The right formula for revival
The much-awaited, post-pandemic Budget struck the perfect balance between maintaining investor sentiment, reducing fiscal deficit, boosting job creation and increasing government spending. Increased allocations towards improving healthcare and giving infrastructure a push headlined the reforms. Status quo was maintained for corporations and the common man with no surprise increases in tax rates. On the expenditure side, the Budget met expectations. With a slew of key divestments in place, increase in FDI limits, an asset monetisation pipeline and the proposed LIC IPO, the government is building up the arsenal it needs to keep inflows in place as well. Healthcare and wellbeing saw a major increase in allocation, largely to roll out the Covid vaccine and create infrastructure to combat future pandemics. Introducing the voluntary vehicle scrappage policy will improve environmental well-being, lead to job creation and benefit a large number of MSMES. And an agri infra cess on petrol and diesel could see cleaner options such as CNG and e-vehicles gain momentum.
The announcement of the ARC through an AIF route to consolidate and absorb the bad loans nagging PSU banks, and the privatisation of two more PSBS along with a general insurance firm, would also bring some cheer, as the IBC has seen limited success. The proposed DFI, armed with ~20,000 crore, will provide the much-needed capital to the sector. The DFI should play a more developmental role in building greenfield infra projects, which could help achieve the target of ~5 trillion. Though direct taxes remained unchanged, a commitment to simplification and dispute resolution was welcoming. Tax holidays for affordable housing projects, an extension of the interest subsidy combined with lower stamp duty rates should provide a breather to the real estate sector.
To sum up, the Budget delivered well on boosting capex and introducing reforms in the financial sector. However, liquidity pressures will need to be kept under check owing to higher deficit and proposed increase in borrowings.