Post a thumping victory in the general elections, the government has laid out a clear road map to make India a $5 trillion economy in the next few years. Finance Minister Nirmala Seetharaman in her maiden Budget address has identified five key areas that will boost Indias economic growth and also help revive the troubled sectors of BFSI, aviation and infrastructure amongst others.Increase in foreign investments through FDI and FPI The proposed relaxation of FDI in sectors such as media, retail and insurance will attract significant investor interest as these sectors have witnessed increased demand from end consumers lately. The increased disposable income spent on platforms such as Amazon, Flipkart, Hotstar, etc. signal a steady future for these mediums and will definitely attract foreign investment. The larger beneficiary of this move will be the troubled aviation sector. Air India has been in debt for many years and the recent turmoil faced by Jet Airways has resulted in lack of investor interest in this sector. The relaxation of FDI in aviation could ease the proposed divestment plan of Air India besides creating a level playing field in terms of cost competitiveness. The larger benefit will be the progressive development towards self-sufficiency in maintenance and engineering services, resulting in increased jobs.
Reviving cash strapped banking and NBFC sectors
A much-needed impetus for the NBFC sector was announced as the government will provide a one time six-month partial credit guarantee to PSBs to buy high rated pooled assets of NBFCs amounting to a total of Rs 1 lakh crore during the current financial year. This will go a long way in improving the credit flow to the corporates who are unable to tap into the funding from PSBs. Moreover, a Rs 70,000 crore infusion in PSBs will boost the capital base of the state-owned banks and ensure that commercial enterprises do not suffer. The earlier capital infusion was largely used to address the NPA issues of PSBs, whereas this additional amount is likely to be used for asset growth. Simplification of KYC norms for FPIs and enabling them to invest in debt securities of NBFCs and listed debt papers of REITs will further boost liquidity in the economy.
Boosting growth in affordable housing
A further interest deduction of Rs 1.5 lakh (total Rs 3.5 lakh) on affordable housing loans along with a strong focus to scale up construction timelines was much needed to boost growth in housing finance companies.Additionally, the fact that the completion of houses that previously required 314 days/house has come down to 114 days makes the target of Housing for All certainly a bit more achievable. Shifting the regulation of HFCs from the National Housing Bank to the RBI could bring in more uniformity.
Infrastructure growth
A proposed investment of Rs 100 lakh crore in the infrastructure sector reiterates the government's focus on stimulating financing for capital expenditure in the core sectors. However, this will largely be dependent on the private sector's ability to mobilise financing in the infrastructure sector, which currently looks subdued. Infrastructure credit enhancement initiative is a fresh move which has been under contemplation for sometime, but is very relevant from a timing perspective. However, I would closely watch out for its scoping and overall envisaged roll out model since we have seen other models like take-out financing achieving limited success.
Boosting digital presence
A two-pronged approach announced towards improving digital connectivity in rural India as well as a reduction in digital payments charges will lead to a significant reduction in cash transactions, better financial inclusion and reduced cost overheads. Over 2.5 lakh villages are expected to be powered with high-speed broadband internet, giving the hinterland access to facilities of online banking. Further, the TDS of 2 per cent on cash withdrawals over Rs 1 crore per year will encourage digital payments.Overall, the Finance Minister has delivered a comprehensive Budget that addresses structural issues for the economy in the long term. Once the fine print is understood, one can see the near term impact.