By Navneet Munot, MD & CEO at HDFC Asset Management Company
Unlike other countries, the Union Budget in India happens to be one of the most watched out events in the financial calendar as it outlines the Government's near-term priorities and long-term vision. We believe, the Budget for 2025-26 has done a commendable job of striking a delicate balance between growth impetus and desired fiscal consolidation amidst a challenging global environment.
Like the previous two terms, the government seems to have used the Budget as a platform to convey its policy intent for remainder of its term. Set against the backdrop of domestic growth slowdown and weak global cues, this Budget seems to have laid a balanced strategy for fostering economic growth without losing sight of fiscal responsibility.
Government has been doing heavy lifting on public capex. Now, spurring consumption by putting more money in the hands of taxpayers is a step in the right direction. Government’s intention of investing in economy, people and innovation was the need of the hour to harness India’s demographic edge. With a young and growing population, focus on employment generation is a pre-requisite. Set-up of Fund of Fund aimed at start-ups, alongwith a focus on MSMEs fosters entrepreneurship.
Ease of doing business along with initiatives like these are necessary to transform India from a nation of job-seekers to one of job-creators. Unlike growth of other emerging economies like China, India’s noble aspiration of Viksit Bharat encompassing zero poverty, inclusive-quality education and comprehensive healthcare could set India’s growth story apart from the rest. Social security for gig workers could be a noteworthy game-changer in the pursuit of inclusive sustainable growth.
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Over the past few years, public capex push has largely been led by Central Government. Substantial budgetary allocation for Interest-Free loans to States could help catalyse Capex at State level too and strengthen infrastructure across the country. Public-Private Partnership in Infrastructure development through the set-up of Urban Challenge Fund underlines Government’s commitment to ramp-up infrastructure in the country – a critical pre-requisite for Manufacturing and Foreign Investment.
More money in the hands of the Middle-Class not only bolsters consumption but could also spur household savings. Post-pandemic surge in Households savings has waned over the past few years, along with a marked surge in household debt. Reduction of tax burden is a right step to address this challenge and give the middle-class more breathing space to save and invest. In India, in the absence of retirement benefits similar to western countries and with retirement age lower than peers, the most likely avenue for creating retirement corpus happens to be through investments in risk assets like equities, provided the same is done with long-term investment horizon. Increase in disposable income in the hands of the middle-class helps them save and invest more for their post-retirement life.
Simplification of tax structure and ease of compliance could also boost investor confidence and stimulate both, domestic and foreign investments.
While short-term volatility could be par for the course due to the current global economic backdrop, the long-term direction rooted in policy prudence and support for growth could bolster Destination India’s credentials for foreign and domestic investors alike.
It is often said that the magic lies in doing the simple things repeatedly enough. This budget does that by building up on the reforms initiated over the past few years. It focuses on supporting entrepreneurship, manufacturing, inclusive-growth, targeted consumption supporting measures, simplifying taxation without losing sight of socially desirable spending. It rightfully avoids the temptation of extravagant populist measures and presents a credible fiscal maths. Manageable fiscal borrowing should help to crowd in private capex over the medium term. With the event behind us, markets will now focus on global cues, upcoming RBI meeting and earnings outlook.
As the famous quote by Van Gogh goes ‘Great things are not done by impulse but by a series of small things brought together’. Would be fair to say that every incremental policy measure in the right direction sets us closer to the goal of becoming ‘Viksit Bharat’
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