Budget 2020 Highlights: Budget to unlock potential of health, education and infra sectors, says SBI Chairman

The slowdown in India has been evident since the end of 2018. The government has taken several measures to address this slowdown in recent months. Monetary policy has also turned accommodative and over time we expect growth to respond. For India growth is as much an element of macro-economic stability as is the fiscal deficit, current account deficit or inflation. In this context the budget as a policy tool provided an opportunity to deliver a counter cyclical fiscal impulse. This strategy is not without risk given the size of the government’s borrowing program and our historically weak track record of fiscal consolidation. The government has made the decision in today’s budget to stay on the path of fiscal consolidation. This choice, while prudent, raises downside risks to growth. On the positive side the government’s fiscal resolve creates headroom for the monetary authorities to remain supportive of growth.

The FM enumerated 16 initiatives to double income of the farmers which should have an impact on agri output. Ofcourse a few of these initiatives falls under states’ purview but these are a good starting point. Over a few years, we could see increase in the output of agri products including cotton which will help India retain its position as the world’s largest cotton producer. The initiatives on organic farming, allocation for national technical textile mission and skill India are a few other initiatives which should help the textile industry. The interdependence between agriculture and textile industry will see rub off effect on each other. Reduction in tax rates on income upto Rs15 lakhs should induce consumption particularly by millennials.

The budget presented by Ms. Nirmala Sitharaman is a pro-consumption budget. It strikes a balancing act between the urban and rural requirements. Government’s thrust on creating better infrastructure, building strategic highways like Chennai – Bangalore, Delhi - Mumbai will boost the sector and further create more demand and employment. Creating National logistics policy will be beneficial as it will bring in efficiency and reduce the turnaround time of the vehicle. Under the SARFAESI Act, the debt recovery has reduced from Rs.1 crore to Rs.50 lakh is one step ahead. We would still expect it to be on par with banks which currently stand at Rs.1 lakh. All in all, through this budget, the government is trying to simplify the existing complicated processes like GST, Income tax filing and bring in efficiency and growth.

In this budget, Government has provided stimulus to the economy in form of liquidity and consumption related interventions in the backdrop of visibly slowing global economic growth, including India.

It is very encouraging to note that the budget clearly laid out the government’s roadmap to position the economy for future sustainable growth—which will resonate well with both domestic and international stakeholders.

We welcome setting up of the National Technical Textiles Mission with an estimated outlay of Rs 1480 crore.While the overall outlay and incentives for Textile and Garmenting sector, which is one of the highest formal employment generation industry, could have been significantly more - it is a well balanced budget addressing many challenges and opportunities across sectors to give fillip to economic revival.

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Overall, the government appears to have chosen to consolidate on the reforms of the past few years. The budget continued with the thrust on infrastructure, social welfare, improvement in ease of living, simplification on taxes and leveraging technology for better governance. Full tax exemption to Sovereign Wealth Funds for investments in Infrastructure and other notified sectors is a significant positive. It was also heartening to see the focus on sustainability through measures on environment and climate change. Similarly, the continued focus on cooperative federalism is positive.

After the initial reaction, expect investor focus to shift back on earnings and global cues. In our view, significant easing in financial conditions, both locally and globally, improving prospects for the rural economy given increase in food prices and better acreage, and the various measures taken by the government to stimulate the economy so far should bring about an improvement in both economic activity and corporate earnings going forward. However, in the absence of a significant growth boost in the budget and given the cautious global environment owing to the spread of Coronavirus, market should stay volatile in the near-term.

While we don't see any fiscal room for GST cuts in the auto sector, we hope that the price increase of that will happen with GST on BSVI If somehow would be neutralised, that would be beneficial to the industry.This whole business of being part of the global supply chain will have a huge impact to India. On electronics, I hope that the 12 percent tax on the import of electronic goods would also seek more initiatives to boost the manufacture of electronic good in India.

Budget 2020 plays the balancing act very well. The enhancement of partial credit guarantee scheme for NBFCs is very encouraging for the sector as it addresses the liquidity issues.

The thrust to create huge employment opportunities can be seen in the budget. Increased focus on MSME sector through favorable policies, allocation of Rs30,757 crore for J&K and Rs5,958 crore for Ladakh will benefit small businesses. The extended tax benefit for affordable housing will benefit the lower and middle income groups in the country thereby providing much needed booster for affordable housing projects.

The industry had high expectations of this budget as it was seen to be an opportunity to announce big, bold reforms given the state of the economy. On that count, there is a degree of disappointment in some quarters as expectations have not been met. However, I am happy to see that healthcare continues to be an integral part of the Government’s key priorities. The announcement on the expansion of the Ayushman Bharat program by setting up additional hospitals in tier 2 and 3 cities is a welcome move. Other measures in improving the healthcare infrastructure and capacity building in the sector are also commendable.

I would however have liked to see a significant financial incentive to boost exports and improve the competitiveness of the Pharma sector. I hope this will take shape with a new export incentive scheme. The overall thrust on ease of doing business, regulatory simplicity and policy stability should help the pharma industry scale new heights.

The budget is good on intent. However, the key is efficient execution in a time-bound manner. There are many positives to simplify things and encourage entrepreneurs but again, key will be execution in a time-bound manner. Intent needs to be converted into implementation.

The Budget finely balances the objective of supporting growth while adhering to fiscal prudence in the medium term. The personal income tax cuts for the middle class would help address the urgency to revive consumer demand. The focus on physical infrastructure along with social sector (health, education, rural, water) would boost the medium-term growth potential. In my view, the Budget rightly attempts to boost spending by enhancing non-tax revenues via higher disinvestments including stake sale in LIC and IDBI Bank. Other announcements like enhancement in deposit insurance coverage, further liberalisation of the foreign investment regime, abolition of Dividend Distribution tax, are steps in the right direction.

The Union Budget 2020 is an attempt to endow India with improved health and better access to education while unleashing a better infrastructure through better connectivity. The announcement of the new income tax scheme without exemptions is to move forward to a regime of a simplified and clutter free direct taxation. The rural sector is the beneficiary of a larger outlay. The new export credit scheme, is aimed at improving the credit flow for exporting units, mainly the MSME ones, as it will substantially reduce the collateral requirement as well as the overall interest burden of the ECGC regime. The increase in deposit insurance limit from existing Rs 1 lakh to Rs 5 lakh was necessary. Introduction of simpler GST filing system from April 2020 is a welcome step and it will add further depth to the current GST regime. Simplified GST return for MSMEs will facilitate ease of compliance. Similarly, relaxation in the SARFAESI norms for NBFCs will lead to better recovery and borrower discipline in this sector. Overall, the budget numbers are realistic and the staggered transition to a lower fiscal deficit is in perfect consonance with the growth objective.

The Budget provides credible numbers in terms of the fiscal math, recognising the revenue shortfall faced this year. It uses up the 50 bps point leeway that the FRBM act provides for both this and the next year which is a welcome step.

Those who are disappointed with the absence of more overtures to the financial sector either in the form of more recapitalization resources for stressed public sector banks or a fiscal commitment to buy out the pile of toxic assets that continue to impede fund flow might draw some comfort from a measure that government will offer support by guaranteeing securities floated. While need to await the fine-print on how this will work and how quickly this will be implemented, this move might be helping in easing the logjam in the financial to some degree. Government guarantees could help cash-strapped NBFC borrow at lower rates. It could also enable the central bank to offer cash in exchange for these securities if it were to plump for some out of the box measures to attenuate risk aversion in the markets.

On a different note, the tax breaks offered to foreign investors and specifically those like sovereign wealth funds who are willing to place a long term bet on the economy acknowledge the fact that there is a fundamental mismatch between the supply of domestic savings and capital needs for accelerated growth. This along with the abolishment of DDT is likely to help attract foreign fund flows. For the bond market, the borrowing numbers seem to be broadly in line with market expectations and are unlikely to put significant pressure on yields in the short-term.