I have long held that the most difficult and thankless job of all, in our country, is that of the Union Finance Minister! Meeting the endless expectations of business, farmers, industry lobbies, foreign portfolio investors, stock market players and the common man, requires the FM to be a magician, no less. How does one reconcile the conflicting demands of those seeking tax cuts and increased subsidies on the one hand with those who seek increased government investment in infrastructure, bank recapitalisation and alleviation of rural distress, on the other? But it is this brave task that India’s first lady Finance Minister has undertaken.
At a broad level, FDI seems to have taken centre stage, seeking perhaps to offer an alternative to China, as uncertainty continues over the Sino-U.S. trade war. Predictably, infrastructure retains its pride of place amongst the government’s priorities, while disinvestment finds its customary mention, as it has for several years. Also unsurprisingly, gas, electricity, toilets (GET) remains high on the agenda, given how much of a factor it was in the recently-concluded elections. But over the next few days and weeks, commentators and experts will have a field day dissecting the budget, while the stock market will likely go through its own gyrations!
Turning specifically to the financial sector, there are several noteworthy proposals, both on the capital markets front and the regulatory/taxation front. The proposal to permit investments made by FIIs/FPIs in debt securities issued by Infrastructure Debt Fund – Non-Bank Finance Companies (IDF-NBFCs) to be transferred/sold to any domestic investor within the specified lock-in period and allow AA rated bonds as collateral, should hopefully kick off the long talked about deepening of bond markets. The move to bring HFCs under RBI supervision is also very logical.
After months of uninformed discourse on the ‘NBFC crisis’, it was both refreshing and reassuring to hear the FM acknowledge in unequivocal terms that NBFCs play a key role in the country’s economic growth and the fundamentally sound ones should continue to get funding from banks and mutual funds. The one-time partial credit guarantee offered to public sector banks for purchase of ‘high-rated pooled assets’ of financially sound NBFCs amounting to ₹1 lakh crore in FY20 is a good confidence restoring move, while the removal of the Debenture Redemption Reserve for NBFCs opens up a viable avenue of resource raising for well-run NBFCs. For 20 years and more, NBFCs have sought parity with banks in respect of taxability of income on non-performing assets, under Section 43 D of the Income Tax Act. For those of us who fought this long battle, this comes as a really sweet reward!
Perhaps one of the least noticed announcements is the one regarding “an expert committee to study the current situation relating to long-term finance and our past experience with development finance institutions, and recommend the structure and required flow of funds through development finance institutions.” One can’t help but feel that the IL&FS fiasco might have never happened had the DFIs such as IDBI and ICICI not been swept away by the fashionable clamour for Universal Banking!
Above all, the honourable Finance Minister did not once refer to the non-banking finance companies as ‘shadow banks’. If only for this, we owe her a debt of gratitude.
(TT Srinivasaraghavan, Sundaram Finance MD)
