It is unfortunate that it took a pandemic to finally set our priorities right. An outlay of Rs 2,24,000 crore is 224% higher than the Rs 93,000 crore in FY2021. This will lay the building block to the PM Aatmanirbhar Swasth Bharat Yojana announced by Nirmala Sitharaman in her budget earlier this week.
The intent of the Narendra Modi government is loud and clear. It has not shied away from spending in the Covid-wracked period when it has been most essential, and the 9.5% fiscal deficit bears testament to that. GoI has signalled that it will put its money where its mouth is in FY2022 to end with 6.2% fiscal deficit. The billion-rupee question is: can India deliver to plan?
Health infrastructure has always been India’s Achilles heel, adversely impacting its human development index (HDI). It is unfortunate that it took a pandemic to finally set our priorities right. An outlay of Rs 2,24,000 crore is 224% higher than the Rs 93,000 crore in FY2021. This will lay the building block to the PM Aatmanirbhar Swasth Bharat Yojana announced by Nirmala Sitharaman in her budget earlier this week.
There are a host of much-needed health infrastructural elements that were detailed in the FM’s speech. The challenge will be to ensure that this enormous corpus is channelled with right governance to create the value for which it is sanctioned. There are steps regarding pollution, waste management and clean air that have also been budgeted.
Apart from the vehicle-scrapping policy helping India to tackle its pollution problems, it provides much impetus to the deeply impacted automotive industry by spurring demand. Infrastructure spend had been the biggest casualty in Covid-affected FY2021.
This budget seems to remedy that situation. The creation of a development finance institution (DFI) is welcome. India needs long-term funding for infrastructural finance. Suitable legislation to facilitate real estate investment trusts (REIT) and infrastructure investment trusts (InvIT) are also much-needed steps. Further, this deepens the shallow debt market and creates a new asset class for debt raising.
Initiative on asset monetisation of GoI-owned operating assets such as highways, power transmission, railways, oil pipelines, airports in Tier 1and 2 cities, warehouses and even sports stadia can quickly raise capital and open up a completely new debt market for resource raising. Asset monetisation, asset reconstruction, REIT and InvIT regulation are key reforms not just for industry at large but also for the banking, financial services and insurance (BFSI) sector.
Roads, railways, urban infrastructure and ports are getting deserved focus. But what is missing is agriculture infrastructure. India is lagging the world in defining a hydrogen policy. The creation of a national policy in FY2022 is welcome.
On the resource-raising side, the FM needs to be complimented for resisting the urge to raise taxes. By focusing on growth and, thus, expanding the revenue base — and signalling to the market the willingness to continue borrowing, although at previous years’ levels — sends strong signals to the investor community.
Stressed assets in public sector banks (PSBs) may have been underestimated by this budget. Recapitalisation of PSBs to tune of Rs 20,000 crore may fall short of returning them to financial health and instilling in them confidence for onward lending.
Creating an asset reconstruction company (ARC) for bad assets of PSBs is welcome. But it boils down to execution and how quickly this ARC will be able to relieve PSBs of Covid-era bad assets and encourage them to move on to risk-taking, post-Covid.
India continues to treat the nonresident Indian (NRI) as proverbial 12th man. It misses the enormous intellectual and financial capital that this group brings to the table. While there are reforms on taxes for returning NRIs, the long-standing opportunity to treat them at par with resident Indians on matters like investments in strategic sectors including defence remains unfulfilled.
Divestment is the missed opportunity of FY2021, and for right reasons. GoI now has a strong batting line-up of candidates: the financial markets are flush with liquidity, valuations are high, and risktaking for emerging market assets is in place, while the rupee is stable.
Insurance FDI rules have been further liberalised to 74% foreign holding, with caveats. In this environment, Rs 1.75 lakh crore looks doable. But will it happen?
The writer is co-chairman, Hinduja Group