This budget will make a substantive difference to macros

Probably, this budget had a lot more for India’s macros than she could have bargained for. Above all, this budget has tried out the fine balancing act of trying to push growth without going too lax on the fiscal deficit…

No to pump priming… 

The big story of the budget was that the government has resisted the temptation of pump priming the economy. It was, perhaps, easy to go lax as they had a 50 bps leeway. The fact that the government chose to restrict fiscal deficit to 3.2% in 2017-18 and at 3% after that is a sign of tremendous fiscal discipline. In addition, the revenue deficit has been pegged for the year at 1.9%, even below the level stipulated by the FRBM. Fiscal discipline will be a great boost for India’s external rating as well as for the value of the INR.

Big push to infrastructure… 

This is the one sector with strong externalities. An investment of Rs.131,000 crore in Railways and an impressive Rs.70,000 crore for roads is big news. The budget has also given a major thrust to solar power as well as to the spread of broadband connectivity in rural areas. More importantly, the focus is on rural and post-harvest infrastructure which can have far-reaching implications for food inflation and as also for reducing the enormous $12 billion wastage each year.

Bottom of the pyramid…

One of the big themes of this budget has been the focus on the bottom of the pyramid as a distinct constituency. Specific measures include a big focus on affordable housing, empowering women through SHGs and better employment opportunities, record allocation to the MNREGA for guaranteed employment in rural areas etc. The Budget has also recognized that poor health and sanitation are key factors in people at the bottom of the pyramid being unable to extricate themselves out of poverty. The Budget also focuses on the inputs and the delivery of quality healthcare and sanitation services to the underprivileged sections.

Big push for banking…

The Union Budget has also given a subtle push for banks from a futuristic perspective. Now, NPA provisioning will be more tax effective. The capital enhancement for banks has been assured on a case-by-case basis. Additionally, the budget has also indirectly benefited the banks by ensuring record allocations under the MUDRA scheme. The fiscal discipline and control on borrowing program will keep rates dovish which will result in appreciation of the bond portfolios of banks. And the infrastructure and agriculture thrust will ensure more quality lending portfolios for banks. The best may be yet to come! ©

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