A big challenge for the first full-year Budget of the government has been to rekindle India’s economic recovery, against the backdrop of high expectations. In a scenario where the tax-to-GDP ratio is low and revenue deficit high, there was no scope for a big-bang Budget. But the finance minister has ensured a fine balance between growth and fiscal prudence.
While owing to fiscal constraints of the past decade, the government’s capex spend remained stagnant at low levels, we now see a clear visibility on the capex cycle and thrust on infrastructure.
This Budget offers several other positive actions, including increased tax deductible measures for individuals, a road map on GST implementation, a step forward for REITs and a wider social safety net, which should strengthen India’s economic rise. In fact, a high quality fiscal adjustment has been adhered to, through a marginal increase in excise duties, an increase in corporate tax through surcharge, and with no additional change in income tax slabs for individuals.
In terms of revenue targets, this Budget has laid down credible numbers, which would make it much easier to run fiscal deficit at 3.9% of the GDP. It’s a good sign, particularly because some of the fiscal leeway is going be channelised towards capital spending and infrastructure investments.
The government has earmarked an increase of R70,000 crore for infrastructure over the previous year, which is not substantial, but clearly a step towards recovery. It’s the only way the wheels of the economy can start running comfortably again.
These should provide significant fillip to the capital goods and the power sector. Some segments like national highways and rural roads have got support for higher capital expenditure. These steps should drive growth for cement, paints and other raw materials. Besides, a cascading effect will be felt on the banking sector due to significant increase in loan growth.
There has also been a thrust on increasing financial savings in the country and reducing physical savings through measures like putting in place a new way to monetise India’s huge gold assets, which will make an otherwise unwieldy asset into a productive one, and usage of debit and credit cards. Government has also made it compulsory to carry out loans and advances transaction in real estate electronically or through cheques. So, while the Budget has been billed as a make-or-break one, it’s made significant and steady progress on all fronts, such as revenue generation, and capital spends. If all goes well, this Budget is more likely to pave the way for robust Indian recovery.
As for markets, equities albeit not cheap, continue to remain a good long-term investment destination. The outlook for equity markets is extremely good over 2016 to 2018. With the current price of crude and good growth prospects, India is the most attractive emerging market in the world and, therefore, it is an opportunity for people to invest for the long-term in Indian equities. For that matter, even debt markets offer good investment opportunities, with interest rates placed in the downward trajectory.
The writer is MD & CEO, ICICI Prudential AMC