing farmers with short-term crop loans up to Rs. 3 Lakh at a lower interest rate of 7 percent per annum. Farmers are also entitled to receive an additional 3% incentive on the interest if they make a prompt repayment with the mentioned due date, which makes their effective rate of interest as 4%.
On The Automobile Sector
With the Union budget focusing more on the rural development and towards farmer welfare, there can be a positive impact on the two wheeler and also on the tractor sector. The entry level two-wheeler and passenger vehicles segment has its sales driven from the rural areas. With the construction of new roads in rural India, the demand for two-wheelers would increase, with the gearless automobiles standing to gain.
The CV sector too would see a positive impact as the government is planning to allocate funds for the improvement of infrastructure like highways and roads in rural areas. These investments will boost the sales of those vehicles that are used for the last mile connectivity and also for tippers.
Apart from this, the IT cut for the tax slab for people under the income range of Rs. 2.5 Lakh – Rs. 5 Lakh will improve the disposable income in the mid-income group, which in turn augments the demand for two-wheelers.
Also, due to the ban imposed on cash transaction of above Rs. 3 Lakhs will increase the requirement of financing when purchasing luxury cars or premium bikes. This can show a slightly negative impact on the luxury automobile segments.
On Banking and Finance Sector
The union budget 2017 might show a negative impact on the banking and finance sector. The capital infusion of Rs. 10, 000 crores in the FY 2017-2018 in PSBs is comparatively lower than the estimates of ICRA (estimated the requirement at Rs. 50,000 crores). While the PSBs have a significant chance to raise a part of the capital from the markets, the chances remain low due to factors like weak profitability and low valuations.
The budget has also proposed higher rates of interests on the deposits made by senior citizens and this will, in turn, restrict the bank’s ability to cut the deposit rates. Also, the chances of Bill to curb the illicit deposits to the bank accounts will support the inflows of deposits to the banking system.
The FM has also proposed the increase of allowable provisions against the NPAs to 8.5% while the tax liability is calculated. This can turn out to be profitable for the banking and finance sector. The credit demand is also expected to see a boost as the government has projected affordable housing in the budget. With the increase in the supply of houses that are affordable, the demand for credit is soon to rise. The government has only announced the infusion of Rs. 70, 000 crore till FY 2019, under the scheme of Indradhanush against the requirement of Rs. 1.8 Lakh crore.
The Real Estate Sector
The real estate sector sure going to have a positive impact of the union budget 2017, thanks to the focus on the agenda of “Housing for All” by the year 2022. The budget has allocated Rs. 29, 043 Crore towards the Pradhan Mantri Awas Yojana which is 39% increase in the new fiscal. The allocations for PMAY-Gramin have also seen an increase of 53% which comes with the target of constructing 1 Crore houses for the poor.
The government’s proposal to consider the carpet area instead of the built up area will further boost the participation of wider investor community. The agenda of affordable housing has also been accorded with infrastructure status and this will see an increase in investor participation and this, in turn, would improve access to funding avenues and will help in the reduction of funding costs. This will boost the supply and the “Housing for All” objective can be achieved by the government in the long to medium term.
With the clarity given by the Finance Minister on the capital gain tax in cases of Joint Development Agreements, there would be a reduction in land litigations. The steps that are taken towards the long term capital gains tax eligibility and its calculation will boost the demand for real estate.