The Finance Minister has used the positive macroeconomic profile of the country to his advantage while striking a balance between expanding the spend on focus areas and garnering the requisite resource base. India is well placed to shift gea₹ towards growth with low consumer inflation, comfortable current account deficit and a controlled fiscal deficit.
Infra spending is one of the key elements of India’s investment story and Budget 17–18 did well to retain the focus on the sector with a host of positive announcements.
In transportation infrastructure, higher capex is proposed in railways to add new lines, redevelop stations and improve safety. New Metro Rail policy is expected to harness the potential that metros hold in improving the country’s transport infra. Road project awards and execution could see a pick-up with availability of a higher corpus of about ₹650 billion. PPP in Airport O&M could improve efficiency of the sector with players not requiring to invest huge sums of capital upfront.
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Going digital continued to be a distinct theme in the Budget. The government has allotted ₹100 billion for the Bharat Net project which aims to create seamless yet affordable broadband connectivity by laying optic fibre cables throughout the country. Last mile connectivity to citizens is proposed to be provided by creating wi-fi hotspots. The vision of Digital India could provide the push for new-age areas like Smart Cities.
The real estate sector, which has seen a sluggish environment in the wake of demonetisation, has received much needed relief. Conferring “infrastructure status” on affordable housing will give the sector access to flexible and low-cost funding options apart from profit linked tax incentives.
On the energy front, the government has continued with the initiative of conserving crude oil by promoting import of LNG through customs duty reduction. Thrust to solar power with a plan to add 20 GW and achieving 100% electrification in rural areas augur well for the Renewable and Power T&D sector. The Budget, however, has not emphasised on the requirements for promoting competitive manufacturing. Perhaps, it is an opportunity lost for Make in India programmes, especially in areas like defence manufacturing with static capex outlay.
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Budget 17–18 pins its hope on widening the tax base to generate significantly higher tax revenues for financing its investment plans. Accordingly, the FM has chosen to reduce reliance on government borrowings which improves the headroom for monetary policy easing. Banks, which are an important source of financing for the infrastructure sector, are not yet out of the woods insofar as NPAs are concerned. The government has chosen to allocate a modest ₹100 billion for recapitalising public sector banks, which may prove inadequate. Abolition of FIPB and retaining the tax structure with respect to capital gains extending the tax provisions relating to INR denominated bonds till 2020 etc. are important for development programmes outlined by the budget.
The writer is Wholetime Director and CFO, L&T.