Opinion

Outlining a positive framework for the economy

NAINA LAL KIDWAI | Updated on January 20, 2018 Published on February 29, 2016

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The announcements made today reiterate the government’s commitment to deepen the reform process

The much anticipated annual exercise of the budget announcement has come through giving an overall positive signal. At this juncture, revving up growth remains the most pressing need and we are encouraged to see government driving that objective through this budget.

Weak demand has been a concern for some time now, both on account of global and domestic factors. The budget has appropriately attempted to push up domestic consumption by pump priming the rural economy and the agriculture sector. This was the need of the hour.

Also, the government has kept to its promise of promoting affordable housing. The fiscal incentives provided for housing projects up to 30 sq metres in metros and 60 sq metres in non-metros, combined with other tax exemptions to developers and additional tax deduction on interest on housing loans will push both the demand and supply levers in this critical sector.

Infra focus

Further, infrastructure has been a priority area for the government and the budget signalled continued attention on this very important sector. The total outlay of ₹2.2 lakh crore for the infrastructure sector is laudable and reaffirms government’s resolve to make India’s infrastructure world class. We can expect to see the multiplier effect of this spend going ahead ushering in private investment and fostering job creation. The ₹25, 000 crore-allocation towards recapitalisation of banks is as committed last year, but I fear may not be sufficient given the stressed assets situation and Basel III requirements.

Of course, there is still some time at hand to meet the capital requirements under BASEL III norms. The public sector banks are currently not in the peak of health, but the assurance that the government stands solidly behind the banks as and when funds are needed is reassuring. The announcement that government will consider taking its stake in IDBI bank to below 50 per cent will hopefully lead to this also playing out for some of the other PSBs where the capital requirements are mounting.

Resolving the issue of non-performing assets has been a key priority of the government. The budget announcement for amending the SARFAESI Act to enable sponsors of ARCs to hold up to a 100 percent stake is a positive step. We also look forward to the passage of the Insolvency and Bankruptcy Bill l in the budget session.

The steps towards further deepening of the corporate bond market are welcome. We look forward to further details from RBI and SEBI in this regard.

The fund puzzle

The budget is big on spending numbers; however what may be a challenge is the funding of this expenditure, given that the finance minister has decided to stick to the FRBM target without much clarity on the generation of additional revenue resources.

On the disinvestment front, there has not been much detailing in the budget speech where it was indicated that a new policy of management of government investment in Public Sector Enterprises, including disinvestment and strategic sale has been approved. The ₹36,000 crore provided can be readily achieved if markets are buoyant. Listing of the general insurance companies may also yield some funds.

The announcement of a compliance window for domestic tax payers to announce undisclosed income is a step in the right direction. This reflects government’s seriousness about handling the menace of black money. We are a capital starved nation and we need to get all avenues in place to raise funds.

The economy is treading on the right path and the announcements made today reiterate the government’s commitment to deepen the reform process. We hope to see concrete action on these in the coming days.

The writer is past president, FICCI. The views are personal

Published on February 29, 2016
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