Budget 'balanced one', maintains fiscal prudence for medium-term: Bankers

Topics Budget 2020

FM Nirmala Sitharaman
Bankers said the Union Budget is a balanced one as it maintains fiscal prudence for the medium-term and also offers more capital spending to support the sagging growth.

The budget has pegged fiscal deficit at 3.8 per cent for the current fiscal and 3.5 per cent for the next, Finance Minister Nirmala Sitharaman said while presenting the first full budget of the Modi government's second term. Bankers said given the deepening slowdown, the move was much needed and it will boost government spending to support economic growth.

Welcoming the budget, State Bank of India (SBI) Chairman Rajnish Kumar said the proposals will ensure better infrastructure with better connectivity on one hand and improved healthcare and better access to education on the other and both will have long lasting impacts.

"The new income tax regime without exemptions is a move to a regime of a simplified and clutter-free taxation," he said, adding the five-fold hike in deposit insurance limit to Rs 5 lakh was long overdue.

He also said the relaxation in the Sarfaesi norms for NBFCs will lead to better recovery and borrower discipline in this sector. "Overall, the budget numbers are realistic and the staggered transition to a lower fiscal deficit is in perfect consonance with the growth objective," Kumar said.

HDFC Bank's Chief Economist Abheek Barua sees the budgetary numbers as credible in terms of the fiscal math as it has correctly recognised revenue shortfall this year. "It uses up the 50 bps point leeway that the FRBM Act provides for both FY20 and FY21 which is a welcome step," Barua said.

The 13 per cent spike in capital expenditure in FY21 with increased allocations for education, healthcare and certain schemes in the agricultural sector are big positives, he said, but was quick to add "that said, this expenditure increase, coupled with income tax cuts, does not seem to suggest a large fiscal stimulus that the current slowdown perhaps warranted."

The tax breaks offered to foreign investors and specifically to sovereign wealth funds, acknowledge the fact that there is a fundamental mismatch between supply of domestic savings and capital needed for accelerated growth, he said, adding this along with the abolishment of dividend distribution tax is likely to help attract foreign fund flows.

Budget finely balances the objectives of supporting growth while adhering to fiscal prudence in the medium-term, Standard Chartered India Chief Executive Zarin Daruwala said.

Yes Bank Managing Director Ravneet Gill said the budget reiterates the goal of fiscal consolidation by targeting a fiscal deficit at 3.5 per cent next fiscal year after slipping it by 50 bps at 3.8 per cent for FY20.

ICICI Bank's B Prasanna said the budget is focused on holistic growth objectives by resorting to the escape clause permitted by the FRBM Act even as the commitment to consolidation remains in place.

Gill said the higher budgetary provision for the rural sector at 13.4 per cent in FY21 will help boost rural purchasing power.
On the investment front, increase in the capital expenditure ratio to a four-year high of 1.8 per cent of GDP generates hope of crowding in of private investment, Gill said.

While there is an allocation across many segments, the budget does not have a significant thrust on any one particular sector or a "big bang" announcement, Kotak Mahindra Bank's Shanti Ekambaram said, adding "a lot was expected to give a big boost to infrastructure, but perhaps the devil is in the details." The rural economy including agriculture, which is a very critical component of the economy, received a lot of granular allocation, she said.

Bank of India Managing Director A K Das said the budget is forward looking as it aims to revive demand and growth.

"The feel good elements include sizeable increase in DICGC insurance threshold, subordinate debt facility and extension of restructuring window for MSMEs, liquidity support to NBFCs and tax holiday in the affordable housing segment," Das said.

Syndicate Bank Managing Director Mrutyunjay Mahapatra, said the budget is a combination of continuation of the initiatives, prioritisation and incentivisation of key focus areas and a set of new experiments.

StanChart's Daruwala further said the budget rightly attempts to boost spending by enhancing non-tax revenues through higher disinvestments including stake sale in LIC and IDBI Bank. Bandhan Bank's Chandra Shekhar Ghosh said hiking deposit insurance to Rs 5 lakh will help drive confidence among banking depositors.

DBS Bank India's Surojit Shome said the budget reflects the government intent to boost consumption and support inclusive growth. The revision of the income tax rates and the option for individuals to opt for a simpler and lower tax regime is likely to incentivise consumer spending and stimulate demand, Shome said. 

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