Infrastructure push and rural development continue to remain government’s priorities, as highlighted in the Budget. Initiatives such as affordable housing, upgradation and expansion of roads through PM Gram Sadak Yojana, promotion of zero budget farming, extension of pension benefit to retail traders, and lower corporate tax, among others should help power the government’s pro-growth agenda. Further, emphasis on digital and cashless economy is in-sync with the larger vision of higher financial inclusion. With talks around climate change globally gathering momentum, our government has also proved its commitment through measures such as promotion of electric vehicles, water management, and higher taxes on fuels, among others.
From the market’s perspective, the government has announced a policy decision to do sovereign borrowings in the dollar market. This should reduce the supply of bonds in the domestic market and is positive from a bond market perspective. The other notable announcement pertains to the facility of providing one-time credit enhancement upto 10% for PSU bank purchases of highly rated asset pools of NBFC/HFC. This facility along with the RBI decision to provide funding against excess SLR to banks should reduce some of the liquidity pressures facing the NBFC/HFC sectors.
We believe these initiatives will revive growth in an inclusive and sustainable manner, making it an opportune time to invest in an economy like ours. – Ashwani Bhatia, MD & CEO, SBI Mutual Fund
The Final Union budget for FY 2019-20 was staged against the backdrop of discernible weakening in external and domestic demand situation which raised the call for fiscal impulse. However, the government is currently faced with weakness in tax buoyancy as the GST revenues are yet to gain a stable footing and weakness in economic activity exacerbates the situation. The economy is also staring at certain sector specific issues such as need to address the tight financial conditions in the NBFCs, need to recapitalize the public sector banks, and weakness in farm income. While there is a need to focus on social sector spending, the infrastructure thrust had to be continued to lead to a productive growth and job creation in economy.
Against this backdrop, the government had eventually sided with fiscal prudence and stuck to the broad glide path. FY20 fiscal deficit is projected at 3.3% of GDP. The tax revenue assumptions has been brought down, but still looks tall at 18% growth over FY19 actual collection. There has been minor upward revision to dividend and disinvestment collection, but it may still be achievable. To sum, the revenue assumptions are marginally on the ambitious side. Markets’ hope hinges on improving the GST compliance. The final decision on RBI capital reserves will also be closely watched.
Fixed income market has cheered the budget as the market borrowings had been adhered to and the budget proposed the idea of financing a part of fiscal deficit through dollar bunds. For the equity market, the move to infuse additional capital to public sector banks, measures to address the NBFC challenges, increasing the regulatory powers of RBI over NBFCs and HFCs, the focus on further liberalizing the FDI in select sectors, continued thrust on infrastructure activity are some of the positives that may bring the cheer to the related sector. On the other hand, the government has refrained from any significant boost to rural spending capabilities, and hence does not bring any meaningful thrust to consumption spending. The suggestion to SEBI to increase float to 35% from 25% will cause high supply of stock but may also increase India’s weight in the global indices.- Navneet Munot, CIO, SBI Mutual Fund: