Budget 2019: Laudable target needs fiscal discipline

The target of becoming a USD 5 trillion economy is laudable. A key part of any strategy is to have compelling goal. The budget in India has become a mainstay to proclaim key levers to drive the economy forward. However, as we have seen in the past, multiple initiatives get announced during the course of the term, that amplifies and solidifies key initiatives. As the Modi 2.0 begins the next phase of 5 years, we hope that this will continue to be the premise of the plot. 

Infrastructure thrust continues with an outlay of Rs 100 lakh crore over a five-year period. Historically, we have been able to secure funding through PPA, BOT or TOT, but all this put together has not been able to fulfil the infra needs of the country. With increase in land prices, the funding problem is expected to get more acute and what will be important is how do we innovatively secure the same.

This is the first time the government has mentioned about creating a conducive eco-system for MRO. This is an important step. Formation of New Space India (NSIL) to tap the benefits of ISRO is significant statement of intention, which will allow the organization to benchmark itself globally. 

India has entered the demographic dividend phase which will be marked by higher share of working age population. Startups have the ability to become large firms that are not only more productive but also generate significant employment. Measures announced are noteworthy such as relaxation in conditions for carry forward and setoff losses, extension of exemption of capital gains arising from sale of residential house for investment from March 31, 2019 to March 31, 2021 for start-ups.

Funding is a very key element for impetus in the economy. Support has been provided to NBFCs by allowing flexible access to FIIs and FPIs investment in debt securities issued by NBFCs. Liquidity access has been enhanced by giving credit guarantees from the government and giving more powers for RBI.

Fiscal deficit target has been reduced to 3.3% of the GDP for 2019-20 as against 3.4% in Interim budget. It shows the intention of the government to maintain fiscal prudence while pursuing an ambitious goal of USD 5 trillion. How this actually pans out remains to be seen because historically we have been falling short of our revenue targets. Government’s announcement to borrow from external markets was a major announcement, which is going to allow them to look at additional borrowing avenues.