India’s budget to sustain demand for corporates: Fitch Ratings

“We believe the tax cuts will boost consumer sentiment and maintain consumption growth, amid expectations of slower economic growth after the financial year ending 31 March 2023 (FY23),” the report said.

According to the rating agency, a larger budget allocated to infrastructure and the government’s good execution record over the last few years bodes well for sectors, such as cement, steel and construction.

“The budget proposes to increase planned capex by 33% to INR10 trillion in FY24, with a focus on augmenting core infrastructure assets, including roads, railways, airports and logistics. The planned capex is more than double the spending in FY21 and more than thrice that in FY19, underscoring the government’s focus on boosting the country’s infrastructure,” it said.

Growth in demand from the infrastructure end-market – which constitutes between 25%-30% of cement demand – will be positive as we view it as a more stable end-market than housing. Cement and steel demand will also benefit from the 66% increase in spending allocated to the government’s programme to provide subsidised loans for affordable housing.

“The announced income tax cuts are broad based, and will benefit the disposable incomes of consumers of all income groups. This and the largely neutral proposals for indirect taxes should support consumer sentiment and demand growth for discretionary consumer products. This is particularly relevant for automotive demand, considering the cost of ownership has risen since last year due to a rise in fuel prices and interest rates, and automakers announcing price hikes to pass on cost inflation,” Fitch said.

Increasing infrastructure and construction activity, and the government’s focus on boosting last-mile logistics connectivity will support a sustained recovery in commercial vehicle sales volume in FY24 to closer to its last cyclical peak of 1 million units in FY19.

The proposals to increase credit to the agricultural sector by 11% yoy and the extension of the government’s scheme to provide free food grains to weaker income citizens will support rural consumption demand, including for two wheelers and fast-moving consumer goods.

The 12% increase in the budget for healthcare in FY24 will boost healthcare access to the masses and expand the domestic pharmaceutical market.

The rating agency enhanced focus on and budget allocations to energy transition, as India moves towards it net-zero target by 2070, will benefit the renewables sector.

“Announcements such as viability gap funding for battery-based energy storage, clarity in the policy framework for pumped hydro, and spending on transmission grid infrastructure will help to reduce the during-the-day supply volatility in wind and solar power generation. This will enable a higher share of renewables in overall power generation over the long term,” the rating agency said.

The three Indian oil marketing companies will receive Rs.300 billion in capital support in FY24, which we believe will cover part of their losses incurred in FY23 during periods of frozen auto fuel prices and high crude oil prices.

The state-owned oil companies’ total expenditures are budgeted to increase by 27% in FY24, and blended compressed natural gas has been exempted from central excise duty, to the extent of the goods and services tax paid on the biogas or compressed biogas contained in it, so as to promote consumption of green fuel.

Updated: 03 Feb 2023, 07:29 PM IST