The Union Budget 2019-20 is an “investment friendly budget” wherein long-term plan for attaining $5 trillion GDP by 2025 has been laid out to create a conducive ecosystem with focus on overall demand creation, raising intellectual and financial capital and labour. The shift from traditional template of focussing more on headline revenue and expenditure segment to a segmental detailed plan of action is a welcome change. Few of the key positives were containing fiscal deficit target to 3.3 per cent of GDP (vs. 3.4 per cent built in the interim budget) and the much-needed higher recapitalisation allocation of Rs 70,000 crore for PSU banks.
On the infrastructure front, the government has set an ambitious plan of annual infra spend of Rs 20 trillion per annum versus the present run rate of Rs 7-8 trillion per annum. The government is looking to push the investment on three broad themes: sustainability living – Promotion of Electric Vehicles and Renewable Energy, rationalising duty structure to promote Make in India and ease of living through higher infrastructure spending. On the Make in India front, the focus is on rationalisation of duty structure through increased custom duty on finished goods and lowering custom duty on key raw material which are in short supply domestically.
Among the key move, the government has decided to start raising a part of its gross borrowing programme in external markets in external currencies which is likely to improve the demand-supply dynamics in the Government securities market. Government borrowing for FY2019-20 is pegged at Rs 7.1 trillion. At 10-15 per cent, as indicated by the finance secretary, inflows through foreign bonds may be at Rs 70,000 crore to Rs 1 trillion. With lower cost of funds, interest cost saving of nearly Rs 4,000 crore can be seen.
With government proposal to raise public shareholding threshold from 25 per cent to 35 per cent in the listed companies, the potential amount that can be raised from private companies could be as high as Rs 2 lakh crore. While the move is aimed at wider public participation in equities, the overall supply may have a near-term overhang. We expect SEBI to implement it in a phased manner.
The government has also proposed to include shareholding of government-controlled companies like LIC in calculation of 51 per cent government stake. This move has the potential to raise money to the extent of nearly Rs 2,89,000 crore in the listed PSU companies, which can be utilised for financing of the massive infrastructure investment outlays.
Some of the long-term sustainable effort, especially in terms of focus on EV manufacturing and providing tax relief for the same could go a long way in containing oil and oil product import bill which is currently at $141 billion. Furthermore, on the environment front, proposal has been made to use the approach of mission LED bulb method to promote the use of solar stoves and battery chargers.
In the last two budgets, the government focus has been increasingly towards creating the intellectual capital by increasing the spends towards the higher education and skill development. With these measures, the government is preparing youth to enhance their skills in language training, artificial intelligence (AI), Internet of Things, Big Data, 3D Printing, Virtual Reality and Robotics which are highly in demand globally and consequently are more remunerative.
To encapsulate, Union Budget 2019-20 is an apt mix of reform focus, pragmatic and inclusive strategic intent.
Pankaj Pandey is the head of research at ICICIdirect
(As told to Swati Verma)