The Union Budget has signalled a new era of a stability with a plan to deliver a $ 5 trillion economy in the next few years! The elections have already demonstrated that this regime has been selected for performance.
The Government has taken action in provision of electricity, LPG cylinders, toilets, housing access, direct benefit transfers and insurance to households in urban and rural India. With the JAM combination, existing policies have become more effective by lowering costs and reducing leakages. Now, this Budget has affirmed Swachh Bharat's solid waste management extension, piped water to all rural households by 2024, affordable housing for 19.5 million eligible beneficiaries, new metro projects for 300 km, rural roads for 1,25,000 km for Rs 800 billion, railway station redevelopment, gas and water grids, i-ways and regional airports. The Government has also trained its eyes on FDI, overseas bonds, divestment, public partnership in railway projects, cess on petrol and taxing the rich to raise funds. Further, the maiden plan to issue sovereign bonds to the world to raise funds for a part of its overseas debt could be initiated in the second half of the borrowing calendar year.
The macroeconomic situation has been given attention by capitalising banks by Rs 700 billion. By divesting its stake in PSUs, the Government can attain a triple objective: holding them more accountable, making them more efficient and raising funds. A divestment target of over Rs 100 billion has been set during the year. The Government has been the main driver of capex in the past couple of years and the steady pace of investment should continue-the intention is to spend Rs 100 trillion on infrastructure in the next five years. Of this, the railways has been given a huge boost. The focus must now be to reinvigorate private investment. Here, the roadblocks should be reviewed. Besides further improving ease of doing business, other ends such as taxation, credit, regulation, etc, need to be tied up to ensure pickup in investment. A relook at land acquisition policies will speed up project implementation and bring in funds from private and foreign investors.
The banking sector is undergoing challenges of capital and asset quality. While the worst may be over, the Government must address the challenges of removal of banks from the PCA framework and asset quality recognition after capital infusion. The banks continue to be affected by delays in the NCLT resolution process; speeding it up appears necessary. Here, the IBC may need some amendments to improve the rate of resolution of bankrupt companies. While it is a positive reform, resolving pending issues can free capital for further investment.
While the Centre's finances have been under control, some states have been having issues with meeting FRBM norms. The Government will have to address issues specific to some states to ensure they can meet fiscal targets and contribute to the investment process. Considering the performance of the UDAY scheme, it may be necessary to kickstart power reforms as the inability of state discoms to pay on time to generators will affect power producers and consumers.
The Budget has been long on promises but short on providing a mechanism to kickstart demand. Tax rates of 25 per cent now available up to a Rs 4 billion turnover limit is a significant move in leaving money on the table of over 99 per cent of the corporate world.
Improvement in norms and acceleration in divestment, FDI, NCLT, bond market development and taxes will help. But the gamechanger could come from the FM's statement: "More than Rs 75 lakh crore is blocked in litigations in service tax and excise. There is a need to unload this baggage and allow business to move on. I, therefore, propose, a Legacy Dispute Resolution Scheme that will allow quick closure of these litigations." If implemented expeditiously, this could prove a winner.