Decoding the Union Budget’s focus on fiscal consolidation and growth

The government is channelling enough for capex which is almost 40 percent of the additional total outlay.

In many ways, Finance Minister Nirmala Sitharaman’s interim Budget sets the tone for the Viksit Bharat roadmap – with a mix of strong fiscal consolidation, robust infrastructure and an innovation-focused future.

The agenda for financial inclusion remains paramount, encompassing various aspects such as food security, housing, and overall economic stability. This agenda not only fosters consumption patterns and economic growth but also addresses immediate needs of individuals. Additionally, investment in infrastructure, particularly in areas like roads, railways, airports, urban transportation is crucial for India's progress.

A robust infrastructure network is essential for the nation to grow and provide access to every part of the country to thrive. Moreover, the focus on tourism, especially spiritual tourism exemplified by the interest in Ayodhya, indicates significant potential. India stands on the brink of a tourism boom, albeit requiring significant improvements in infrastructure and services to fully capitalise on this opportunity.

Infrastructure Push And Inclusion

The Finance Minister Nirmala Sitharaman today increased the outlay on infrastructure by 11.1 percent to Rs 11,11,111 crore ($133 billion). The three new rail corridors, viability funding to build an initial 1 GW of offshore wind, expansion of metro rail networks, as well redevelopment of existing airports and building new ones augur well. The projects will improve efficiency and reduce the cost of logistics.

Within the fiscal available ambit, the government is channelling enough for capex which is almost 40 percent of the additional total outlay. This is being directed to roads, railways and defence and it can have positive linkage effects with industries like steel, cement, capital goods etc. Further, the states would continue to get around Rs 1.3 lakh crore from the Centre and would be expected to also ramp up their spending.

The additional building of two crore houses (already 4 crore houses have been built for the rural poor) under the PM Awas Yojana (Grameen) in the next 5 years can have a strong economic impact. In India, ensuring accessibility to affordable housing remains a key component. This initiative not only benefits the middle and lower segments of society but also promotes positive momentum in the financial sector, particularly in terms of lending. The crucial aspect to consider is the form housing will take—whether it's through support mechanisms, individual investment, or emotional attachment. Regardless, housing has the potential to significantly boost economic growth.

At the heart of it, the Finance Minister's emphasis on building an aspirational India and Indians is reflective in the budget allocation and focus. This suggests that consumption patterns – both in rural and urban areas will likely see an uptick. While expenditures on items like cars, homes, travel, and discretionary spending may increase gradually, there will also be a notable rise in basic necessities and small business investments, such as vehicles for transportation and office equipment. Indians are increasingly embracing spending, evident in the continued use of credit cards and personal loans. This signifies a broadening spectrum of consumption habits across different sectors of the economy.

The decision to increase the target of “lakhpati didis” is another indicator of the success of skill development training to women in self-help groups (SHGs). Also, setting up a Rs 1 lakh-crore fund for research and innovation, and increasing tax exemption for start-ups are positives.

Overall not much was expected from a “vote on account” budget but the FM laid a roadmap for India to be a $7 trillion economy and the areas of focus to achieve the same noteworthy changes were made in direct or indirect tax.  The decisions taken in the budget will not only help the development of advanced 21st-century infrastructure but also lead to the generation of "countless" new employment opportunities.

Shanti Ekambaram is Whole-Time Director, Kotak Mahindra Bank. Views are personal, and do not represent the stand of this publication.