Enhancing India's appeal as an investment destination

Rana Kapoor, MD and CEO, YES Bank and president, ASSOCHAM

The financial services sector is one of the central pillars of the real economy as it drives economic growth through its active role of intermediation and allocation of capital. With the government's focus on reviving sustainable economic growth, the FY16 Union Budget has emphatically ensured that financial delivery through markets, institutions and improved access coupled with the right incentives, is in sync with the broader economic agenda.

Innovative financial thinking
Liberalization of foreign investments, including fungibilty between FII, FDI and other sources for all sectors including banking, will enable companies to raise long term capital at competitive prices, which will help immensely in boosting the 'Invest In India' agenda. This is a big initiative and the budget will also be known for implementing International Finance Centres in the Indian economy. The finance minister has taken a clairvoyant step of creating specialized theme-based clusters by helping to realise the first phase of the GIFT (Gujarat International Finance Tec-City near Ahmedabad). When completed, this by itself will be a major game changer towards deepening of Indian financial markets.

Ensuring availability of capital for economic growth
The FY16 Union Budget has ensured that availability of capital does not pose a constraint for the productive sectors of the economy. The Bank Board Bureau is being set up to strengthen strategic decision-making in public sector banks (PSB). It would be a precursor to a holding and investment company for banks, and ensure consolidation and capital infusion for PSBs. The new National Investment and Infrastructure Fund will be started with a corpus of Rs 20,000 crore for infrastructure specific investments. The Public Debt Management Agency is proposed to manage India's external and domestic debt under one roof and improve the Indian Bond market. Eventually, a well-capitalized financial market will help lower transaction costs in the economy and improve efficiency. A well-capitalized financial market and inflow of foreign direct investment (which comes with technological intelligence) will help lower transaction costs in the economy and improve efficiency.

Improving access to financial markets
In conjunction with widening and deepening of financial markets, the FY16 Union Budget also lays emphasis on ensuring access to financial services. Rs 20,000 crore has been allocated for the proposed MUDRA Bank, which would be engaged to refinance lending by micro finance institutions to small entrepreneurs. The electronic Trade Receivables Discounting System (TReDS) would help finance trade receivables of MSMEs and improve their liquidity position. The Self Employment and Talent Utilization (SETU) program will provide seed funding to start-ups, specially in the technology sector and boost entrepreneurship in India.

With programs like Pradhan Mantri Jan Dhan Yojana rural finance penetration is expected to improve further. In this regard, the 150,000-plus points of presence of the postal department will be dovetailed into its plan for Payments Bank and contribute significantly to this scheme. In my opinion, this will not only aid the financial inclusion objective, but also help in bringing more and more individuals in the formal sector, thereby significantly enhancing the scope of the DBT (Direct Benefits Transfer) scheme for subsidy disbursal. Besides, improvement in access to finance will also generate positive externalities for private investment in agriculture and development of the rural non-farm sector, etc.

Last, but not the least
Budgetary support and guidance to the financial sector is well supplemented by the easing of some of concerns with respect to taxation. The postponement of GAAR for another 2 years, the rollout of GST in the next fiscal and the plans for a modern direct tax regime to complement the indirect taxes will enable smoother financial transactions and enhance India's appeal as an investment destination.