I don’t think the Budget proposals have an element of a big-bang surprise. That said, there is a bit of positive news for the non-bank finance companies (NBFCs), but nothing that is making me too excited. The divestment figure of Rs 1.05 trillion is quite huge and is a lot of stock to be sold via this route in financial year 2019 – 20 (FY20).
There are some proposals for the rural markets and thrust on the infrastructure sectors, besides rejig in the public shareholder norms. This will see a lot of stock come into the market over time, but there are benefits of foreign direct investment (FDI) and foreign portfolio investment (FPI). But overall, there is nothing in the proposals that excites me too much.
The budget proposes a recapitalisation of public sector banks to the tune of Rs 70,000 crore. I was hoping that the government privatises some banks ahead of such a move. I am a bit disappointed that this is small money and whether it will solve the problems that most of these PSU banks are facing. The best way to resolve the problems with PSU banks is to privatise them and then recapitalise the remaining, if required. PSU bank measures are a missed opportunity. There have to be more drastic measures to solve PSU bank issues rather than just recapitalise them. Even with their balance-sheets repaired, PSU banks are way behind their private counterparts. On the other hand, the NBFC sector has been given a leg up.
On the taxation front, the top-heavy will get taxed more (increase in surcharge for those earning above Rs 2 crore annually). However, rationalisation of tax rates for corporates is a good move. As per the proposals, government intends to further encourage retail participation in central public sector enterprises (CPSEs). In order to provide additional investment space, the Government would realign its holding in CPSEs, including Banks to permit greater availability of its shares and to improve depth of its market. It has also been decided to modify present policy of retaining 51 per cent Government stake to retaining 51% stake inclusive of the stake of Government controlled institutions.
But, will these units / CPSEs find takers? That depends on what CPSEs are being offered. Air India has not been a great success story for the government when it comes to PSU divestment. I am unsure about the companies on the divestment list as of now.
The budget will not drastically change the weightages of foreign investors as regards to India. They will continue on the same path set earlier. There is nothing in the Budget that will kick-start the economy straight away. That said, there have been some incentives for electric cars / electric vehicles (EVs); but that’s a longer term view. There is nothing in the budget that will get people to spend.
The markets will be eyeing developments on the trade deal. I feel the United States (US) will go into recession and hence, you will see much lower interest rates globally than what they are now. This also means lower commodity prices. All this will benefit India, as it will be seen more as a safe haven and growth-oriented economy, which is growing at around 6 – 7 per cent.
Andrew Holland is CEO, Avendus Capital Alternate Strategies. Views expressed are his own