Preceding the budget, expectations were high. Following the budget, optimism is high. Those awaiting big bang announcements from Finance Minister Nirmala Sitharaman’s maiden budget might have set themselves up for disappointment. However, those looking for stability and policy continuity definitely had a thing or two to cheer about.
The tone was set with the FM exulting India’s ascent to the top five economies in the world, touching a GDP of $2.75 trillion. The budget shared a vision for India to become a $5 trillion economy by 2025 and then laid out a roadmap for achieving the same. The FM addressed an entire spectrum of issues starting from infrastructure, lending, employment and education & skill development to boosting startups and MSMEs. By addressing issues related to a slowing economic momentum the government has shown a strong intent to spur growth and productivity in the country. While there are a few minor irritants in terms of the proposal to increase the float of publicly traded companies from the current 25% to 35%, making buybacks taxable and increasing the surcharge on income above Rs 2 crore to 18%, the overall takeaways have been positive.
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By reducing the FY20 fiscal deficit target from the 3.4% set in the interim budget to 3.3%, the government has indicated that it will continue to follow the path of fiscal prudence with a keen focus on reviving investment activity in the country. The government also raised the disinvestment target to Rs 1.05 trillion, announced a one-time government guarantee of up to Rs 1 trillion for the purchase of high-rated pooled assets of financially sound non-bank finance companies (NBFCs) and proposed to bring the NBFC sector under the regulatory purview of the Reserve Bank of India (RBI). This announcement is significant from a sentiment perspective as it clearly highlights that the government recognises the current malaise of the sector and is proactively taking steps to address the same.
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The FM also said that the government intends to start raising a part of its gross borrowing programme in external markets in external currencies. This could positively impact the demand situation for government securities in domestic markets and potentially open up a new source of funding the budget deficit. It could also provide corporates with the option of borrowing overseas at potentially lower rates. Among various other proposals, the government announced key measures to provide a thrust to infrastructure, boost housing demand, encourage skill development in the country and proposed to allocate Rs 700 billion for PSU bank recapitalisation.
While there will always be a faction that is unhappy and a faction that is happy with the budget, one must remember that the budget is a one-day event. Reform, on the other hand, is a continuous process and I believe that today’s budget can help us stay on the path to continuous reform.
