Against the backdrop of fall in consumption demand, weak GDP numbers and slowdown in the global economy, finance minister Nirmala Sitharaman delivered her maiden budget speech clearly laying out the building blocks for us to be a $5-trillion economy in the next five years.
Largely a budget that puts institutional reform at its heart, it acknowledges the need to invest Rs 100 trillion in infrastructure development over the next five years. There is a focus on mobilisation of low-cost capital for this through deepening of the corporate bond and infrastructure bond market.
While acknowledging the need to pump prime the economy, the finance minister has relied on the private sector to drive investments; but mobilisation of the required investments during the year could be a challenge, given the economic environment. The fiscal deficit has been projected at 3.3% of GDP – an improvement from the 3.4% presented in the interim budget. Higher targets have been assumed for proceeds from disinvestment and dividends from the central bank. Any slippage on these fronts and the inability of the private sector to step up will put the onus of demand generation on the Government and will expose the deficit target to risks.
The budget also carried several measures to deepen the capital markets. The minimum public shareholding in listed companies has been raised to 35% from 25%. Simplification of KYC norms for FPIs, making government T-Bills available for public deposits through seamless transfer between RBI and Sebi, facilitating NRI investments in Indian capital markets are some of the measures.
The NBFCs that have been under stress have received good attention in the budget. A one-time partial guarantee to the public sector banks for first loss up to 10% on high rated pooled assets of the NBFCs up to Rs 1 trillion has been proposed. This along with the capital infusion of Rs 70,000 crore proposed for the public sector banks as well as recovery of NPAs should provide adequate funds to the NBFCs enabling them to extend credit. The deferred tax on NPAs on par with banks will also help the NBFCs.
MSMEs, contributing over 40% to the GDP and the largest employment generators, have been facing severe access-to-credit issues with the NBFC crisis. The liquidity improvements in NBFCs will help the MSMEs too.
Women SHGs have been extended interest subvention and a loan of Rs 1 lakh to one SHG member has been proposed. Addressing the working capital issues for the MSMEs through faster payments supplies to government via a national payments portal is also a positive move. As many as 100 new clusters for traditional industries have been announced. Patents and GI for creative artisans to enhance their international market access is also a welcome move.
The budget carries forward the government impetus on minimum government and maximum governance and encourages citizens to deliver on their duties while demanding their rights. While ambitious targets have been set, the achievement of the same will depend on a trust-based partnership between the private and public sectors.