India Inc expects big-bang reforms under new Finance Minister Sitharaman

With India’s gross domestic product (GDP) growth falling to a five-year low in 2018-19, the new finance minister, Nirmala Sitharaman, has her work cut out to jump-start the economy and must announce big-bang reforms in the forthcoming Budget in July, according to top executives and market participants.

The benchmark indices on Friday came off sharply from the day’s high after the government announced the portfolios of Cabinet ministers. Many were surprised by Prime Minister Narendra Modi’s decision to pick Sitharaman as finance minister (FM), but expressed hope she would take forward the government’s reform agenda.

“I am confident that the new government will steer the economy to the path of growth. The pick-up in consumption cycle should be the key focus of the new government,” said Pawan Goenka, managing director of automobile major M&M. 

The automobile sector is facing the brunt of the slowdown, with sales growth in May expected to fall in double digits as compared to the corresponding month a year ago.

Rashesh Shah, chairman and chief executive officer (CEO), Edelweiss Group, said: “We look forward to Ms Sitharaman taking forward the government’s growth and reform agenda, at a time when there are a few challenges but significantly greater longer-term opportunities. With her previous experience, she will be very well suited and prepared for a role that will probably define the way India evolves into one of the world’s biggest economies over the next few decades.”

CEOs said the need of the hour for the new FM was to increase spending in building new ports, highways and airports considering that the private sector investment plans were still in cold storage. 

“Increased infrastructure spending by the government will give a boost to cement, steel and banking services and help stimulate the economy,” said Dilip Gaur, managing director of Grasim.

Vikram Kirloskar, president of the Confederation of Indian Industry (CII), said India Inc was expecting lower corporate taxes from the new FM. 

“Domestic consumption at this moment is very important. This means clearing up retail finance and increased liquidity to the NBFC sector. As far as the Budget is concerned, the simplification of tax structures is important. Removal of all exemptions and lower taxes would help industry,” he said.

Saurabh Mukherjea, founder, Marcellus Investment Managers, said the recent rally in the stock and bond markets showed they had huge expectations from the government. 

“However, one should align expectations to the ground realities considering that the problems facing the country are enormous,” he said.

“The markets expect the LTCG (long-term capital gains) to be tax-exempt, the rationalisation of GST, and some fillip to sectors that create employment,” said UR Bhat, director, Dalton Capital Advisors. CEOs said substantial tax cuts for the middle class were likely to be introduced in the Budget in lower salary brackets in an effort to boost consumption. 

“Though the super-rich are expected to be taxed higher than before, we expect the tax structure to be more simplified for the middle class, which has voted en masse for Modi,” said the CEO of a large telecom company.