Budget 2018 – Expectations of key Industry Groups

Normally, the second section of the Union Budget speech is entirely devoted to the changes in the rates of indirect taxes like excise duty, service tax, customs duty and CENVAT. With most of these indirect taxes (except customs duties) being subsumed under GST, there is little scope for tinkering in the second section of the Budget. Most of the GST related decisions are taken in the GST Council meetings. Hence budget expectations this time around will be more structural in nature. Here are some of the key expectations of major sectoral groups from Budget 2018

  • Expectations of the Hydrocarbons sector

One of the key expectations of the oil & gas sector in this budget is that petrol may be brought under GST. This will be beneficial for the oil & gas industry since their inclusion in GST will automatically entitle them to input tax credit (ITC). There is also a demand in the budget that the customs duty on LNG be removed as this is the fuel that is less polluting and therefore the government has also been trying to promote LNG usage. India still has a low ratio of gas usage compared to most developed countries. This can be overcome by creating a national gas market and the initiative for that is expected in this budget.

  • Expectations of the Agricultural sector

There will be two major focus areas for this industry, viz. creating the electronic national agricultural market (E-NAM) and greater use of technology in farming. Private sector participation in enhancing farm incomes is still lacking which is more because there is no structural framework frame-work for the private sector to participate in the farm sector. The sector will also be looking at opportunities for scientifically hedging the price risk.

  • Automotive sector expectations from the Union Budget

The automotive sector will be looking at a big macro thrust as it will come mainly from infrastructure. If the government looks at a major infra push in rural areas then it will be a great thrust for auto companies. Secondly, specific segments like two-wheelers and entry level cars will also benefit from greater rural allocation and rural spending. The auto sector has had an issue with too many GST slabs which is actually defeating the very purpose of GST. That needs to be addressed. The budget could also look at more meaningful incentives for replacement of ageing vehicles so that it can ensure a cleaner environment.

  • Defence sector expectations – the big emerging story

The government has already made its plans quite clear about a big thrust to defence considering India’s strategic position and its proximity to China and Pakistan. Too much of the budget allocation to defence goes towards maintenance and very little towards the upgrading of equipment and technology. This will call for trimming the budget on non-core areas and focus more on core defence activities. In fact, the government can also look to extend the benefits of Section 35AD to

  • Expectations from the capital goods sector

While the reduction of corporate tax from 30% to 25% is an expectation across the board, the capital goods sector is likely to benefit the most from this tax cut. The sector has also been calling for the restoration of Section 32AC and higher depreciation for plant and machinery to provide a boost to the revival of the capital cycle. The sector has also been asking for infinite carry forward of unabsorbed R&D expenditure on the lines of unabsorbed depreciation.

While these are the key expectations of some of the major sectors, there are some broad expectations that the corporate sector as a whole has. Some of them are as under:

  • The corporate sector has been calling for the reduction of corporate tax rate from 30% to 25% and wants this to be immediate while the withdrawal of exemptions can be done in a phased manner. 
  • The corporate sector has also been calling for a reduction of the dividend distribution tax (DDT) and also the minimum alternate tax (MAT). Both of these measures are likely in this budget.
  • The industry is also calling for a removal of the angel tax that is currently imposed on angel investors, which actually becomes a disincentive for the financing of start-ups. Since the government is focused on encouraging start-ups it can look to scrap this.

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