The 2019 Union Budget presented by finance minister Nirmala Sitharaman on Friday lays a clear vision and roadmap for achieving the inspiring target of India becoming a $5 trillion economy by 2023.
The critical issues have been clearly identified and grouped appropriately. Focus remains on investment-led growth in key areas of infrastructure creation and upgradation, improving connectivity through upgradation and modernization of waterways, aviation sector, roads and railways.
Small and medium sector enterprises will benefit immensely under the new interest rate subvention scheme. "One nation one grid" for energy sector will ensure availability of power across the country at reasonable tariffs.
Measures aimed at addressing issues concerning rural and urban India as well as youth and women have been addressed in a well-categorized manner. The recent concerns arising from problems faced by financial services sector, especially the non-banking financial companies (NBFCs) and housing finance sector have been addressed in a very comprehensive manner.
The single most important measure announced in the budget seems to be one encouraging banks to buy out pooled good quality assets of NBFCs/HFCs where the government shall provide guarantee for first loss up to 10 percent for an aggregate amount of up to Rs 1 lakh crore. This in one go will provide liquidity to beleaguered NBFCs facing acute liquidity crisis in spite of having good quality assets.
This should by and large address the problems faced by the financial services industry and kickstart the jammed wheels thereof and stimulate credit pick up and revive the entrepreneurial spirit. The recapitalisation of PSU banks by Rs 70,000 crore should increase appetite for fresh lending in economy.
Another significant announcement is the one of further opening up of foreign direct investment in aviation, media and insurance sectors well as that of liberalising norms for local sourcing for single brand retail sector. These sectors have very high potential in terms of attracting capital flows, bringing in advanced technology and job creation.
The reforms in these sectors have faced controversy in recent times but encouraged by a strong electoral mandate, govt seems determined to make meaningful progress in these areas.
A lot of focus has been put on development of corporate bond markets but there does not seem to be any specific measure yet. There has been similar focus in this segment for some time now and one can only hope that this time it would be different.
Another major breakthrough proposal is to foray into international bond markets to part finance the fiscal deficit through a sovereign bond issuance. So far the government has only occasionally tapped the international bond markets in exceptional times of global turbulence to shore up its forex kitty.
This will be the first time that international markets will be accessed as part of regular funding of fiscal deficit. This can be a big game changer. While on one hand it would familiarize more foreign investors with Indian debt markets, it would also further the cause of entry of Indian bonds in to global bond indices.
Further, much to the expectation and disbelief of the markets, fiscal deficit has been contained well and the path of fiscal consolidation and prudence is being adhered to. This again is among one of the most inspiring aspect of the budget.
To conclude, notwithstanding all the negative narratives circulating in the media, the government has not shown any sense of desperation but seems to be moving ahead with a clear long term vision with utmost confidence and sense of purpose. It has not given into any
short-term measures and focused totally on structural reforms at a comprehensive level. That, putting aside all the details and nuances, seems to be the biggest highlight of this budget. Mahendra Kumar Jajoo is head –fixed income at Mirae Asset Global Investmets (India) Pvt Ltd