A budget that has something for everybody

Motilal Oswal, chairman, Motilal Oswal Financial Services Ltd

Finance minister Arun Jaitley was adversely positioned to present a landmark budget, as the 2015 Budget comes against the backdrop of a difficult year — 2014. The manufacturing sector had been very sluggish, inflation remained sticky and the country faced a big current account deficit.

He had an opportunity to reclaim fiscal credibility, progress the reform agenda, regain community confidence, and secure sustainable long-term growth. He seems to have delivered on all these counts, but execution of these proposals would remain the main challenge. It is therefore not surprising that one of the principle overarching themes of the budget was to raise public investment on manufacturing and controlling fiscal deficit.

A secondary but equally important theme of the budget is to meet the aspiration of the common man by reining in inflation, food security, easing supply side constraints, improving basic infrastructure like roads, power, drinking water and health care.

The finance minister has reiterated his stance on the economy achieving a high growth. Increased GDP growth estimates would imply a multiplier effect in the creation of new jobs and the associated consumption and investment theme associated with that argument.

Jaitley has remained committed to fiscal prudence although the FRBM targets of 3% fiscal deficit will now be achieved only in 2018. Gross fiscal deficit is projected to be at 3.9% of GDP from 4.1% in the immediately previous year. Plan expenditure growth has been aggressive at 33%.

The mandarins at North Block are hoping for moderate revenue buoyancy pegged at 16% growth and reiteration of significant rationalisation on food and oil subsidy. Fuel subsidy has been pegged at Rs30,000 crore. This, to my mind, highlights the pragmatic mindset of the new government.

Key positives are the boost to infra-spend, provisions pertaining to banking sector holding company, combining foreign portfolio and foreign direct investors into one category and the gold monetisation plan. This budget's focus is to boost public spend, with infrastructure as a key focus area. Infrastructure spend is targeted to rise by Rs700 billion in FY16n of which an incremental Rs140 billion will be for roads. Targets for affordable housing for 2020, power for all by 2022 and 6 crore new toilets are reiteration of the earlier stated intent to provide basic services to all citizens. Additional spend on infrastructure is a positive for cement and infrastructure companies.

Tax-free bonds make a comeback for some segments of the Infraspend.

A holding company predecessor for banks that will give direction to bank policy and select key personnel in banks is a positive. The budget speech also finds measures that could boost credit and debit card usage and dissuade cash usage — it will lower cash transactions and its associated cost for banks. The combination of foreign portfolio investor and FDI into one category will give some headroom for foreign investment in certain private sector banks.