One of the reasons why India receives a lot of attention from the world at large is on account of the size of its markets, underpinned by a population of 1.3 billion. However, the disappointment in the market has also been expressed frequently because of the low consumption power of almost half its citizens. These are the people who live in rural areas, and if sufficient steps are not taken to empower and enable this part of the population, then the promise of India will remain unfulfilled.
This was probably one of the considerations that drove a number of the budget proposals—whether it be the unprecedented scale of the health cover that was promised (a leading factor of rural poverty is the inability to overcome health issues without bringing on financial ruin) to ensuring minimum returns of 150% of cost of production of crops, emphasis on food processing and the promise of easier loans for allied activities such as dairy, poultry and fisheries through the Kisan Credit cards programme. The steps outlined, if implemented well, could indeed lead to substantial improvement in farmers’ incomes though doubling of incomes still may remain a challenge.
What disappointed in this area—failure to address the status of tenant farmers’ plight, as most of them are not able to access the formal financial system in the absence of registration of tenancy rights. This is a vexed issue with landholders resistant to any formal recognition of tenancy rights, which may weaken their own ownership rights. The matter has been left to the Niti Aayog and we trust they will come up with an implementable solution at the earliest.
The other area is that subsidy allocation on mainstay schemes such as Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) and Rural Drinking Water Mission has not increased, though we may hope that better implementation may make up for the lack of increase. On the SME/MSME front, the cut in corporate tax rates is a welcome step. Hopefully it will help the smaller corporates by releasing resources for further expansion and the much needed R&D, for them to scale. Also the registration of SMEs, as well as all PSUs on the TReDS platform, needs to be pursued with all earnestness. This is one way of sharply reducing the working capital cycle for small units, reducing costs (as accepted bills are auctioned and the rates charged would be closer to that of the industry major), and promoting transparency as well. As for the financial sector, the insurance industry has received a huge boost (so has healthcare).
It is to be seen how effectively they utilise the opportunities that will become available. As an ex banker, I also hugely appreciate the raising of the tax deducted on source (TDS) limit on interest on deposits with banks. This has been a long time ask of the banks as the limit of Rs10,000 was totally inadequate. It also levels the playing field with other areas of investments, especially as the long term capital gains on equity investments has also kicked in. Allowing regional rural banks (RRBs) to raise capital from the market, to enable them to stand on their own feet, has also been a long time ask.
Unknown to the market at large are a few RRBs that have been doing very well. In these days when new financial sector entities are commanding humongous valuations, it makes little sense to hold back the efficient RRBs. The other area, of deepening bond markets by encouraging investment in bonds below AA rating, is also long overdue. At present, most provident and pension funds stipulate investments only in AA paper in their model portfolio, thus preventing lower-rated corporates from accessing these markets at reasonable rates. However, in order to ensure that markets can confidently invest in such papers, better standards of disclosure and corporate governance are warranted. All in all, the budget has not given in to the temptations of freebies. Its success will depend hugely on efficient execution.
Arundhati Bhattacharya is ex-chairman, State Bank of India.