Political realities weighing on economic decisions by the govt?

States including Rajasthan, Madhya Pradesh, Chhatisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters' sentiment that would be factored, Assocham said

With the results of the much-anticipated Gujarat Assembly elections inching closer and several other major states going to polls in 2018, Corporate India has to factor in political realities weighing on economic decisions of the government, including in the forthcoming Budget, the last full-fledged one of the NDA Government, the Assocham said post an internal assessment.

"In the run-up to the 2019 Lok Sabha elections, states including Rajasthan, Madhya Pradesh, Chhatisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters' sentiment that would be factored by the Centre and the state governments in their policies. Any tough reforms, like flexibilities in labour laws may not go well with the popular sentiment and thus, India Inc's expectations on this front should be muted," the chamber noted.

However, an important take away from the current political-economic environment is that the Goods and Services Tax (GST) is expected to be further streamlined and rates rationalised on the lower side.

"The GST had not gone well with the traders, the major political force for the political parties and the issue remained in focus during Gujarat elections. Besides, the SMEs would also get a boost, starting from the Budget proposals. Their role in creating employment in a shorter span of time is being recognised and the job creation would remain a big concern for the government in the foreground to 2019 general elections," the chamber opined.

Going forward to 2018 and 2019, the chamber expects increased attention to the rural landscape with several initiatives like support to farmers, and improvement in rural and agriculture infrastructure. Thus, Corporate India directly related to the farm economy should stand to gain, which, the Assocham said, would set the tone in the upcoming Budget.

The factors to be particularly watched should be inflation, which would now be the top priority of the government in the run up to the elections. In the trade off, growth may not get as important a place as inflation and thus, the interest rate scenario looks to be on the upside, rather than downward.

The Assocham further noted that monsoons in 2018 would also be a crucial variable for the rural demand while the credit growth is still some time away, as banks and companies keep repairing their balance sheets.