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Capex & R&D Push, Simplified Taxes Top India Inc’s Wishlist

Industry Bodies Seek Capex Push, Simpler Taxes, and R&D Boosts

Source and Citation: ET Bureau, The Economic Times. ‘Capex & R&D Push, Simplified Taxes Top India Inc’s Wishlist.’ January 25, 2024.

Layman’s Analysis

Leading industry associations, CII and FICCI, have put forth recommendations ahead of India’s federal budget to sustain economic growth. Their suggestions focus on continuing current capital expenditure (capex) incentives, simplifying the Goods and Services Tax (GST) structure, improving ease of tax compliance, extending concessional tax rates for new manufacturing units, and boosting Research and Development (R&D) spending benefits, among other measures.

These proposals aim to fuel investment-led growth, support small businesses, create jobs in labor-intensive sectors, and maintain medium-term fiscal prudence. Specific requests include including more sectors under production-linked incentive (PLI) schemes, setting up a dedicated Ministry of Investment, resolving tax disputes, and easing credit for Micro, Small, and Medium Enterprises (MSMEs).

Capex & R&D Push, Simplified Taxes Top India Inc’s Wishlist

Impact on Retail Investors

For stock investors, the alignment of India Inc’s recommendations on policies to sustain corporate earnings growth signals positivity across construction, capital goods, manufacturing, and MSME-linked stocks. Consumer sectors can benefit from increased demand once procedural irritants in broader business ecosystems are resolved.

However, sectors losing specific tax exemptions or facing compliance oversight tightening may experience margin dilutions, requiring careful consideration by investors. Additionally, attractive small business financing options can stimulate wider risk appetite, benefiting banks and Non-Banking Financial Companies (NBFCs), but investors need to monitor asset quality.

Overall, if forthcoming policies reinforce these expectations, investors can expect positive trajectories across a broader corporate base, boosting portfolio returns.

Impact on Industries

Pre-budget recommendations directly impact infrastructure and manufacturing industries, anticipating continued policy thrust through instruments like PLIs and concessional project financing rates. Service sectors like healthcare, education, and tourism benefit from simplifications in procedural bottlenecks around GST, direct and indirect tax regimes, and insolvency resolution, stimulating growth.

Labor-intensive sectors like textiles and footwear may gain from production incentives aimed at employment generation for the bottom quintile. The production ecosystems thus expand into hinterlands. R&D gains priority as the extension of the 15% concessional tax rate for such facilities signals the integration of innovation into the corporate forefront.

Constructive budgetary policies for enabling growth find resonance across economic sections, sustaining win-win development.

Long Term Benefits and Negatives

In the 5-year horizon, industry recommendations provide policymakers actionable templates for catalyzing business investments without triggering macro instability. Areas like dispute resolution systems, export promotion councils, and R&D commercialization cells find constructive mention for structural enhancements.

However, aspects like subsidies rationalization carry political economy risks if wider stakeholder sensitivities remain unaddressed. Compliance overhauling requires scaling IT readiness, imposing short-term transition costs across small firms. Overall, the inclusive development agenda set by India Inc provides a sound blueprint for driving job-creating growth this decade.

Short Term Benefits and Negatives

In the 1-2 year period ahead, asks like GST and direct tax streamlining, alongside sustaining corporate tax incentives, offer instant investment appeal. Prioritizing MSME health aids large corporations, and the ecosystem stability with friendlier small sector policies emerge.

However, market disappointments are likely if bold structural reforms around land, power, and labor get sidelined amidst populist measures in the election cycle year. The balancing act for policymakers lies in driving structural changes through political consensus. India Inc’s recommendations seem aligned with such imperatives, seeking growth without compromising macro stability. The challenge lies in making hard calls upfront.

Potential Impacts of India Inc’s Budget Wish-list:

Indian Companies Likely to Gain:

  • Capital Goods Companies: Increased capex spending across sectors like infrastructure, manufacturing, and energy could benefit companies like Larsen & Toubro (L&T), Bharat Heavy Electricals Ltd (BHEL), and ABB India.
  • Manufacturing Companies: Extension of the concessional tax regime for new manufacturing units and potential PLI expansion to apparel, toys, and footwear could benefit companies in these sectors, like Aditya Birla Fashion & Retail, Relaxo Footwear, and Fiem Industries.
  • Chemicals and Pharma Companies: PLI schemes targeting import-substitution in chemicals and pharmaceuticals could benefit companies like UPL, Divis Labs, and Deepak Nitrite.
  • R&D-focused Companies: Extension of the concessional tax rate for R&D facilities could benefit companies like Infosys, TCS, and Cipla, which invest heavily in research and development.
  • MSME Lending Platforms: Simplification of regulations and the TReDS platform could increase access to finance for MSMEs, potentially benefiting lending platforms like TReDS itself, Perfios Credit Information Services, and Lendingkart.

Indian Companies Potentially Impacted (Neutral/Mixed):

  • Tax Consultants and Accounting Firms: Simplification of the tax structure, especially streamlining GST and TDS, could reduce the demand for tax consulting services in some areas, potentially impacting these firms.
  • Consumer Staples Companies: While overall economic growth supported by the budget could benefit most sectors, increased focus on capex and manufacturing might not directly boost consumer staples companies like HUL, ITC, and Britannia in the short term.

Global Companies Likely to Gain:

  • Foreign Investors and MNCs: A stable and business-friendly regulatory environment with simplified taxes and continued capex push could attract increased foreign investment into India, benefiting global companies operating in the country.
  • Technology and Engineering Service Providers: Increased capex and adoption of PLI schemes could create opportunities for global technology and engineering service providers like Siemens, GE, and Mitsubishi Heavy Industries to collaborate with Indian companies.

Global Companies Potentially Impacted (Neutral/Mixed):

  • Companies in Import-Substitute Sectors: PLI schemes promoting domestic manufacturing in sectors like chemicals and capital goods might make it more challenging for some international companies relying on exports to India.

Market Sentiment:

Overall, the news of India Inc’s budget wishlist is likely to be viewed positively by the market. Increased capex, policy support for manufacturing and R&D, and fiscal consolidation measures could signal a strong commitment to economic growth and attract both domestic and global investments. However, the specific impact on individual companies will depend on their sector, export reliance, and ability to leverage the proposed policy changes.

Disclaimer: This analysis is based on limited information and should not be considered investment advice. Please conduct your own due diligence before making any investment decisions.

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