The upcoming union budget is expected to focus on increased spending on social programmes, especially in the rural sector, in order to lessen the near term impact of demonetisation on consumption and investment, Principal PNB Asset Management Company stated in a note on budget expectations.
Although agriculture accounts for only 17 per cent of GDP, over 69 per cent of the population living in rural areas is directly or indirectly dependent on agriculture and it is these people who were most impacted by the demonetisation drive.
According to Principal PNB AMC, the budget is likely to focus on increased spending on activities supporting agricultural infrastructure like irrigation, seeds supply, marketing of produce etc.
It is also possible that there is some reduction in tax rates for corporates and a simultaneous increase in the slabs for individual assesses given that increased digitisation may widen the tax net and increase overall tax collections.
The N K Singh committee on fiscal responsibility has submitted its report on fiscal targets though it has not been made public yet. Its mandate was to relook at targeted fiscal deficit numbers and to see if these were leading to procyclical behavior and if there could be a range within which the number could lie rather than it being a single number.
Given that it is possible that the tax / GDP numbers could improve following the rollout of GST and demonetisation, and the economy may need a stimulus, especially in rural areas, we believe that the fiscal deficit number as a fraction of GDP may be slightly higher, says the note
Since the forthcoming budget comes in the backdrop of impact to agricultural value chain and the rural areas in general as a result of the demonetisation drive and increasing digitalisation and transparency of the economy leading to more people being captured in the tax net and the government's continued focus on removing supply side bottlenecks and improving infrastructure, it is likely in all probability that the government will be moving towards its stated objective of gradually moving to lower tax rates while removing exemptions.
In the light of the submission of the report of the FRBM review committee (N K Singh committee) and increasing global uncertainty and competition from other markets for capital, the budget would be looking more inward for capital formation and investment.
Given that it is possible that the tax / GDP numbers could improve following the rollout of GST and demonetisation, and the economy may need a stimulus, especially in rural areas, we believe that the fiscal deficit number as a fraction of GDP may be slightly higher.
''The transport infrastructure has been getting support and good work is happening in roads. We believe that railways, inland water transport and coastal shipping could get a push in the budget,'' says the Principal PNB AMC note on budget expectations.