The Government lived up to the high expectations from this last full year Budget before the general elections in 2024. The Budget comes at a time when India remains an “oasis of stability” amidst continuing geopolitical uncertainties, slowing global trade, volatile commodity prices, disrupted supply chains and elevated interest rates. Therefore, in this first Budget in Amrit Kaal, it was important to define the right approach for drawing the blueprint for India @100.
There are enough measures in the Budget to incentivise consumption spending through tax reliefs, while ensuring that the investment formation remains on track. Stability of corporate taxes and reduction in personal income tax should enable the investment and consumption demand levers. Further, the emphasis towards striving for inclusive growth and exploiting the demographic dividend or the youth power of the country by formulating the National Education Policy and various other skilling initiatives are well thought out steps.
The previous Budgets have focused on manufacturing through PLIs whereas the current Budget shifts the focus to the broader sections of the economy including agriculture. Further, it also recognises India’s commitment to net zero carbon emission by 2070 by announcing various initiatives around Green Hydrogen, energy transition, storage and evacuation projects.
The government has rightly underscored the importance of capex as a driver of inclusive growth and sustainable job creation. The capital investment outlay has been increased to ₹10-lakh crore, a steep increase of 33 per cent over the current year. It is heartening to note that capex outlay has risen over three times in the past three years. This is further complemented by nudging the States to improve spends on capex through various grants and concessional loans. The Budget permits State governments to operate at a fiscal deficit of 3.5 per cent of the GSDP. This will enable State governments to join the mainstream development agenda of the country.
There are visible green shoots of investment in private capex in several areas, largely due to improved business confidence and demand conditions. It is expected that the newly-established Infrastructure Finance Secretariat will assist all stakeholders for higher investments in infrastructure including roads, railways, urban infrastructure and power which are currently being driven largely through public sources only.
Improving logistics and regional connectivity as well as focussing on sustainable cities of tomorrow find mention in the Budget. Financing is critical for developing urban infrastructure at scale and therefore the government, through property tax governance reforms and by creation of Urban Infrastructure Development Fund, will incentivise the cities to improve their credit worthiness and ease of living.
Strong resolution mechanism needed
For the India investment story to succeed during the Amrit Kaal period, it is important to ensure superior project planning, optimal risk sharing, sanctity and enforcement of contracts and a strong dispute resolution mechanism. Equally important are the efforts to create an alternate financing mechanism for Infrastructure assets (in addition to banking channels) through the targets set under the National monetisation pipeline. Policy errors and mis-steps in implementation, however, needs to be guarded against.
The Budget strikes all the right chords and ensures that the wheels of the economy remain lubricated. In all, it is a fine balancing act between preserving macro-economic stability and imparting fresh growth stimulus.
The writer is Whole-time Director and Chief Financial Officer, L&T