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Three Budget announcements indicate the government’s determination to deepen India’s corporate bond market: One, asking large corporations to meet 25 per cent of funding needs through this market; two, persuading regulatory recognition for ‘A’ rating category bond investments; and three, pushing for uniform stamp duty on bond issuances across the country.
These initiatives will significantly expand the role played by the corporate bond markets in financing India’s growth.
This step has been long due. However, in the short term, a slower path towards fiscal consolidation could lead to higher interest rates, thus reducing the relative competitiveness of bonds versus bank loans.
The Budget also has a large social footprint — it does something for rural India, farmers, and micro, small and medium enterprises, and it facilitates financing beyond banks and engenders greater market efficiencies. The infrastructure thrust, especially roads, will have good multipliers.
But there are worry beads gathering on the fiscal deficit front, given the 30 basis point slippage estimated for this fiscal, and 20 basis points for the next. This will mean keeping a hawk’s eye on divestments and expenditure.
The new National Health Protection Scheme is a very significant positive development. Providing health cover of up to Rs 500,000 to 100 million poor and vulnerable families is a staggering ambition, but could pose questions on institutional capacity.