Great idea to tap global savings

By Raamdeo Agrawal
Joint Managing Director, Motilal Oswal Financial Services

In my view, the main reason for this was the proposal to consider increasing minimum public shareholding in listed companies from 25 per cent to 35 per cent. In the long run, this proposal is positive for deepening of the equity markets. However, in the short-tomedium run, it implies fresh equity supply of almost Rs 3.9 lakh crore. To maintain market equilibrium, I hope Sebi gives at least five years for this to be implemented.

I believe the market fall overlooks the many breakthrough ideas in Nirmala Sitharaman’s maiden budget. To me, the biggest one is the idea to tap global savings to fund government debt. India’s sovereign external debt as percentage of GDP is among the lowest globally at less than 5 per cent. Raising part of the government borrowing programme overseas would prevent crowding out in the domestic market, and allow interest rates to remain soft.

Another very important aspect of the budget is the whole NBFC piece. First, the budget acknowledges the important role of NBFCs in the Indian economy. Next, it formally admits the ongoing crisis in the sector. Finally, and very importantly, it attempts to offer a partial solution to address the same. For purchase of high-rated pooled assets of financially sound NBFCs totalling Rs 1 lakh crore during the current financial year, the government will provide one-time six months’ partial credit guarantee to public sector banks for first loss of up to 10 per cent.

A structured thought process on central public sector enterprises (CPSEs) is yet another key feature of the budget. Here, the government will now include the holding of government-controlled institutions (such as LIC) in computing its effective stake in companies. The budget also enhanced the disinvestment target to Rs 1,05,000 crore.

But these ideas have to be executed brilliantly. And it is here that the government is usually caught napping : look at the actual divestment receipts.

The interchangeability of PAN and Aadhaar, covering more than 1.2 billion Indians, will benefit the equity markets.

Another thrust area is housing, especially rural housing, with 19.5 million houses to be built in just three years. For home buyers, the budget provides for additional Rs 1.5 lakh interest deduction from income on purchases of houses up to Rs 45 lakh.

Finally, there’s the budget arithmetic, with fiscal deficit pegged at 3.3 per cent of GDP. Like the rest of the budget, achieving this too demands brilliant execution.