The Budgets Focus Can Be Summarized As Pro-Investment

The Budgets Focus Can Be Summarized As Pro-Investment

 

Sankar Chakraborti, CEO, Acuité Ratings & Research Limited presents a post-budget assessment and the impact it will have on the Indian economy

The Union Budget FY 2020-21 seems to be significantly moderated, given the prevailing extraordinary economic circumstances in India. Consequently, the revenue receipts are expected to grow at just over 9 per cent as compared to 19.2 per cent recorded the previous year. While tax revenue will increase by 8.7 per cent (as compared to 14.2 per cent in FY20), the biggest surprise came from the non-tax revenue, which will grow by just 11.4 per cent (as compared to 46.6 per cent in FY20). Deficit financing too, will grow by just over 3.8 per cent as compared to over 18 per cent expansion seen in the previous year with the fiscal deficit coming down to the 3.5 per cent level.

This development will limit the fiscal space to an extent and consequently, revenue expenditure growth has been toned down. However, capital expenditure has been an exception, given the expenditure on the account expected to expand by 18 per cent (Rs. 64,000 crore) for FY21, as a result of the massive commitment towards the Rs. 102 lakh crore National Infrastructure Plan (NIP). The costs for this push nevertheless comes through incremental debt issuances, because of which interest payment obligations will be going up by Rs. 83,000 crore, despite an accommodative monetary policy.

We note that the market borrowing is proposed at Rs. 5.35 lakh crore, which is expected to push the yield marginally up. Nevertheless, the increasing FPI limit on corporate bonds from existing 9 per cent to 15 per cent of outstanding stock is expected to be a positive factor from the exchange rate perspective. Overall, the budget’s focus can be summarized as pro-investment, which the economic survey identifies as key to reviving household consumption.

When it comes to the MSME sector, the budget has tried to address the structural problems that have been bogging down the sector, namely logistics, financing and modernisation. Notably, the development of the National Logistics Network and the National Cold Storage Chain are significant announcements that will help entities present in the agro services and manufacturing as well as transportation. The second issue pertaining to financing is addressed via the inclusion of NBFCs on the TReDs platform and the extension of the debt recast window for MSMEs.

Mission Indradhanush and National Textiles Mission on the other hand will have significant influence on the modernisation of the healthcare as well as textile industries operating at different levels of the MSME landscape. Overall, the budget looks at MSMEs as part of an ecosystem instead of the traditional approach, which separated small enterprises from the whole system.

Going forward, we expect the government to tread the thin line between fiscal discipline and market encouragement. While fiscal space remains limited at this time, there is a slight possibility that deficit may be elevated further if economic sentiment remains subdued. Ultimately, a conducive business environment must prevail both domestically and on the international front in order to augment the government’s efforts to stabilize the once fastest growing economy on earth – putting it back on track.



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