India could have a credit rating upgrade with its fiscal discipline

By A Balasubramanian

The budget has has prioritised employment generation, skill development and micro, small and medium enterprises (MSME) growth, with a continued attention to fiscal consolidation. With a focus on these key areas, it outlined strategic priorities to drive long-term sustainable economic growth.

Focus on agriculture and rural India by way of allocation of funds to meet various goals and objectives such as natural farming, agri-research, missions for specific crop-based and allied activities, digitisation and cooperation should result in a holistic and sustainable development of the agriculture sector and as a result, boost the rural economy. The idea of a digital land registry that will have details of farmers and their land holdings can help in formalising land data and provide more authentic information for assessing net worth and providing access to finance.

The push to increase participation in the Employees’ Provident Fund Organisation (EPFO) is a critical step toward formalising the labour market. By encouraging more companies to enroll in the EPFO, the government aims to provide greater social security to employees, which in turn makes formal employment more attractive. The utilisation of CSR funds for internship opportunities in the top 500 corporates will benefit the youth by providing industry exposure, and hands-on learning will be a game changer.

The urban housing allocation to build housing at a large scale is ambitious. Policy for regulated and transparent rentals will also help address the need for quality and safe housing for urban migrants. Reforms to the Insolvency and Bankruptcy Code (IBC) and moves to increase and strengthen National Company Law Tribunals will help in faster clearance and recovery of bad assets.

A proposal to set up 12 industrial parks should boost industries and employment while also resulting in geographical and economic development around those parks. SME and MSME-focused expansion and increase in the Mudra loan limits will benefit the last-mile businesses in the micro and small business segment. Banks and NBFCs will also benefit from the focus on MSMEs.

With the intent to achieve energy security, the focus on energy transition to alternate and cleaner energy sources is a step in the right direction. Special attention on nuclear energy through small and modular nuclear reactors should help in increasing, decentralising and decarbonising electricity generation.

Promotion of tourism with a special focus on pilgrimage tourism will create all-around prosperity in and around the tourist areas and contribute to the growth and development of the state and in turn the country. The special focus on Bihar, Andhra Pradesh and the north east will facilitate growth and development in these regions, greater financial inclusion and better employment opportunities.

The government acknowledged that the fiscal consolidation path had served the country well and it reflects the commitment to maintain this discipline and reduce central government debt progressively. This is a commendable feat. Reiterating the aim to take the fiscal deficit to below 4.5%, the finance minister has estimated FY26 fiscal deficit at 4.5%. This might also enthuse foreign rating agencies to look at a possible upgrade.

The increase in long term capital gains tax may not dampen market sentiment or have any significant negative impact. Revision in the tax slabs and exemption in the new tax regime should also result in higher disposable income that can be used for consumption or investments.

From an investment perspective, asset allocation remains the key, investors should look to capitalise on the debt market opportunities arising out of the reduction in government debt and stay invested longer in the equity markets to make the most of the country’s growth trajectory.

A. Balasubramanian is the Managing Director and CEO of Aditya Birla Sun Life AMC.

Disclaimer: Views expressed are personal and do not reflect the official position or policy of FinancialExpress.com Reproducing this content without permission is prohibited.