~Shrishti Sharma
In the mosaic of the nation’s progress, certain tiles stand out as pivotal and demand meticulous placement. The Finance Minister unfolded the interim budget 2024, laying down the four pillars of Viksit Bharat: Poor, Youth, Women, and Farmers. The budget continued with targeted initiatives, ensuring the well-being and progress of these essential segments of our society.
The government discussed measures like direct financial aid to 11.8 crore farmers, Electronic National Agriculture Market, PM Mudra Yojana, Start-Up Initiatives among others. It also prioritised health for women, agriculture and food processing initiatives among others.
In continuation with the Union Budget Series, ETBFSI wrapped its final episode with the industry experts after the release of the Union Budget 2024.
Balanced approach, Fiscal prudence, and Inclusive focus
Speaking on the Budget, Sunil Mehta, Chief Executive, Indian Banks’ Association said, “I appreciate the Finance Minister’s approach – a balanced budget, avoiding populism. The predicted fiscal deficit for the coming year at 5.1 percent indicates a cautious optimism. No radical changes were introduced, and a notable focus was placed on the poor, women, farmers, and youth. The borrowing program has been tempered down, leading to a softening of bond yields.”
Shubhada Rao, Founder, QuantEco said, “The continued resolve to bring down the fiscal deficit is commendable. From 9.7 per cent in 2021 to the projected 5.1 per cent – a significant achievement. The absence of populism raises a pertinent question – what refrains the government? A confident government, serious macro stability during uncertain times, and moderating inflation seem to be the guiding principles.”
Paul K Thomas, Founder, MD & CEO, ESAF SFB added, “This budget is more than a mere fiscal plan; it’s a 25-year directional guide. Emphasis on continuity is clear, with a spotlight on the poor, farmers, and women. Small Finance Banks (SFBs) find opportunities in the PMAY scheme, and announcements for women entrepreneurs through microfinance institutions will be a focus. The allocation of long-term interest-free 50-year funding for private sector innovation is a positive move, encouraging private sector participation in innovation.”
Government’s bold bet on 5.1 per cent Fiscal Deficit – What’s fuelling the confidence?
“I find the government’s confidence in achieving the 5.1% fiscal deficit target rooted in several key factors. Firstly, over the years, there has been a significant simplification of tax laws and increased GST compliance. These measures, coupled with various tech initiatives, have introduced a commendable degree of tax buoyancy,” emphasised Shubhada Rao of QuantEco.
Rao mentions that the assumption of a conservative growth rate in tax revenues is a deliberate strategy. The belief is that the nominal GDP, projected at 8.9%, might be surpassed, with a potential growth rate closer to 11%.
Additionally, as we delve into the post-election phase, there is an expectation that private sector capital expenditure will witness a resurgence. The private sector, buoyed by clean balance sheets, competitive corporate tax rates, and a favorable sovereign borrowing environment, is poised to contribute significantly to economic growth.
Lower government borrowing has already led to corrections in government bond yields, and with India’s inclusion in bond indices, the sovereign risk-free rate is likely to remain below 7%. This, in turn, will positively influence private sector borrowing costs.
What could drive India’s private capex momentum?
The 11.1 per cent increase in the capex for the Union Budget 2024 delighted everyone, private capex has still been a concern for a country like India.
“I believe the government’s push for infrastructure, especially the ambitious rural housing scheme to build two crore houses in the next five years, holds immense potential for private capex. This sector has a domino effect, creating demand across various industries. From cement and steel to electrical equipment and machinery, the infrastructure boom stimulates ancillary services, providing a significant boost to the private sector,” said Sunil Mehta, Chief Executive, Indian Banks’ Association.
The introduction of the Insolvency and Bankruptcy Code (IBC) has been a game-changer. It has improved ease of doing business, elevating India’s global ranking. The IBC offers an exit strategy, instilling stability and confidence in the Indian business ecosystem. This newfound assurance from the outside world will undoubtedly drive private capex.
Mehta explains that the government’s proactive steps, such as the Minimum Import Price policy for the steel sector, have shown that timely interventions can instill confidence in the private sector. This confidence is crucial for making substantial investments and undertaking capex. The ongoing and announced policy changes by the Finance Minister are set to complement government capex, paving the way for robust private sector investments.
MSMEs’ checklist: What are the true needs of small businesses?
“What MSMEs truly desire is a stable and predictable business environment. Steady-state economic conditions, consistent interest rates, and a predictable taxation philosophy are crucial factors. Having robust ecosystems like the Government E-Marketplace and the TREADS platform adds to the overall stability, enhancing cash flow for MSMEs. We, as entrepreneurs, seek confidence from the macro sector to embark on the next phase of our journey, be it expanding factories or modernising machinery,” mentions KV Srinivasan, ED & CEO, Profectus Capital.
MSMEs thrive in an environment that allows them to take calculated risks. Trained to navigate challenges, entrepreneurs within the MSME sector are ready to invest in their businesses. What they need is a conducive environment, providing the necessary confidence to take the next step, whether it’s increasing capital expenditure or embracing technological advancements.
Pockets of growth in the Insurance sector
“Insurance beyond just a saving component, especially considering the tax intricacies associated with savings. Health insurance, post-COVID, has seen a remarkable surge in awareness. People are now more proactive, understanding their vulnerabilities. The sector is experiencing incredible growth, with term insurance gaining popularity,” said Alok Rungta, Deputy CEO & CFO, Future Generali India Life Insurance.
The government’s efforts to curb taxation, coupled with the ongoing schemes, have positively impacted disposable income, creating a conducive environment for the insurance industry.
Alok remarks that the Finance Minister’s assertion of lifting 25 crore people out of multidimensional poverty is a significant data point. This population becoming part of the economy translates to potential customers for the insurance sector. As disposable incomes rise, the sector anticipates a substantial positive impact, aligning with the government’s vision to double per capita income by 2030.
It’s crucial to recognise the long-term funding role played by the insurance industry, contributing significantly to buying long-term project bonds. The sector’s stability and contribution to long-term projects make it indispensable for the government’s economic plans.
India’s FDI optimism
“Long-term foreign investors scrutinise macros and gauge the government’s intent. Fortunately, India shines in terms of GDP growth, outshining other large nations. The clear visibility of sustained growth coupled with the government’s commitment to fiscal consolidation adds to the confidence of foreign investors. I believe this positive scenario makes a compelling case for India’s overdue rating upgrade, especially if we maintain a fiscal deficit path of around 4.5 per cent,” said Dhiraj Relli, MD & CEO, HDFC Securities.
The favorable macros position India as a recipient of more Foreign Direct Investment (FDI). While Foreign Portfolio Investors (FPIs) operate tactically based on valuations, the overall trend favors increased FD inflows.
Relli further explains that beyond formalising and digitising the economy, the government’s emphasis on renewable and alternate energy presents a substantial opportunity. This isn’t just a global opportunity; it extends to Indian entrepreneurs, including MSMEs and smaller enterprises.
The net-zero target by 2070 and bridging the gap between Haves and Have-nots
“The emphasis on sustainable livelihood generation, as seen in the solar rooftop scheme, aligns with the country’s Net Zero Target by 2070. Training rural solar entrepreneurs has not only provided employment opportunities but also contributed to the government’s thrust on sustainability,” remarks K Paul Thomas, Founder, MD & CEO, ESAF SFB.
This inclusive approach ensures that various segments of society benefit from economic initiatives, fostering a balanced and equitable growth trajectory.
The government’s consistent focus on sectors like agriculture, food processing, and post-harvest schemes acknowledges the importance of addressing inequality. While creating an enabling environment, the government invites private sector participation with schemes offering interest subvention and subsidies. The approach is not about the government doing everything but about creating opportunities and partnerships for sustainable development.
