Given the heightened expectations of various market participants, it is a credible achievement by Finance Minister to present a responsible budget. Union Budget 2017 has focused on balancing the need to boost consumption sector (by way of tax cuts to honest tax payer), continue the momentum in infrastructure spending, continued focus on rural areas without pandering to outright populism – all this while maintaining the path of fiscal prudence.
It was heartening to see the continued spending on capital expenditure, especially in sectors like roads, railways, digital infrastructure, which have long-term multiplier benefits. This has been a recurring theme from the first budget presented by Mr. Jaitley. It marks the importance of spending on capital formation rather than pander to demands for increase in revenue expenditure.
In my opinion, the sector that got a significant boost this budget, is affordable housing segment. Housing is one the biggest contributors to economic activity and has a significant ability to create jobs. While housing industry has been going through a rut in the last few years, this was one of most significantly impacted sectors post demonetisation. In this context, infrastructure status to affordable housing, increase in area norms (from built-up to carpet area) can provide a significant demand boost to the industry, especially in non-metros.
In light of upcoming state elections, there was a fear that government may use the budget to provide sops like farm-loan waiver, specific sops to poll bound states etc. Focus on rural areas – again not necessarily though dole-outs, but to enhance farmer productivity (like crop insurance, increase in farm ponds, dairy processing etc.), rural road network – augurs well for the longer-term.
Tax benefits for honest tax payer are long overdue Budget Highlights 2017. This benefit of Rs 15000-20000cr of tax revenue foregone provides a mini-boost to consumption sector. Coupled with fall in interest rates, this sets the stage for consumption theme to maintain its momentum.
From capital markets perspective, the fear of Long-term capital gains tax abated with this budget. Besides, listing of few PSU enterprises (especially in railways, general insurance) can provide attractive investment options for market participants. Besides, clarity to Foreign Portfolio Investors with regard to taxation should come as a relief.
However, recapitalization of PSU banks at Rs 10,000cr to me seems inadequate. Given the quantum of non-performing assets, PSU banks need strong capital position to grow credit. Though the FM said, they may revise the recapitalization quantum; it would have helped to provide a higher quantum right away. Given the burgeoning youth coming into employment every year, one would also have hoped for more schemes or sops focused on job creation.
However, in this balancing act of myriad expectations, the best act was the FM staying on the path of fiscal prudence. Market participants were hoping for a not-so significant deviation from 3% target announced in the earlier policy, and with FM sticking to lower net borrowing from market, they were not disappointed.