Budget 2020 India: Structural reforms carried out in India in the preceding years were for achieving greater macroeconomic stability and increasing productivity with better standards of living over time. With the detoxification of the Indian economy complete, stage was set for ensuring quality growth going forward.
Rarely has a Union Budget evoked so much interest as the current one, primarily due to the ongoing domestic economic concerns around lack of employment growth, slowing consumption, investments and trade. The initial reaction to the government’s budgetary response has been negative to neutral despite realistic GDP growth estimates and fiscal deficit target for FY21.
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Thrust to infrastructure development across sectors such as roads, railways, airports, ports, economic corridors, affordable housing, solar energy, water supply & sanitation, health and education is identified as an important lever to generate growth and social well-being. The Budget essentially reinforces the government’s impetus to the national infrastructure pipeline (NIP). With mention of 6,500 infra projects under consideration, it is clear that successful implementation of NIP revolves around stitching together a credible financing plan.
The Budget does provide some insight into government’s plans on raising resources beyond the traditional budgetary sources. Tax exemption to attract investment by sovereign wealth fund into infrastructure, increasing the FPI limits for investment in corporate bonds, withholding tax relief for ECB investors are steps in the right direction. Indian investors in the infrastructure space could have been provided necessary tax reliefs as well to create a more holistic impact on the efforts to revive the economy.
The government has emphasised the role of private investment and the PPP route for funding the developmental infrastructure programme. The FM has also relied on doubling of divestment target including successful monetisation of assets such as 6,000 km of roadways for meeting the resource requirements. Acknowledging the need for efficient implementation of the various programmes, the Budget announces the formation of an end to end investment clearance cell.
Heightened risk aversion in the financial sector was acting as a major deterrent to growth. There are several measures in the Budget to strengthen the domestic financial system as well as efforts to attract foreign capital. The Budget mentions about governance reforms to be carried out in PSU banks to make them more competitive and encouraging them to tap capital markets for additional capital.
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The biggest multiplier effect of the infrastructure thrust would be on job creation in sectors like construction. The investment-led growth has the potential to take economic wellbeing into the deeper corners of the society. Some tax rates repackaging notwithstanding, there are no significant steps announced to increase the overall purchasing power of the consumers. Hence the growth revival needs to lean more on opportunities created by investments. Fortunately, India has a lot to invest into and for a long time.
Source: Financial Express
