The maiden Budget of finance minister Nirmala Sitharaman to a great extent follows the path the Economic Survey charted yesterday. The whole idea of becoming a $3 trillion economy in FY20 and $5 trillion by the end of 2025 was reiterated and seems to be the economic deadline for PM Modi 2.0. The Budget has proposed reforms, which are in line with its plan to kick-start domestic and foreign investments boost the economy and create more jobs.
To start the effort, the enhanced disinvestment target of Rs 1,05,000 crore in FY20 as against Rs 90,000 crore set in the Interim Budget is promising. Government’s decision to start raising part of its gross borrowing programme in external markets in external currencies is also positive. Streamlining multiple labour laws into a set of four labour codes was an important move and necessary for smooth economic growth.
Decisions to boost investment are likely to help the government meet its ‘virtuous economic cycle’ strategy. The noteworthy mentions are liberalised FDI in aviation, media, animation and insurance intermediaries, implement enabling measures to boost International Financial Service centres (IFSCs) and plant set up a credit guarantee enhancement corporation. Also, the speech said, there is a consideration on whether the government holding can go below 51 per cent in certain CPSEs on a case-to-case basis. This may provide additional non-tax revenue options. Hike of statutory limits for foreign investments in some companies and expert committee to make recommendations on infrastructure finance will sooth-frayed nerves in the sector.
Decisions to boost state-run banks with Rs 70,000 crore capital for credit growth was better than expected Rs 50,000 crore. The non-banking finance sector also found some assurances in terms of funding opportunities, essential for credit growth in underserved areas. The crucial decision is to allow one-time six-month partial credit guarantee to PSU banks for purchase of high-rated pooled assets of financially sound NBFCs amounting to Rs 1 lakh crore in FY20. Also, the speech said, fundamentally sound NBFCs to keep getting funding from banks and mutual funds and FIIs and FPIs investment in debt securities issued by NBFCs is positive.
Government’s promise to invest widely in agriculture, fisheries and the transportation sector is likely to create the necessary base for higher economy growth cycle. The proposed Pradhan Mantri Matsya Sampada Yojana is likely to address the critical infrastructure gap in the fisheries sector and improve farm income.
Arindam Chanda, CEO, IIFL Securities Ltd
