The Budget countdown begins! All eyes are set on the Finance Minister Arun Jaitely, as he rolls up his sleeve to present his second full Budget today. It is being tabled at a point when India is in a sweet and sour spot backed by a host of domestic and global factors.

India’s growth story continues to look good. The International Monetary Fund (IMF) has projected the GDP to grow at 7.5 per cent for 2016 and 2017, which is higher than other emerging market countries.Even China, is reeling under economic pressure and IMF forecasts that it will grow at less than 7 per cent for the next two years — at 6.3 per cent and 6 per cent for 2016 and 2017, respectively.

Slowing global growth

However, the contagion effect of a massive slowdown in global trade and weaker global growth cannot be ignored.

In this backdrop, following are some expectations from the Budget that could augur well for the market and the economy.

Government capex : The Centre’s capital spending has grown by 33 per cent year-on-year so far. The Finance Minister had budgeted for a 37 per cent rise in Central Plan expenditure, both on the revenue and capital front for FY16.

Hence it is critical that the Finance Minister takes measures to sustain momentum in government spending. Higher allocations for roads, railways, ports, waterways, renewable energy and smart cities are expected. Once the government capex picks up, private sector capex will follow with a lag.

Fiscal consolidation is key: The government is expected to meet the fiscal deficit target of 3.9 per cent of GDP in FY16. However, the Finance Minister could budget for a fiscal deficit of 3.5per cent for FY17 owing to the Seventh Pay Commission (including arrears) and the One Rank One Pension (OROP) scheme. Undoubtedly, these measures will push up the consumption stimulus . But it will also result in additional stress to the extent of about 0.75 per cent of GDP. It is believed that the government will vote in favour of an investment related growth and is likely to implement the Seventh Pay Commission, OROP recommendations and Food Security Bill. This will leave enough fiscal space for increase in government capex spend.

Set a divestment target: The Finance Minister could look at unlocking the value of public sector enterprises to the tune of ₹50,000 crore in a staggered manner rather than borrow to fund the government spending.

Even public sector banks are in need of capital and higher divestment offtake could be directed towards the capitalisation of these banks.

Tax reforms: The government is expected to initiate reforms in direct taxes, in line with the announcements in the previous Budget. The corporate tax rate is expected to gradually come down from 30 per cent to 25 per cent, with a corresponding removal of exiting exemptions, deductions and incentives.

On the indirect taxes front, an increase in service tax is expected to bring the rate in line with the proposed GST rate of about 17-18 per cent. Similarly, excise duties can be levied on various exempt items and increased for various items, which are currently taxed at concessional rates.

Add financial sense: With a steep jump in expenditure needed to support growth, the Finance Minister will have to restrict expenditure to meet the fiscal deficit targets. He could budget for lower fuel subsidy bill on the back of reduced crude prices apart from better targeting of other subsidies. Several reports reveal that direct benefit transfer (DBT) for LPG had resulted in savings of about ₹14,000 crore in FY15.

The government has already announced on January 1, the launch of DBT for kerosene subsidy in a bid to cut down the diversion and black marketing of the fuel.

The kerosene subsidy in FY15 was pegged at about ₹24,800 crore. The first step can be taken to free up the fertiliser market on the back of a dip in naphtha and gas prices, which could help the country save up to $1.8 billion and reduce the fiscal deficit by about 3.9 per cent.

Make in India initiative: India’s dream of becoming an economic powerhouse is not a distant dream if the youth contributes to economic activity.

“Skill India” takes steps to make the workforce employable. Higher allocations towards agriculture and rural areas are expected to support growth after two continuous bad monsoon years in the country.

The writer is CEO, Kotak Securities

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