Budget: FM has decided to place her bets on putting up a defendable score

Ever since FM Nirmala Sitharaman took over, there have been a series of measures aimed at kick-starting a sluggish economy that threatened to go into hibernation. The corporate tax rate cut topped the list, while measures like privatisation, export incentives and infrastructure push also gave muscle to the endeavour. The budget takes a few bolder steps forward providing substantial base for the economy to respond with verve.

The most striking aspect of this budget is that it addresses a vast array of subjects. A record-breaking, nearly three hour, speech is testimony to it. A significant part of the budget announcements was devoted to nation building actions in agriculture, water, infrastructure and education. Initiatives on taxation were aimed at simplification rather than making large scale changes of the type we had seen earlier in the year. The removal of Dividend Distribution Tax (DDT) is a welcome move that will leave more funds in the hands of companies, either to distribute, or to invest into growth. The investment into a pipeline network for oil and gas, addition of 100 airports by 2024 and solar capacities in Railways augur well for these segments. The push for electronics manufacturing and smart metering for electricity are welcome moves. It was also encouraging to see that the FM has ventured to set right several anomalies in the system, including contract law enforcement, liquidity constraints for NBFC and Housing Finance companies and rationalizing the deductions under income tax.

The Economic Survey has projected a GDP growth of 6-6.5% for the next year. However, it has also cautioned on the overdependence on non-tax revenues. It is essential that we see an economic revival by the first half of next fiscal in order to get tax revenues up and steady the fiscal deficit. Stake sales in LIC and IDBI are the solutions for the time being. A normal monsoon and good agricultural production are also factors which we will have to bank on. A bit of luck is always needed when you have to compete not only against other economies, but also against a global slowdown in consumption and other geo-political events.

Global events are affecting the situation as well. China has been rocked by trade negotiations and just when things appeared to be getting resolved, the coronavirus has struck. In a connected world, these are risks for all economies. The new decade is going to be one of the most radical in terms of social impact of business, technological advancements like EVs and artificial intelligence. It was therefore reassuring to hear the FM speak about emerging technologies several times in her speech.

A critical trigger at this juncture is growth in consumption. A significant uptick in demand is necessary to boost private investment and job creation, two aspects that have been severely affected in past few quarters. We have faced a slowdown that has impacted several key sectors like banking, housing, energy, capital goods and auto. Recovery from such widespread slump is usually slow and painful. We have spent enough time trying to analyse the causes of this and now we must move forward to find solutions. This budget makes an honest attempt at doing so.

The external and internal environment has severely constrained the FM’s bandwidth for further stimulus packages with privatisation getting pushed into the next fiscal. Yet, the FM has decided to blend caution with optimism and decided to place her bets on batting first and putting up a defendable target.