No bad news is good news as the Finance Minister Nirmala Sitharaman maintained a fair balance on fiscal prudence, sustainability, inclusivity and ease of doing business. She made Amrit Kaal’s first Budget to set out the blueprint for India@100. The seven priorities outlined clearly emphasise holistic economic development. 

Fiscal consolidation

While there was a dash of populism in the Budget, it maintained fiscal prudence. The budgeted net market borrowings of the government are below ₹12-lakh crore, broadly in line with market expectations. The Indian bond market may benefit from tailwinds from a fairly balanced bond demand-supply dynamics, moderating global yields, and lower crude oil prices, which will provide softening bias to interest rates. 

Big push on infra

Effective capital spending, budgeted at ₹13.7-lakh crore, highlights the government’s continuous focus on infrastructure development for achieving sustainably high medium-term growth. Rural sector welfare schemes introduced during Covid have been pruned by 16 per cent y-oy, thereby creating room for additional capex. Despite the contraction in social sector schemes, it remains at 1.5x higher than the pre-pandemic level.  

Further incentivising the State government for capital spending, an allocation for 50-year interest-free loans for infrastructure development, has been increased from ₹1-lakh crore to ₹1.3-lakh crore. The priority in the implementation of 100 critical transport infrastructure projects for last and first mile connectivity is a welcome move. The government continues to heavy lift the capital expenditure, and the hope is that it will crowd private investments soon — a necessary condition for medium-term high growth. 

Plugging loopholes 

The Finance Minister has already said that a simplified tax structure with fewer tax rates helps reduce compliance burden and improve tax administration. In this direction, the tax benefits have been tweaked to encourage individuals to move towards a less complex new tax regime and to provide relief to the middle class. The maximum marginal tax rate has also been reduced from 42.7 per cent to 39 per cent to provide relief to those at the highest income level. These changes could have a multiplier effect on consumption growth in an economy experiencing slow consumption growth. 

The Budget has also imposed a tax on insurance policies with premiums above ₹5 lakh, and has effectively removed arbitrage of capital gains from market linked debentures. They are in the direction of simplifying and rationalizing tax structures. 

Inclusive development and going green

The Budget has outlined several initiatives focused on green growth i.e. energy transition and net zero objectives re-iterating the government’s commitment to the climate agenda.

Formalisation of the Indian economy has accelerated over the last few years. However, the informal sector continues to lag. The government has recognized the challenges of the MSME sector, and has extended additional collateral-free guaranteed credit of ₹2-lakh crore, reducing their borrowing cost. This will help cushion the sector, whose outlook is clouded with some uncertainty. Through skilling programmes for youth and teacher training initiatives, nursing colleges, focus on tourism etc., the government is demonstrating its commitment to facilitating opportunities for youth and job creation.

The author is the whole time director at Kotak Mahindra Bank. The views and opinion expressed in the column are personal and do not necessarily reflect the opinion of the organisation or the Kotak group.