The Modi government’s second full-fledged Budget could give a special emphasis to five areas: Cleaning the public sector banks’ non-performing assets (NPAs) and their recapitalisation, stoking private investment, tax reforms, measures to boost farm sector output and support to unorganised sector entrepreneurship, sources in the know told FE.
In the Budget to be presented on February 29 in the backdrop of weak industrial and export data, the government will likely spell out how the balance sheets of public sector banks (PSBs) would be fixed. As investments in India are largely funded by banks and the government, fixing the issue of NPAs with banks is high on priority.
The PSBs account for 86% of the Rs 3.47 lakh crore NPAs accounted by all scheduled commercial banks. Even though the Centre has announced the infusion Rs 70,000 crore in the PSBs in four years, it would push the banks to tap the market as their total capital requirement in FY16-FY19 is pegged at Rs 1.8 lakh crore. It expects various measures taken to bring grater transparency and freedom to banks’ management would help improve valuations of the PSBs. The objective would be to protect the fisc from higher capitalisation burden in future, one official said.
With weak private investment and demand forcing the government to lower GDP growth projections by 1 percentage point to 7-7.5% for the current fiscal year, the Centre would give a renewed thrust to crowding in private investment through policy interventions such as through revitalised public-private-partnership (PPP) model, besides maintaining public investment momentum in 2016-17. In the current fiscal, it has budgeted nearly 30% increase in capital investment at Rs 2.41 lakh crore, which has played a key role in helping the economy grow by 7.2% in the first half of the year despite negative growth in exports and weak demands. The Centre also hopes operationalisation of the newly set-up National Investment and Infrastructure Fund (NIIF) would catalyse financing of infrastructure projects. Separately, the Centre may announce a Bond Guarantee Fund of India to deepen the nascent bond market for infrastructure firms.