The first steps to India being a $5trillion economy by FY25 were taken by the finance minister through Budget 2019. The government through its various measures is aiming to reduce the cost of capital to boost the economy at large. Given that India’s external debt is currently low, the proposal of raising sovereign debt externally is a positive initiative. However, at a time when the Japanese 10-year bond yield (-0.16 per cent) and German 10-year bond yield (-0.38 per cent) is in the negative territory, there could be a possibility of huge inflows into a good sovereign nation like India.
Nimesh Shah, MD & CEO, ICICI Prudential Mutual Fund
One should be mindful that this gush of debt capital in the short term is likely to support rupee appreciation in the near term. However, rupee appreciating significantly due to debt inflow and not trade surplus is a negative in the long term. This is largely because when the rupee strengthens, domestic demand (which is already weak) tends to shift towards imports. Given the increase in tax burden on higher income segment of consumers, the slowdown in luxury car market, high-end real estate and consumer discretionary space is likely. The government through this Budget has clearly signalled that it intends to revive growth through investments rather than consumption.