The budget also comes at a time when there are strong signs that the economy is ready for a V-shaped recovery. GST collections, freight movement, quarterly corporate results, indicators such as the Purchasing Managers’ Index (PMI) — and the exuberant stock market — were all chalking record highs. The finance minister’s proposals provide a strong growth stimulus led by substantially higher allocation for spending on infrastructure.
The benefits of infrastructure assets that are thus created — roads, highways, ports or airports — are for the benefit of several generations. Hence, it makes sense to finance them with resources raised from both current and future taxpayers, that is, current taxes and future borrowing. The enhanced spending relies on a higher fiscal deficit of about 6.8% of GDP, to be brought down to 4.5% in the next four years. This is a credible, honest and realistic glide path of debt financing.
It is also sustainable. India’s debt-to-GDP ratio is on the lower side compared to its G20 peers. The world is currently awash with plenty of liquidity, and the extremely low interest rate regime will continue in the foreseeable future. India’s high growth potential is attractive to global funds seeking a higher return. By making it easier for foreign sovereign wealth and pension funds to invest in India’s infrastructure, the budget has greatly improved the outlook for infrastructure development in the next few years.
It will lead to massive construction activity, and create significant employment. And such public investment will crowd in more private investment, and will reduce logistics and transportation costs, and increase industrial productivity. There is a considerable push given to creation of large-scale affordable housing. Infrastructure financing also gets a much-needed institution to intermediate long-term funds — a development finance institution seeded with a sizeable initial equity.
Then there is India’s soft infrastructure — health and education sectors. The budget has correctly given extra emphasis on these two social sectors. In the post-Covid period, the outlay on health and nutrition has more than doubled. This pace must be maintained.
The other notable feature is the role of the private sector. The FM called it the asset monetisation programme that has been ongoing, and will now be accelerated. That means that several PSUs will be opened up for this investment or privatisation, including two prominent PSBs, and a GoI-owned general insurance company. This, along with the public offering of LIC, will also raise substantial funds that can go toward meeting the extra expenditure on infrastructure. The creation of an asset reconstruction company to deal with stressed assets is timely. These initiatives can unleash ‘animal spirits’ and entrepreneurial energy needed to sustain high growth.
Just as in Australia, where India was able to draw upon its bench strength, the Indian economy, too, is ready to draw upon its deep reserves of strengths arising from structural features like its young demography and entrepreneurial talent. The budget is just the right booster dose to get into that triumphal high-growth orbit.
Kumar M Birla is Chairman of Aditya Birla Group.