Budget FY17 carves out a path for constructive recovery. The government has balanced between growth and fiscal challenges, laying the pitch for a long and sturdy revival in equities. This Budget can be termed as a constructive one that balances some higher government expenditures slated in the coming year and allocations towards growth of the economy.
In that context, the Budget has gone a long way in trying to balance income and expenditure of the government, and at the same time adhering to the path of fiscal consolidation. The FY17 fiscal deficit target stands firm at 3.5% of GDP. It can pave the way for a reduction in interest rates in the economy going forward, thus benefiting corporate India and debt as an asset class. Another equally interesting highlight is that CAD is projected at 1.4% of GDP for FY16, which will keep external accounts healthy and impact financial assets positively over the longer run.
A key focus area is the willingness of the government to spend on rural economy and infrastructure. These sectors can create jobs in a big way and provide thrust to capital investments required in the economy.
The focus on roads and rural electrification is equally vital in boosting capital spends and signals the growth intentions in rural areas with an allocation of R8,500 crore. This, coupled with the fact that Rs 27,000 crore has been apportioned to rural roads along with state governments, is a good move.
All this is going to see infra spends to the tune of R 2.21 lakh crore in FY17, which is decent, given that there have been fiscal challenges. The Budget has allocated R8 00 crore for new port development, while total outlay for roads and railways to the tune of R2.18 trillion will go a long way in reviving domestic infrastructure segments.
Sure, one would have liked to see a little more allocation towards banks recapitalisation, given that they will lead the economy forward in credit growth when revival kicks in. Nonetheless, the Budget allocating Rs 25,000 crore for recapitalisation is still a big enough boost to the sector and shows the government is steadfast in supporting banks. Alongside, the government has announced a bank bureau to consolidate the number of PSU banks into few major ones.
There were positives for the industry elsewhere, notably in the reduction of corporate taxes for smaller companies and for new manufacturing companies that have gotten a lower tax rate of 25%.
The Budget provided a fillip to employment generation in the private sector by encouraging employers to fill more, which will lower the levels of organised unemployment in the country.
Another area that has got a boost is affordable housing, which will keep the growth clock ticking in the smaller sections of the economy.
While it might seem like a Budget that didn’t have much for investments, there were enough positives that can see the financial asset markets doing well in the longer run.
The Budget has indicated that growth is firmly high on the agenda of the government. Therefore, 2016 continues to be the year of investing in equities not only because valuations are getting attractive, but also because in the end markets will be buoyed by this constructive Budget that will eventually see an earnings recovery happen sooner rather than later.