On the divestments front, the government may target higher amounts than FY18, which have been the highest hitherto, while on the expenditure side, boosting rural economy, employment creation and thrust on infrastructure are likely to be on top of its agenda. Government capex will set the tone as far as investment climate is concerned for one more year hoping that private capex follows path in FY19. The Gujarat elections highlighted the need to focus more on rural spending to alleviate farm distress and increase farm incomes. Among other themes, the Budget may also announce measures to further incentive household savings in form of insurance and pension products in the backdrop of continued focus of shifting savers from physical to financial savings. Sectors such as automobiles, banks & NBFCs, agrochemicals, infrastructure, FMCG and cement are slated to be the key beneficiaries of the Budget.
With implementation of structural reforms like demonetisation, GST, the Bankruptcy Code and RERA, the government is posed with the growth vs fiscal deficit conundrum, which might culminate in a higher fiscal deficit of 20-30 bps in FY18/19, which we believe is taken well into cognizance by domestic and international investors, as they would be more concerned about long-term benefits of widened tax base and higher tax revenues, than a short-term blip in fiscal deficit.
(Jyoti Vaswani is Chief Investments Officer at Future Generali India Life Insurance)
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