The tone of the Economic Survey whetted our expectation of some bold announcements in the Budget. The vision of India entering the virtuous cycle of savings, investments and exports also added to our anticipation. However, we need to temper our expectation given that the Finance Minister has had a few weeks to put all this together. In essence, this is a directional budget that is heavy on intent but not equally forthcoming on commitments.
Clearly, by starting with infrastructure, the government is stating that it will not take the foot off the accelerator in this sector. The connectivity theme comes out strongly in the Budget presentation with emphasis on roadways and waterways. Aviation gets coverage through higher FDI, facilitating maintenance, repair and operations (MRO), One Nation One Power Grid, National Gas Grid and DISCOM reforms. Public-Private participation in railway infrastructure is a welcome move but will depend upon building consensus on this sensitive topic.
Liquidity is key
Emphasis on creating liquidity and capital raising is welcome. Given the global headwinds that India faces due to trade wars and the like, and the slowing domestic economy, liquidity is key to pump-priming the economy. Bank capitalisation of ₹70,000 crore is timely and much-needed, given that the investment cycle is showing green shoots as per the Economic Survey. NBFCs that play such an important role in the unbanked sector clearly need liquidity solutions.
The initiative to provide 10% first-loss guarantee to banks for six months against portfolio purchases from NBFCs is a positive initiative. Given that the loan maturity for NBFC is over two years, the guarantee period should cover the loan tenure rather than just six months.
Deepening the bond market is a step in the right direction. This reduces corporate’s dependence on banks for the corporate sector. Opening up the economy to global funds in pension, sovereign wealth and venture capital will help broaden the investor basket.
Quality of life for all is another positive in the Budget. The target of two crore affordable houses by 2022, along with drinking water, electricity and gas for all is a much-needed infrastructure that has multiple benefits.
Increasing interest subsidy for loans to purchase affordable houses will help to stimulate demand. Model rental agreement contract is an interesting idea that may facilitate investment by the corporate sector into the large and untapped rental housing market. These initiatives will positively impact employment besides providing stimulus to sectors such as cement, steel and the capital durables sector. Youth as a segment seems to have lost out in this Budget. Demographic dividend is one of the reasons that makes India a worthwhile destination for investments. India adds one million youth to the job market every month. A majority of these youth do not have employable skills.
There was mention of the New Education Policy, Massive Open Online Courses and the Standup India initiative for entrepreneurship development. However, the outlay in primary and secondary education, which suffers in quality and quantity, does not find any mention.
Preference for NRIs?
Similarly, Ayushman Bharat promised a great initiative in the health sector during the last financial year. There was expectation that the hospital infrastructure would feature in the Centre’s priorities. Unfortunately, the health sector missed out from headline coverage.
We are still playing catch-up in attracting global manufacturing majors to invest in our country. Hence, the initiative to float global tenders to attract such investors has to be backed with attractive incentives given that all major emerging markets are already doing the same thing.
In the same vein, the oft quoted Chinese model of development where the overseas Chinese play a major role, is not being emulated in India. By not offering preferential treatment to NRIs over other foreign investors, India is losing out of this large corps of investors.
The FM must be complimented for having conjured up a document that articulates the vision of the $5 trillion economy that the Prime Minister has envisioned for India. The effectiveness depends upon implementation and building consensus on the way forward.
(The writer is chairman, Hinduja Group Of Companies (India))
