Budget’s Focus On Talent, Capital And Infra Will Push India Into Growth Orbit: Nilesh Shah, Kotak MF

The government continues to marry social schemes with a developmental focus.

Despite the pre-election vote-on-account budget, the government has shown credible restraint in announcing big-ticket rural or social welfare schemes. Sticking to the path of fiscal prudence, the government continues to allocate heavily towards infrastructure build-up while working on inclusive growth.

Finance Minister Nirmala Sitharaman again highlighted the resolve to make India an economic superpower by 2047 and in a responsible manner. This vote on account laid the foundation for the post-election budget and displayed conviction towards policy continuity, calling the next five years of unprecedented development and golden moments.

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The highlight of the vote on account was sticking to the path of fiscal prudence with a target deficit set at 5.1 percent for 2024-25 with lower year-on-year market borrowing. The government has been able to bring down the Covid-induced fiscal deficit of 9.2 percent in FY21 to 5.8 percent by FY24 despite the unprecedented increase in capex spend. The finance minister reiterated the target of bringing it further down to 4.5 percent by FY26.

This would certainly facilitate the path towards positive macro-outcomes for India, like rating upgrade possibility and bond inclusion in remaining global bond indices. As and when such events pan out, along with limited government borrowings, the cost of borrowing for India Inc can come down structurally. Such reduced borrowing costs, along with various other reforms like PLI (Production Linked Incentive Scheme) and corporate tax cuts in September 2019, are substantial positives for the restart of a corporate capex cycle.

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In the new world order, emerging India continues to shine brighter. India is able to achieve and present a seemingly impossible trinity of growth, prudence and investments to investors on the global stage.

The government has rightly identified the ‘role of innovation’ required to become a superpower and announced setting up a corpus of Rs 1 trillion. Such a scheme can help stop the brain drain and retain top-class talent in India. Modalities of the same would be interesting to watch over the coming months as such an initiative can galvanise the system as it has done with PLI in the recent past.

Infrastructure spending increased 11.1 percent YoY (on the base of a 37 percent increase in FY23) to 3.4 percent of GDP, targeting further improvement in transport infrastructure of three dedicated railway corridors, metro rail, NaMo Bharat and airports, etc. The commitment to improving transport efficiencies is thus highlighted again. The government has invested in infrastructure at an unprecedented scale. India built between 2014 and 2024 as much infrastructure in sectors such as power, roads, ports, airports, and telecom as existed in 2013.

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A troika of talent (more opportunities within India with innovation focus, VC/PE ecosystem), capital (better availability with reduced costs) and infrastructure can give an upward push to our growth orbit.

The government continues to marry social schemes with a developmental focus. Under Pradhan Mantri Awas Yojana-Gramin, the government would deliver another two crore houses over the next five years (in total, three crore houses). Along similar lines, the government has announced a housing scheme for the middle class as well to facilitate them to buy or build homes. Rooftop solar units to provide free electricity to up to 300 units, per month to one crore households is yet another masterstroke. Such bundled schemes can create a nice multiplier effect for ecosystem development, employment and consumption while doing away with the freebie culture. Killing two birds with one stone.

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Successive budgets are demonstrating the improving tax buoyancy and compliance. GST, simpler tax rules and the use of technology are helping improve the tax to GDP ratio, providing ammunition to invest in infrastructure and growth. The tax-to-GDP ratio hit 15-year high of 6.11 percent for FY23 as per CBDT data released in January 2024. The government didn’t tinker with any direct or indirect tax rates or policies and is rather focusing on continuity of policies with better execution.

Careful assessment of the past 10-year reforms, successive budgets, and execution determination brings out the method behind the madness. The government plans and actions encompass all aspects, including repairing the revenue side, inclusive development, infrastructure build-up, manufacturing revival, preparing for green energy and the innovation-in-India focus. This vote on account is one step further in approaching the Amrit Kaal.

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