Pressure Builds on Jaitley for Infrastructure Stimulus

The expectation is rising that Finance Minister Arun Jaitley in the Budget may announce some stimulus package for the infrastructure sector to help jump-start the economic growth. Analysts are hopeful that Mr Jaitley could get some room for infrastructure spending due to the savings on oil subsidy.

"I am hoping from the Budget that the government will allocate some amount for pump-priming investment and growth through some allocation to infrastructure sector," said Shanti Ekambaram, president-consumer banking at Kotak Mahindra Bank. She said it will take time for the private sector to restart investment in the infrastructure sector. Private sector is running with overcapacity and there is a global glut of commodities, which may further delay the investment cycle by the private sector, she added. (Watch Interview)

Third-quarter results of corporates indicate that economic activity is still sluggish and investment is not happening in the economy. Ms Ekambaram does not even expect the credit growth to pick up till August. "Investment is not really happening in the ground...we need investment in the infrastructure sector and I think government has to lead the way, private sector will follow," she said.

Kotak Bank believes that there is scope for the government to increase investment in the infrastructure sector. "Oil is almost half in terms of prices, so there is a huge ability to divert some of the subsidies that was taken up in the Budget towards pro-growth or towards investment in infrastructure," said Ms Ekambaram.

Direct benefit transfer of LPG subsidy, which the government has already started, can also free up some of the subsidies towards investment in infrastructure, she added.

But Ms Ekambaram says the finance minister has limited room in announcing income tax sops. Amid expectations of Reserve Bank and global rating agencies for fiscal consolidation, there is limited scope for announcing tax sops in the budget, she said.

However, the bank expects some tax incentive for investment in real estate investment trust (REITs) and infrastructure bonds to boost investment in the infrastructure sector.

Kotak Bank expects another 25 basis points rate cut after the Budget.