In the past two years, while dealing with the pandemic, the government has largely focused on the health angle and yet again and again provided stimulus to the economy at the right time. This seemed logical for a country like India, which needs to use its scarce financial resources judiciously.
Now that the world wants to turn the page on the pandemic, it was appropriate for the government to finally target the development agenda altogether and the recently concluded Union Budget speech by the Finance Minister underscored the government’s intention to do so. does. Due to ample fiscal space, strong tax collection and adequate foreign exchange balance, the government wants to go for the juggernaut. The Finance Minister has announced capital expenditure keeping the fiscal deficit target at 6.4 percent. This may inconvenience the conservatives, but with GDP growth expected to remain strong, the FM has chosen the right to start a good cycle of wealth creation that will also enable job creation.
This budget could be a gear changer for the Indian economy. FM promises to maximize FY23 capex 7.5 lakh crore, more than double the investment in FY20. Under the flagship project Gatishakti, the government intends to boost investment in infrastructure and will focus on critical sectors such as roads, railways, ports, airports, waterways, mass transport and logistics. Apart from physical infrastructure, digital infrastructure has been emphasized by the government for auctioning 5G spectrum in FY 2013 and plans to expand optic fiber to even remote villages by 2025.
FM has endeavored to complement macro growth with micro all inclusive wellness. The PLIs announced so far, in over 14 sectors, broadly cover the main spectrum of job creation. The key themes are inclusive growth, productivity growth, sunrise opportunities, energy transition, climate action and funding of investment.
After seeing the vast potential in the Indian start-up ecosystem, the government has focused on sunrise sectors. Also, the provisions made towards interoperability will facilitate the energy transition.
Linking economic growth with sustainability, the FM has made it clear that we are equally committed to our sustainability agenda and that sovereign green bonds are expected to rapidly reduce the carbon intensity of GDP in the near term and leapfrog in the long term. will be an important tool for Our net zero target. The massive increase in allocation for renewable energy – from INR 15,000 crore to INR 1 lakh crore – will give a significant boost to the fiscal capacity of the states, and help them catalyze capital expenditure.
Another aspect of the growth spurt and larger lending program would be the hardening of the government’s borrowing cost, but this can be balanced in the near future, if we can take adequate steps to index inclusion of Indian government bonds.
Overall, we applaud the Finance Minister for not succumbing to populism ahead of the state elections and for staying focused on the long-term trajectory of the country to become the third largest economy in this decade and remain a beacon of global growth. by 2030.
Sanjay Singh, CEO, BNP Paribas India. Thoughts are personal.
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