Prudence over populism
The government’s final Budget before the general elections struck a balance between maintaining fiscal prudence and enhancing growth capex, while sidelining populist measures. As always, the infrastructure sector got a healthy share of the capex outlay. It was encouraging to see the growing thrust on promoting green and sustainable infra projects.
Backed by robust collections in both direct and indirect taxes and a growing domestic demand, the finance minister asserted a strong commitment to pursuing the path of fiscal consolidation. This is significant as it is also a precursor to implementing an effective monetary policy. A higher-than-expected capex outlay and a lower fiscal deficit will aid the momentum of the India growth story. Moreover, it puts the bond markets on a bullish track, which were volatile due to high yields, thereby rewarding its captive investors – banks.
The emphasis on fostering affordable housing is commendable. With nearly 30 million houses nearing completion and an additional 20 million in the pipeline, coupled with a proposed financial assistance scheme, the transition from rented to self-owned homes for a larger population appears promising. This shift is anticipated to generate a multiplier effect across allied sectors.
However, the game-changing announcement was the allocation of a corpus of ~1 trillion towards 50-year interest-free loans to encourage startups to initiate and widen their efforts in high-end manufacturing, defence and renewables, among others. Also, the thrust on promoting Indian destinations for tourism offers potential for generating significant revenue.
Some misses: Although an interim one, the Budget could have provided an update on the earlier proposed privatisation of public sector banks (PSBS). With NPAS well under control and significant improvement in the profitability of several PSBS, it probably was an opportune time to unlock value.
It is encouraging though to see that there will be continuity in several initiatives. Evidently, a commitment to long-term prudence has taken precedence over seeking immediate gains.