By Srini Sriniwasan
Indian Union Budget 2021-22: The FM hasn’t wasted a crisis and presented a bold growth-oriented budget. This is a bet on India’s story playing to its destiny. At a time when the world is awash with liquidity and low returns elsewhere, the strategic thrust on asset monetisation is perfect.
The budget has enabled the capital flows at both ends of the risk spectrum. On the one hand, selling stabilised infra assets to feed the appetite for global yield investors, and on the other creation of a development finance institution to fund the development of assets is a great move. Global investors have not been comfortable investing in under development assets so this is the right approach to monetise assets and reinvest.
The bold statement of intent on listing LIC and privatising at least two PSU banks is a clean break from the past of pussyfooting around sensitive issues. The acknowledgement of other liabilities and pegging the fiscal deficit at 9.5% is another example of the no-nonsense approach.
The planned monetisation of idle land and other assets like sports stadia affords a great opportunity to rethink urban planning and make cities better and more equitable. The monetisation of such “dead capital” and development of these will spur economic activity resulting in a multiplier effect and give a further boost to the Real Estate Industry.
A new asset reconstruction company (ARC) to aggregate non-performing asset (NPA) from banks is a big boost to resolving stressed assets and will accelerate the NPA resolution. Consolidating NPAs in one ARC will significantly help decision-making and coordination. The plan to sell NPA to an alternate investment fund (AIF) will attract the stressed asset funds and revive the companies or make assets more productive. While details are awaited, right execution and synchronising tax laws is critical to the success of this idea.
The amendments proposed to enable pooled investment vehicles to leverage and operate is a big boost to REITs and INVITs and will enable the government programme of Infra asset sales. With the banks being freed up from NPAs, they can get down to the business of providing credit to vehicles like REITs and INVITs as well.
The nominal GDP growth assumptions of 14.5% is indicative of the bet on growth and consequently revenue buoyancy. If these assumptions don’t play out and the execution on the above plans is tardy, we may run the risk of higher inflation and interest rates, which could spoil the party. This budget requires great execution (something which we are not known for) to fulfil its promises. However, the recent excellent handling of Covid and the various contingency plans give me hope. In summary, this budget based on Aatmavishwas to be Aatmanirbhar which needs to be followed up with great execution.
(Srini Sriniwasan is the Managing Director of Kotak Investment Advisory Limited (KIAL). Views expressed are the author’s own.)