With Monsoon firmly set, Budget 2019 seen as a forthcoming blessing; SBI Ecowrap explains why

Budget 2019 is being seen as a forthcoming blessing after the monsoon set in firmly, filling water reservoirs across major regions of India, pointed out SBI Ecowrap. A host of expectations have been voiced to targeting fiscal deficit, boost agriculture sector, fix NBFC liquidity crunch and power up realty and affordable housing. SBI Ecowrap in its research note on Tuesday stated that emphasis should be on making country-mandated fiscal rules that are credible and achievable.

Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser in the SBI Ecowrap highlighted sector-wise expectations to boost Indian economy. These are: 

Agriculture:

Extension of interest subvention to all farm loans, particularly covering investment credit up to Rs 3 lakhs.

Set up an Agri-marketing Reforms Council (AMRC) to carry out agri-marketing reforms in states in a synchronized manner.

Government should ensure that the Model Agricultural Produce and Live-stocks Marketing (APLM) Act of 2017 is implemented by all the States.

Real Estate & Affordable Housing:

The definition for Affordable Housing and that of Priority Sector should be made uniform.

The real estate sector should be given a demand boost as it will also address the problem of the NBFC sector. These could include tax benefits as well as one time relief measures on GST, Stamp Duty, Charges for the Registration of mortgage for properties bought before March 31, 2020.

Student Housing and Co living is a new concept in India. Construction mainly for students and co-living by the builders may be given benefits in form of tax concessions on rental income.

Pension and Provident Funds may be encouraged to invest in PE funds through SPV for onward investment in Affordable Housing. 

Infrastructure & EPC:

Creation of market friendly infrastructure for Natural Gas sector is a must.

Coastal river linking may be extended to other coastal states in western, southern and eastern states.

Public sector Banks / FIs may be permitted to source long term funds from domestic investors (rebate may be given in addition to section 80 C) to fund infrastructure projects. Tax rate concessions to lenders funding infrastructure projects of long duration say beyond 10 years.

Creation of land banks and upfront / single window approvals for infrastructure projects of national importance is the need of the hour.

MSME:

There is a need for amalgamation of CGTMSE and CGFMU. This will remove the complexities such as multiple coverage / non-coverage of MSME loans and understanding among field functionaries about various time norms to be adhered to under each guarantee scheme will be eliminated. Setting up of an Equity Fund on the lines of the Sinha Committee suggestions.

NBFC: 

An IBC like framework for NBFCs should be created to resolve the issues in a timely manner. An enabling atmosphere must be created for securitization. 

Banking sector:

Under recapitalisation, over the last 3-financial years, PSBs have been recapitalised to the extent of Rs 2.87 lakh crore, with infusion of Rs 2.20 lakh crore by the Government and mobilisation of over Rs 0.66 lakh crore by PSBs themselves. As per SBI's estimates, additional capital is likely to lay the basis for growth capital in FY20. Assuming a 12-13% credit growth in FY20 with credit risk weighted assets of 70%, PSBs may be requiring around Rs 50,000 crore growth capital in FY20. However, the same also depends upon some major variables i.e. alternate long term investor, recoveries from NCLT, investment environment, out of NCLT settlements/auctions, treasury gains / loss, MTM provisioning of investments, additional or provision write-back.

At present, the share of top five banks in credit is around 39%. (China: 47%) Thus, continued banking consolidation will improve the banks’ ability to lend for developmental needs. There is also an immediate need to augment number of NCLT benches so that the resolution system does not get choked. HR reforms for PSBs must also be a priority for the new Government. 

Measures in respect of some lapses in NBFC sector is required to send a strong message. This is all the more urgent since if the NBFC sector health does not improve, banks will have to face fresh round of NPA provisions going forward.

For an economy like India, Ghosh says, " higher public borrowings are a necessary evil given the large welfare schemes of the Government. As per our estimates, there is a 40% probability of fiscal deficit for FY20 being at 3.5% to 3.6% . The market will actually be happy with such numbers given the weak growth impulses. Here the government will do well to remember the traditional wisdom in Kautlya’s Arthsastra which states that health of State treasury (Kosa) is important because all other goals of the society (Dharma, Artha and Kama) depend on it. Continuing the good work in rural sector, addressing the NBFC sector issues and making MSME the engine of growth should be the focus in the Budget exercise."

"The Budget could focus upon tweaking with the agricultural sector. A big push to the term loan will boost the agricultural sector. Further, setting up of
an Agri-marketing Reforms Council (AMRC) on the lines of the GST council and an exclusive focus on harnessing the rapidly shrinking water resources
also deserve higher priority. NBFC sector calls for urgent attention. Till March 2020, Rs 4.75 trillion of bonds and papers of NBFC sector are set to
mature. Further, most of the NBFC exposure is to the reality sector. Some sort of demand boost for the reality sector, like GST concessions to the buyers and stamp duty rationalization could very well give a flip to the reality sector and can also help solve part of the NBFC quagmire that we are currently in," said Ghosh.

In regards to MSME, Ghosh said, "The  sector too needs urgent focus. Here, we believe, there is a need for amalgamation of CGTMSE and CGFMU. This will remove the complexities such as multiple coverage / non-coverage of MSME loans and understanding among field functionaries about various time norms to be adhered to under each guarantee scheme will be eliminated. Setting up of an Equity Fund on the lines of the Sinha Committee suggestions may also be crystallized."

The Union Budget 2019 will be presented on July 05, 2019, by Finance Minister Nirmala Sitharaman.