The Budget has taken a bold step by increasing the fiscal deficit target to 3.9 per cent (which I believe is more realistic) for FY 2016. While private investment is vital, public investment is necessary in the interim to revive growth.
Presently, several private sector companies with strong balance sheets have excess capacity and have not been looking to invest. By government investing in infra projects (with a short capex cycle) the multiplier effect on the economy will be realised quickly. Private investments will follow to back the government investment and a combination of the two will create more jobs and consequently generate more income.
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Public investment in infrastructure will not have any spillover effects on inflation. Hence, I continue to believe that interest rates will reduce by another 50 to 75 basis points this year. The goal of building 60 million housing units by 2022 will help the economy as housing has a multiplier effect and forms 6.7 per cent of GDP.
The housing and real estate sector also has strong linkages to nearly 300 industries. Improved sentiments caused by larger investment by government together with lower interest rates will make housing more affordable. In conclusion, it is a very balanced and growth-oriented Budget without creating inflationary pressures.
Vice-chairman & CEO, HDFC