The first budget of the new decade is pure, prudent economics. Read along with policy action, will boost investors confidence

In 2019, people voted unequivocally for a prosperous new India.  as they did 2014 too. They voted to change the way Government, Economics, Security, Prosperity and development were being monopolised by a few linked to those in power. This was the Narendra Modi governments mandate and it has tirelessly worked to ensure that every Indian has a legitimate opportunity to improve their lives.

Budget2020 is the first one of this new decades but also is the first one to take on the PM’s next objective of expanding the economy after focusing the last 5 years of cleaning and rebuilding the Economy.

Therefore, the discussion on this budget must start with dark days of 2014 and long-distance travelled in last 6 years under careful, unwavering rebuilding of Economy by Narendra Modi govt.

The economic management by the UPA left an economy on the brink of collapse, with an average inflation of 10%, shattered Government finances- Average Fiscal deficit of 5.3%  and full-blown Current account crisis with CAD at 4.7% of GDP, a deadly combination of Low growth and high inflation, shattered investor confidence and capital flight.

The financial sector was particularly devastated whose scams keep exploding even 5 years on. The damage to financial sector and the PSUs like the big Oil marketing companies was deep – has taken determined hard work, time and lacs of crores to rebuild over multiple years at the same time ensuring fiscal stability. The OMCs had a debt of 1.76 lac crores and the Banks needed recapitalization of Rs 3.8 lac crores.

Dismantling this architecture of crony business and concentration of opportunity and capital to only a few – and transforming into one that provides access to capital and opportunity to all – has taken hard work and time.

So, the economic management under the UPA Government had converted a growing and prosperous economy that was a legacy of the Atal Bihari Vajpayee into an economy in crisis. It is this that our government has worked tirelessly in the past 6 years to turn around. We converted a failing economy into the fifth largest economy of the World.

PM Modi set out to rearchitect and rebuild the economy

In the last 6 years, the government had to deal with what UPA left and deliver on growth and expansion. In addition to the detoxification of Economy, PM Modi delivered on Growth and Structural Reforms like Goods and Services Tax, Insolvency and Bankruptcy Code, Real Estate Regulation Act, Demonetisation, setting of Monetary Policy Committee, Recapitalisation, Consolidation and Governance reforms of public sector banks., Fiscal consolidation and reducing Government Debt to GDP, Modernisation of Armed forces etc.

NPAs – the Modi Government through its policies of Recognition, Resolution, Recapitalization and Reforms has first made the banking sector recognise concealed NPAs and latter through recapitalisation and IBC resolved them. The NPAs peaked in the years 2018 reaching11.5 and since then declined to 9% in 2019.

Growth that started at US$1.9Trillion in 2014 expanded to an average growth of 7.5 per cent in the last 5 years and is now almost US$3Trillion. Average GDP Growth during UPA 2 was 6.7%, whereas during MODI government it was 7.4%.

Average Per capita Income during UPA was $ 1449 with growth rate of 4.9%, whereas during Modi government it was $ 2041 with growth rate of 6.1%.

Consumer price inflation declined from peak of 9.3 per cent in 2013-14 to 3.3 per cent in H1 2019-20. The twin deficits- Current Account and Fiscal Deficit have significantly declined from their peak of 4.7 per cent and 5.7 per cent respectively in 2012. Current Account Deficit (CAD) is at historic low of 1.5 per cent in H1 2019-20. Average Foreign Direct Investment during UPA 2 was $25 Bn, whereas during Modi Government it was $40 Bn.

So, here is what Budget 2020 delivers

Careful, Prudent economics and medium-term Fiscal consolidation

Budget2020 first of the new decade  â€“  first of Modinomics2.0 with its goal of a 5Trillion Economy – must be seen as the first of a series that will move us to that goal – by addressing the issues of moderation of growth and balance growth and prudence in light of dark clouds and uncertainties in the global economy.

This budget read along with Governments policy actions leading up to it signals that it is an investment budget. It Maximize Public Capex spend and ensure strong sustainable revival of Private investment.

National Infra Pipeline worth Rs.100 lakh crore over the next 5 years, 9,000 km of economic corridor and Capital expenditure of INR 4.12 Lakh crore in BE 2020-21. A National Textile Mission and reforms on customs duty that allow Textile Industry new opportunities

Expansion of Financial Sector

  • PSBs approaching the capital market to raise additional capital and expansion.
  • Government listing LIC by way of Initial Public Offer (IPO). – listing is critical to transforming LIC into global std financial company.
  • A new financing window for the NBFCs to address their liquidity. In addition to the credit guarantee scheme.
  • Incentives for Sovereign Funds investing in Infrastructure.
  • Deposit Insurance and Credit Guarantee Corporation (DICGC) permitted to increase Deposit Insurance Coverage to Rs. 5 lakhs from Rs.1 lakh per depositor.

It has built for the first time since Bank nationalization, a credit culture in Public sector Banks

Tax Cuts

Personal Income Tax cuts is a significant relief to middle-class taxpayers. It will help stimulate growth and a simplified tax structure will bring ease of compliance and reduce litigations. It will boost disposable incomes and in turn augment individual spending, positively impacting the consumption spending.

These are challenging times no doubt. The challenges are both global and some domestic structural. The Indian economy is by and large heavily credit driven. Throughout the period of 2015-2018, the public sector that controlled 60 per cent of all credit started retreating – This hole in the credit markets were filled by NBFCs – which accounted for almost 40%+ of all incremental credit in that period.

However, the collapse of IL&FS and DHFL have created expected risk aversion and a consequent hole in credit markets – It is this to a large part that has cut credit supply to Corporate and Consumer segments with impact on both investment and consumption parts of the credit.

But I have no doubt that as we go down in time, the real Growth should get back into the positive territory in coming quarters and touch 5.5% to 6%. The budget read along with the policy action of the Government in recent months on corporate taxation, Manufacturing Sector incentives, Public Sector Bank Credit, FDI, Disinvestment should boost the confidence of investors.

DISCLAIMER : Views expressed above are the author’s own.

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