Budget 2017 has reassured investors.
Finance Minister Arun Jaitley has maintained the path of fiscal prudence. The fiscal deficit target of 3.2% for FY 18 and 3% for FY19 will reassure investors. The target of 60% debt to GDP by 2023 can change the Moody’s Ratings who have demonstrated poor standards while rating India in the past.
The concern from Foreign Institutional Investors (FII) on taxation arising from indirect transfer of shares has been addressed. Extension of concessional withholding tax of 5% on ECB (External commercial borrowings) and Masala Bonds can turn around debt FII flows.
The host of benefits given to the affordable housing sector can create supply necessary to absorb unskilled labour and create demand for local materials from cement to tiles. It will allow banking sector to deploy liquidity in safe housing loans.
The budget has also provided for a 25% increase in capital expenditure focussed on railway and road. The crucial thing here will be ability of government to spend it.
In MNREGA government has been able to deepen 10 lakh ponds and make 10000 composite posts. It is a far superior model for spending money than digging holes and filling it.
The divestment target is at an all-time high number and will require deft management to become attainable. Listing of companies like IDFC, IRCON can help in achieving the same.
For the financial sector, the Rs 10000 crore allocation for recapitalisation of PSU banks looks low. However, new laws to improve section 138 for cheque bouncing, seizure of local assets of absconders and illegal public deposits will go a long way in improving Non Performing Assets situation.
The tax cuts at base level will, meanwhile, serve keep more money in hands of consumer and boost consumption.
Overall, the FY18 budget is ahead of expectations with more money in the hands of consumer, higher tax revenues through better tax compliance, higher growth in Capex and maintaining path of fiscal prudence.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company Ltd