The bets are on 'Bharat': Shankar Raman

Budget has laid emphasis on enhancing expenditure in farm & rural, and social sector including healthcare, education, skill development, job creation and infrastructure

Budget 2016-17 was billed as a “make-up opportunity” for the government. The current Budget, much like the Indian economy, has exploited its potential only in parts. Despite lower oil prices and soft commodity prices, the government has been hampered by a weak global environment, low performing legislature and stretched corporate and bank balance sheets. Against this backdrop, while fiscal expansion would not have been looked down upon, the finance minister has chosen fiscal consolidation over push to the economy and is betting on Bharat over India. The Budget has laid special emphasis on enhancing expenditure in the farm, rural and social sectors, including health care, education, skill development, job creation and infrastructure.

Expectations are that private capital expenditure will remain weak for the next two-three years. However, unlike last year, where the government’s capital expenditure expanded to fill in the void created by lower private investment, planned capital expenditure is estimated to increase only by three per cent in 2016-17. This could fall short of the requirement. It is, therefore, crucial that the government prepare a five-year road map of its capital expenditure vision and its financing plan. It will give the much-needed clarity on the government’s agenda on capex spending. Taking note of the positives, higher allocation to transportation infrastructure, steps to incentivise gas production and a comprehensive plan for nuclear power generation are progressive steps. The postponement of place of effective management and removal of tax on dividends to real estate investment trusts (Reits) are also appropriate measures. Over the past few years, enthused by favourable macroeconomics and the prospects of stable long-term demand in India and revival overseas, Indian companies have invested heavily in capacity expansions across industries. Unfortunately, companies are struggling now to service their debts in a weak demand environment, which has been exacerbated by excess capacities and low utilisation. Lowering corporate tax rates would have definitely helped companies generate the much-needed liquidity at this juncture.

 
The government has continued its focus on infrastructure by raising the allocation 22 per cent to Rs 2.2 lakh crore. Through the year, a significant number of projects languishing due to various factors were also taken up for being put on track. To avoid capital being held up in stalled projects in future, the government has proposed a dispute resolution Bill for resolution of construction, public-private partnership and public utility contracts, guidelines for transparent renegotiation of contracts and a separate credit rating system for infrastructure projects. These augur well for the sector. The thrust for infrastructure investment could, however, have been more broad-based. Sectors such as power, renewable energy, water and effluent treatment did not receive the much-needed attention. The allocation for port development, at Rs 800 crore, was surprisingly modest, considering the vision of the Bharat Mala programme.

While the government has provided only Rs 25,000 crore towards bank recapitalisation, it is heartening to note the finance minister has indicated determination to infuse more funds if required. Marquee schemes such as Make In India and Startup India found support through announcements like amendments to duties on inputs, tax breaks and quick registration for start-ups. Private consumption expenditure is the mainstay and largest contributor to India’s GDP. For a long period after the 2008-09 crisis, Indian households have faced the double whammy of subdued wage growth and elevated inflation levels. The tax measures around relief to small taxpayers and promotion of affordable housing announced in the current Budget will incentivise them to spend more, giving a push to private consumption. The Budget is a balancing act, given that there are a lot of competing factors that the finance minister has to deal with. In a volatile environment, the Budget is limited in its form and function for addressing the challenges the country faces from time to time. The government should follow the Budget with a battery of decisive policy actions round the year if real fruits of economic expansion are to be realised. Besides, without losing focus on the inflation target, the monetary policies should also support the government’s growth agenda in these challenging times. Lastly, a properly functioning legislature will be the perfect tailwind to re-energising India’s growth story.

The writer is CFO and member of the Board, L&T