03 Jul 2019 21:00 IST

Developing bond market can widen funding options

A mature bond market will attract investors seeking safe avenues and infuse liquidity in the economy

Some of the pain points in the economy that should be dealt with on a priority basis in the coming Budget are:

— Ailing NBFCs and big-ticket lenders such as IL&FS should be revived, albeit with more stringent regulations in place, so as to revive investor sentiment along with infusing the much-needed liquidity into the system. Only this will revitalise the stalled infrastructure and give other projects a new lease of life at the earliest.

— Move forward with the ambitious idea of merger of public sector banks so as to bring about greater efficiency in their functioning, with the aim of preventing any further scams.

— Increase government spending to foster quality infrastructure growth such as railways, roadways, shipping and airports, even at the cost of a widening fiscal deficit. These might cause short-term deficits, but will surely generate much-needed revenue in the near future.

Some ways in which the Government could raise capital to achieve the above goals would be:

— Make use of the severely under-developed bond market, which will attract investors looking for safer avenues to invest their money in. This way, money that remains idle in the bank accounts can be brought into the economy, infusing some much-needed liquidity.

— A tremendous amount of money can be raised by selling partial government stake in PSUs, but not in the way it has been done before, by making one cash-rich PSU buy another, as was the case with ONGC acquiring the majority shareholding in HPCL. Increased privatisation in PSUs will bring about greater efficiency and accountability.

Though there are external forces at play that can be detrimental to our economic targets, these can be a few measures that will go a long way to shield the economy. The US-China trade war can be highly unpredictable and could well spiral in either direction. Having a robust manufacturing process will enable us to fill the large void that the absence of Chinese exports might have in a market as large as the United States. We can never be sure of the next upward spiral oil prices might take, causing a deeper dent in our forex reserves. All these issues must be factored into the Budget.

(The writer is in the PGPM Class of 2019-2020, Great Lakes Institute of Management, Chennai.)