Budget May Include Stimulants to Boost Consumer Demand: Report

Without necessary measures, the current cyclical growth slowdown can turn into a structural one, the report said.

Photo used for representational purposes

(Photo: Kamran Akhter/The Quint)

Finance Minister Nirmala Sitharaman's first full year Budget is expected to provide short-term stimulants to boost consumer demand, and such measures will get a positive response from markets, an Amrerican brokerage report said on Monday, 27 January.

If the government fails to take the necessary measures, the current cyclical growth slowdown can turn into a structural one, analysts at Bank of Ameria Securities said.

Sitharaman will place the budget proposals on Saturday and all eyes are set on the government, which is likely to announce measures to revive the economic growth that may slide to a decadal low of 5 percent for FY20.

"Social spends are essential for the long term, but a short-term demand stimulus may be needed to prevent a cyclical slowdown from turning into something structural. In the whole budgeting exercise, the last is a choice we think the government could realistically make," the BofA report said.

The market will be keenly watching for action on two specific measures on the taxation front, including companies and individuals, it said.

These would include changes to the long-term capital gains tax framework to reduce tax liabilities, reduction in securities transaction tax and dividend distribution tax, the report added.

There is also a possibility of changes in personal income tax structures, where relief to the low income earners can result in a push to growth, it said.

The tax cuts will be small as percentage of GDP because the government cannot afford to forego revenue, it said.

On the flip side, some of the measures can impact cigarette companies in then near-term through the proposals, it said.