Shankar Raman: Budget is high on intent but implementation holds key

He said real estate sector which saw sluggish environment post demonetisation received needed relief

The finance minister has used the positive macro economic profile of the country to his advantage while striking a balance between expanding the spending on focus areas and garnering the requisite resource base. India is well placed to shift gear towards growth, with low consumer inflation, comfortable current account deficit and a controlled fiscal deficit. 

Infrastructure spending is one of the key elements of India’s investment story, and Budget 17-18 did well to retain the focus on the sector with a host of positive announcements. 

In transportation infrastructure, higher capital expenditure has been proposed in railways, to add new lines, redevelop stations and improve safety. A new Metro Rail policy is expected to harness the potential that metros hold in improving the country’s transport infrastructure. Road project awards and execution could see a pick-up with availability of a higher corpus of about Rs 65,000 crore. Public-private partnership (PPP) in airport operation & maintenance could improve efficiency of the sector, with players not requiring to invest huge sums of capital upfront.  

Going digital continued to be a distinct theme in the Budget. The government has allotted Rs 10,000 crore for the BharatNet project, which aims to create seamless yet affordable broadband connectivity by laying optic fibre cables throughout the country. Last-mile connectivity to citizens is proposed by creating Wi-Fi hot spots. The vision of Digital India could provide the push for new-age areas like Smart Cities.  

The real estate sector, which has seen a sluggish environment in the wake of demonetisation, has received needed relief. Conferring infrastructure status on affordable housing will give the sector access to flexible and low cost funding options, apart from profit linked tax incentives. 

On the energy front, the government has continued the initiative of conserving crude oil by promoting import of liquefied natural gas (LNG) through customs duty reduction. Thrust to solar power with a plan to add 20 Gw and achieving 100 per cent electrification in rural areas augur well for the renewable and power transmission and distribution sectors. The Budget, however, has not emphasised the requirements for promoting competitive manufacturing. Perhaps, it is an opportunity lost for Make in India programmes, especially in areas like defence manufacturing, with static capex outlay.

Budget 17-18 pins its hope on widening the tax base to generate significantly higher revenues for financing its investment plans. Accordingly, finance minister has chosen to reduce reliance on government borrowing, which improves the room for monetary policy easing. Banks, an important source of financing for the infrastructure sector, are not out of the woods on non-performing assets. The government has chosen to allocate a modest Rs 10,000 crore for recapitalising public sector banks, which may prove inadequate. Abolition of the Foreign Investment Promotion Board (FIPB), retaining the tax structure with respect to capital gains, extending the tax provisions relating to rupee-denominated bonds till 2020 are important enablers for flow of funding for the development programme outlined by the Budget.

It is encouraging to note the government has proposed a mechanism for resolution of disputes in infrastructure-related construction contracts, PPP and public utility contracts. Once effective, this will go a long way in inspiring investor confidence.

While the Budget 17-18 is high on intent and focuses on the right areas, efficient follow-through implementation is crucial for achieving the targeted outcomes.

The writer is whole-time director & chief financial officer, L&T