The National Democratic Alliance (NDA) government, which is set to return to power for the third time albeit with reduced majority, may push capital expenditure and targeted welfare programmes while undertaking further fiscal consolidation.
In the upcoming Budget session, the Centre may push pending reforms, including creating a national financial information registry, liberalising the insurance sector and further streamlining the insolvency framework.
The higher-than-expected dividend of Rs 2.11 trillion from the Reserve Bank of India (RBI) as against the Budget estimate of Rs 80,000-90,000 crore will let the Centre reduce its market borrowings in the current fiscal. The extra transfer by the RBI is almost 0.4% of GDP and may help the Centre bring down further to 4.8-4.9% of GDP from the interim Budget estimate of 5.1% for FY25. As per the medium-term framework, the Centre has set a target to bring down the fiscal deficit to 4.5% by FY26.
Analysts said while higher non-tax revenues would make available more funds for capex in FY25, the additional spending on this account may be difficult to be incurred within the eight-odd months left after the Final Budget is presented to Parliament in July.
During the budget session, the government may take up the National Financial Information Registry (NFIR) Bill, which seeks to provide a 360-degree information system to lending institutions to quicken the process and reduce the cost of credit.
For individuals or enterprises which want a lower interest rate, the banks will ask for their consent to access data about their business volume, electricity consumed, GST paid, etc, from NFIR. If consent for data is not given, banks will likely ask for collateral and loans may also be costlier.
Similarly, big-ticket reforms in the insurance sector will also likely be pushed including the introduction of composite insurance licence, differential minimum capital and captive insurance.
The Insurance Act, 1938, and the regulations of the Insurance Regulatory Development Authority of India (IRDAI) do not allow composite licensing for an insurer to undertake life, general, or health insurance under one entity. Allowing composite licensing could provide further impetus to the insurance sector owing to its various benefits such as reduction of costs and compliance hassles for insurers. It can also offer customers more choice and value, such as a single policy that covers life, health, and savings.
To promote microinsurance that plays an important role in financial inclusion and poverty alleviation, lower capital requirement will likely be lowered than the mandated requirement of a minimum Rs 100 crore, for such players. The Bill to amend the Insurance Act and IRDAI Act is almost ready in consultation with stakeholders.
To further streamline insolvency law, the government will likely introduce a bill to amend the Insolvency and Bankruptcy Code (IBC) to introduce cross-border and group insolvency norms. It will also seek to remove the interim moratorium for personal guarantor assets as well as introduce project insolvency under a real estate and creditor-led resolution plan (CLRP).
Group insolvency refers to clubbing the assets and liabilities of all companies in a corporate group and undertaking resolution proceedings, before dealing with each firm.
Currently, the IBC has no instrument to restructure firms involving cross-border jurisdictions, and in the absence of a legislative framework, the cases involving the resolution of groups and any cross-border elements are decided by the National Company Law Tribunal on an ad-hoc basis.
A holistic legislative framework introducing these concepts would plug certain important gaps in the insolvency jurisprudence.