OPINION A budget with a long-term focus

Amitabh Chaudhry is MD & CEO of Axis Bank.

The budget announced today ticks all the right boxes - supporting near-term growth while maintaining fiscal prudence, building up long-term capital, improving incentives in key long-term areas, and addressing geo-strategic developments.

Conservative projection of fiscal consolidation

First, the numbers. The targeted deficit is at 4.3% of GDP - as opposed to the 4.2% that would be required for a uniform reduction in debt by FY31, but this uses available capacity to absorb current slack. Consolidation of just 0.05% of GDP in FY27 is a large positive impulse compared with rapid reductions so far.

The numbers in themselves are imbued with conservatism - nominal growth at 10% is on the lower side, as are the estimated income from dividends and the compliance bonus in tax collections to lower GST rates. With financing assumptions also similarly conservative, the numbers have the potential to adjust to 4.2% and lead to considerably lower borrowing in the year, if required.

Second, thrusts on increasing investment and connectivity in resource rich locations, greater focus on the semiconductor and electronics ecosystems, seeking to bolster competencies in biopharma, and fostering greater domestic chemicals and fertiliser manufacturing seek to address recent geo-strategic opportunities/threats. At the same time, rejuvenation of legacy industries, including textiles, might help better reap benefits of the EU FTA among others.

India can’t afford to turn its back on global integration

Third, the long-term focus was best summed up in keeping Atmanirbharta as the lodestar, but also that India must remain deeply integrated in the global economy. The latter goal rightly saw further improvements around inverted duty structures as well as rationalisation of tax issues around remittances and rules around investments, while the former goal saw domestic emphases redoubled: Spending has been increased in urban infrastructure, public health and drinking water – but also around the MSME ecosystem, including credit guarantees and employment/skilling incentives.

Apart from this, other long-term investments around inland waterways, coastal shipping, high-speed rail will likely increase operational productivity, while ideas around corporate and municipal bond liberalisation can help reduce costs of capital. The mandate for all MSMEs to use TREDs as a default in transactions with CPSEs is personally close, with A-TREDS being the pioneer in this space.

Combining all three is the focus on the services sector in terms of skilling, employment, exports and a way to build upward social mobility and improve living standards over time – seen as one of the ‘kartavyas’ of the government.

Budget with a long-term focus

The budget might not have met any of the market’s short-term objectives – with headline G-sec issuance well-above expectations, and no shifts in effective capital gains rules for foreign investors or domestic depositors. However, the focus on long-term productivity and capital is far more important and will likely emerge as a key driver of future growth, far outweighing the benefits short-term objectives would have met. Increased potential growth, lower costs of capital and domestic slack, increased competitiveness and global links, and improved fiscal buffers are all likely long-term effects of strategic thinking imbued in today’s developments.

(Amitabh Chaudhry is MD & CEO of Axis Bank.)

Views are personal and do not represent the stand of this publication.