An election year typically throws fiscal discipline astray.

Just not this time.

The Interim Budget showed the government’s unwavering commitment to fiscal conservatism and growth alike.

The upshot? Lower government borrowings.

That, in turn, offers a dual benefit of higher availability of credit for private sector capital expenditure and lower borrowing costs with the attendant impetus provided to the growth of the corporate bond market.

The move to rationalise government borrowings comes at an opportune time as private sector capex is likely to pick up from fiscal 2025. With capacity utilisation at decadal highs, CRISIL estimates capex of ₹110 lakh crore in the infrastructure and corporate sectors between fiscals 2023 and 2027,1.7 times that in the past five fiscals.

Corporates are also likely to see a timely benefit on the cost economics of investments.

Interest rates were expected to gradually reduce in fiscal 2025 on the premise of abating inflation in India and globally. This budget is expected to hasten the interest rate decline, especially in the corporate bond market, which typically adjusts faster to market developments. This will be one of the key drivers of growth in corporate bond markets.

CRISIL Ratings expects bond market issuances to remain robust next fiscal, riding on a 28 per cent increase in issuances to a decadal-high ₹9.7-lakh crore in calendar year 2023.

With continued growth in bond market issuances, CRISILRatings expects the corporate bonds outstanding to more than double from ₹43-lakh crore as of fiscal 2023 to ₹100-120-lakh crore by fiscal 2030.

Infra spending

Despite the fiscal consolidation, the government has not taken its foot off the pedal on infrastructure spending. The effective budgetary capex (including loans to states for capex creation) is estimated to grow a healthy 17.7 per cent next fiscal, albeit slower than 21.5 per cent in the current one.

The capital outlay on transport sector — railways and roads — has remained steady. The focus on developing multi-modal connectivity including three dedicated railway corridors will help de-congest the existing freight lines and enhance logistics efficiency. Going ahead, this should gradually rationalize the logistics costs for the Indian domestic industry, making it more competitive in the international arena.

Also, the government’s commitment towards achieving a greener ecosystem continues, through developing renewables, biofuel, electric vehicles space, among others.

The impetus to offshore wind and solar rooftop capacities is another step forward towards the aim of 500 GW renewable capacity by 2030 set as per India’s COP28 commitments.

The focus on development of new airports and tourist centres augurs well for airlines and travel operators and will also provide capex opportunities for real estate development in the medium-long run.

From a financial sector perspective, the interim budget pronouncements should also provide impetus to credit growth for banks and non-banking financial companies (NBFCs) on three fronts.

One, the rationalisation of government borrowings, and consequent crowding in of private investments with capex picking up from fiscal 2025 onwards should result in a growth in the infrastructure lending portfolio of banks. Infrastructure-focused NBFCs, which are primarily government owned, should also benefit.

Capex outlay

Two, the downstream impact of the government’s planned capex outlay and continued focus on ‘Housing for All’, with multiple schemes, should increase demand across input sectors for housing and support corporate credit growth for lenders.

Three, if the contours of the proposed housing scheme for the middle class are similar to the earlier Credit Linked Subsidy Scheme, it augurs well for growth of the housing finance portfolios of banks and affordable housing financiers. Overall, the budget measures should support expected growth of 13.5-14 per cent for the banking sector in fiscal 2025 and could also have some upside impact.

In summary, the interim budget re-emphasised the government’s continued focus on infrastructure push, balanced with fiscal prudence, which should provide a fillip to private sector capex and, in turn, development of the corporate bond market.

The author is the Managing Director of Crisil Ratings

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