We all have witnessed historic economic policy developments and structural reforms over the past four years. The macro-economic fundamentals of the economy are strong and are characterised by low inflation, growing forex reserves and commitment to fiscal prudence. The government has unleashed unprecedented reforms in various spheres. GST has been the biggest reform measure in decades-vast in scope and unparalleled in scale. This has also been preceded by a dedicated campaign against corruption and black money.
The stock markets are at their historic peaks. The finance minister with his budget speech indicated the government’s promise of delivering an honest, clean and transparent government, coupled with restoring growth of Indian economy. The measures announced in the budget only validates the same. The government is expecting economic growth to surge above 8 percent as it announced a 2018-19 budget that aimed at boosting rural infrastructure and doubling farmer income by 2022. The main focus of the budget is to support farmers and development of rural areas, though fine print focuses on boosting growth, jobs and private investment. Doubling farmer incomes by 2022, broadening the tax base, impetus to MSME's and formalisation of the economy clearly reflects the government's stated priorities and long-term agenda.
Big push to infrastructure, beginning of universal healthcare, housing for all, revolutionising education and support for ancillary sectors such as fisheries, food processing and textiles augers well for the economy. The finance minister with his budget has once again reiterated that the creation of job opportunities has been at the core of policy-making. Expenditure of Rs 14.24 lakh crore on livelihood and infrastructure in rural areas, considering the agrarian distress in the country is a welcome step. Similarly, the total credit growth to agriculture is set at Rs. 11 lakh crore.
The launch of the flagship national insurance scheme for 100 million families and upto 500 million beneficiaries up to Rs 5 lakh a year to create the world’s largest public health insurance scheme augers well for secondary and tertiary care in India. In a major boost to MSME's, the finance minister extended the reduced corporate tax rate of 25 percent for companies with turnover of upto Rs 250 crore. This covers 99 percent of companies filing tax returns. This will not only benefit small and mid-cap companies, but will help in their capacity expansion. With increase in customs duties for electronic goods and mobiles, the focus on local manufacturing is visible.
The need for reviving corporate bond market has been felt for long and multiple attempts for the same have been made. The government is now considering mandating, large corporates, to meet about 25 percent of their financing needs from the bond market. This measure from issuance perspective would generate greater supply of bonds in the market. A greater demand stimulus is provided for by permitting trade in lower rating bonds allowing investors better choice of debt paper and improve liquidity in Indian Corporate Debt market.
There are provisions to develop the IFSC at Gift City, where tax exemptions for transfer of derivatives and certain securities by non-residents from capital gains tax. This is a welcome towards the hope to have overseas trading activity and price discovery move back to India and make it competitive against Singapore, HongKong, Dubai etc. The GIFT City unified regulator would provide a single window for all regulatory concerns and help expedite decisions on multiple policies.
While the government has been achieving new highs in its disinvestment targets, the creation of infrastructure investment trusts for monetization of state enterprises is a positive development. The government has approved listing of 14 CPSEs, including two insurance companies, on the stock exchanges. Initiating the process of strategic disinvestment in 24 CPSEs including the much delayed strategic privatization of Air India would scale their governance.
The step to formulate a comprehensive Gold Policy to develop gold as an asset class is a much needed boost for the gold industry in India. The announcement to establish a system of consumer friendly and trade efficient system of regulated gold exchanges in the country would provide an efficient and trusted ecosystem for trading gold and ensure the success of financialisation of gold with an aim to improve market transparency, protect the interests of market participants and facilitate India to emerge as a price setter for gold. BSE has always been advocating for improvement in the Indian gold market microstructure using modern technologies.
Exchange Traded Funds or ETFs have revolutionized the Investment Industry in recent times due to their simplicity, low costs and ease of use. ETFs have been a huge success for raising funds for the government through Bharat 22 ETF and CPSE ETF. From a capital markets perspective it is interesting to see that the government will now also launch a debt ETF for raising debt financing.
Overall, the Finance Minister has rolled out an excellent budget with a thrust to core areas such as agriculture, healthcare, education infrastructure and rural development. Continued focus on fiscal prudence, boosting the manufacturing sector, augmenting MSME's, improving healthcare and skill development are the key takeaways from this budget. Impetus to GIFT City IFSC, Gold Exchanges, Disinvestment, ETF's for debt financing and measures to reviving corporate bond markets augers well for the capital markets. This is clearly the budget which will help create millions of jobs and achieve the target of 8 percent growth.
Ashishkumar Chauhan is managing director & CEO, BSE.
Updated Date: Feb 01, 2018 18:35 PM