~Shrishti Sharma
In the mosaic of the nation’s progress, certain tiles stand out as pivotal and require careful placement. The Finance Minister unveiled the interim budget 2024, laying the four pillars of Viksit Bharat: Poor, Youth, Women and Farmers. The budget continued with targeted initiatives, ensuring the welfare and progress of these vital segments of our society.
The government discussed measures like direct financial assistance to 11.8 crore farmers, Electronic National Agricultural Market, PM Mudra Yojana, Start-up Initiatives among others. It also prioritized health for women, agriculture and food processing initiatives among others.
In continuation with the Union Budget Series, ETBFSI wrapped up its final episode with the industry experts after the release of the Union Budget 2024.
Balanced approach, Fiscal prudence and Inclusive focus
Speaking about the Budget, Sunil Mehta, CEO, Indian Bankers Association said, “I appreciate the Finance Minister’s approach – a balanced budget, avoiding populism. The projected fiscal deficit for next year at 5.1 percent indicates cautious optimism. No radical changes have been launched, and a notable focus was placed on the poor, women, farmers, and youth. The loan program was moderated down, leading to a softening of bond yields.”
Shubhada Rao, Founder of QuantEco said, “The continued determination to reduce the fiscal deficit is commendable. From 9.7 percent in 2021 to the projected 5.1 percent – a major achievement. The absence of populism raises a pertinent question – what is holding the government back? A credible government, serious macro-stability during uncertain times, and moderating inflation appear to be the guiding principles.”
Paul K Thomas, Founder, MD & CEO, ESAF SFB added, “This budget is more than just a fiscal plan; it is a 25-year directional guide. Emphasis on continuity is clear, with a spotlight on the poor, farmers, and women. Small Finance Banks (SFBs) are finding 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 financing for private sector innovation is a positive move, encouraging private sector participation in innovation.”
The Government’s bold bet on a 5.1 percent Fiscal Deficit – What’s fueling the confidence?
“I find the confidence of the government to reach the fiscal deficit target of 5.1% rooted in several key factors. First, over the years, there has been a significant simplification of tax laws and increased GST compliance. These measures, along with various technical initiatives, have introduced a commendable degree of tax buoyancy,” pointed out 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 nominal GDP, projected at 8.9%, could be exceeded, 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 spending will witness a revival. The private sector, bolstered by clean balance sheets, competitive corporate taxes and a favorable sovereign credit 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 affect private sector borrowing costs.
What could drive India’s private capital momentum?
The 11.1 percent increase in capital for the Union Budget 2024 made everyone happy, private capitals were still 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 huge potential for private income. This sector has a domino effect, creating demand across various industries. From cement and steel to electrical equipment and machinery, the infrastructure boom is stimulating ancillary services, providing a significant boost to the private sector,” said Sunil Mehta, CEO of Indian Banks’ Association.
The introduction of the Insolvency and Bankruptcy Code (IBC) was a game changer. It improved ease of doing business, raising India’s global ranking. The IBC offers an exit strategy, bringing stability and confidence to the Indian business ecosystem. This newfound assurance of the outside world will undoubtedly drive private capital.
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 large investments and making capital. The ongoing and announced policy changes by the Finance Minister are set to complement government capital, paving the way for robust private sector investments.
MSME Checklist: What are the real needs of small businesses?
“What MSMEs really want is a stable and predictable business environment. Steady economic conditions, consistent interest rates and a predictable tax philosophy are crucial factors. Having robust ecosystems like the Government E-Market and the TREADS platform adds to the overall stability, improving cash flow for MSMEs. We, as entrepreneurs, seek confidence from the macro sector to start the next phase of our journey, be it expanding factories or modernizing machinery,” mentions KV Srinivasan, ED & CEO, Profectus Capital.
MIMEs 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 an enabling environment, providing the necessary confidence to take the next step, whether it’s increasing capital expenditure or embracing technological advances.
Pockets of growth in the Insurance sector
“Insurance beyond just a savings component, especially considering the tax complications associated with savings. Health insurance, post-COVID, has seen a remarkable increase in awareness. People are now more proactive, understanding their vulnerabilities. The sector is experiencing incredible growth, with life insurance gaining popularity,” said Alok Rungta, Deputy CEO and CFO, Future Generali India Life Insurance.
The government’s efforts to curb taxation, coupled with the ongoing schemes, have positively affected disposable income, creating a favorable environment for the insurance industry.
Alok notes that the Finance Minister’s claim of lifting Rs 25 crore out of multi-dimensional poverty is an important data point. This population becoming part of the economy translates into potential customers for the insurance sector. As disposable incomes rise, the sector anticipates a large positive impact, aligning with the government’s vision to double per capita income by 2030.
It is important to recognize the long-term financial role played by the insurance industry, contributing significantly to the purchase of long-term project bonds. The stability and contribution of the sector to long-term projects make it indispensable for the economic plans of the government.
India’s FDI optimism
“Long-term foreign investors scrutinize macros and assess government intent. Fortunately, India shines in terms of GDP growth, outshining other large nations. The clear visibility of continued growth coupled with the government’s commitment to fiscal consolidation adds to foreign confidence 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 percent,” 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 formalizing and digitizing the economy, the government’s emphasis on renewable and alternative energy presents a great opportunity. This is not just a global opportunity; it extends to Indian entrepreneurs, including MSMEs and smaller businesses.
The net-zero goal by 2070 and bridging the gap between Haves and Have-Nots
“The emphasis on sustainable livelihoods, as seen in the solar roof scheme, is in line 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 push towards sustainability,” notes 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 such as agriculture, food processing and post-harvest schemes acknowledges the importance of addressing inequality. Creating an enabling environment, the government is inviting private sector participation with schemes offering interest subsidy and subsidies. The approach is not about the government doing everything but about creating opportunities and partnerships for sustainable development.