Budget 2016 is crucial for the nation and the Modi government as well as the next two budgets are expected to be election budgets. This is a now or never moment for the government to bring fundamental change to the Indian economy, which this government has promised us all along.
India relatively strong, but some areas critical
On the macroeconomic front, India appears to be on a relatively strong footing; it is the micro issues that are a cause forconcern. With the plunge in crude prices, a pro-business government at the Centre and fiscal and current account deficit in a manageable situation it is the areas like NPA issues at PSBs and weak rural demand which are slowing the country down.
With theBudget session of Parliament likely to be washed away completely due to theJNU issue, theBudget itself has gained more importance. It is the duty of the government to utilise this opportunity wisely and not give the nation another lack-lustre piece of document. To put India onto double digit growth trajectory, the Finance Minister should take a “leap of faith”.
The General Budget is quite an extensive document but there are few areas which are more critical than others. The two most critical areas are the banking sector and the rural economy.
The banking sector
As we are aware, the banking system needs to be fundamentally very strong if India wants to achieve its aspirations of growth and development. Banks act as financial intermediaries that channel funds from those with surplus money, to those who need money to carry out business activities like building infrastructure and setting up factories. Currently, all is not well with the banking sector and this budget can bring this critical sector back on track.
The top three expectations for the banking sector are the clarity on the Bankruptcy Code, as it will ease the gridlock of non-performing assets (NPAs) at public sector banks; capital infusion for public sector banks (PSBs) are under stress due to poor asset quality and low capitalisation; and boosting the infrastructure segment by allowing infra lenders like PFC and REC, to issue tax-free bonds.
Rural economy
With monsoons underperforming for a second consecutive year, agricultural production and rural demand have obviously taken a major hit. This has had severe impact on sectors like FMCG, auto and consumer durables. Jaitley’s focus of should be on de-risking agriculture.
The top three expectations for the rural economy are expanding the irrigation cover, which stands currently at a dismal 47 per cent of the total cropped area; a big push to crop insurance, as the frequency of weather related shocks is increasing so should the coverage of crop insurance; focusing on farm investments than farm subsidies, because of the total government spending on agriculture, only 10 per cent goes towards capital formation.
If this is done then India can realise its dream of a technology-led second Green Revolution.