Budget arithmetic looks credible with achievable goal: YES Bank

By Ravneet Gill

"At a time when most key macro indicators have been subdued, the Union Budget provides a beacon of hope. At the outset, its a relief that the Honorable Finance Minister chose to maintain a counter cyclical fiscal policy impulse in FY20 by invoking the FRBM escape clause of 0.5% of GDP and thereby revising the fiscal deficit target to 3.8% vis-à-vis the initial budget estimate of 3.3%.

For FY21, the goal of consolidation has been reiterated by budgeting the fiscal deficit target at 3.5%. The budget arithmetic appears credible as it seems to have apportioned achievable targets under key heads.

From an allocation perspective, the total budgetary provision for the rural sector, which includes farm and non-farm development, is poised to grow by 13.4% in FY21 after a significant jump of 34.8% in FY20. This concerted policy push will eventually help in boosting rural purchasing power, in line with the Honorable Prime Minister’s vision of doubling farm incomes by FY22. In addition, the relaxation on personal income tax should also offer some relief to the salaried class and buoy overall consumption demand in the economy.

On the investment front, increase in the capital expenditure ratio to a four year high of 1.8% of GDP in FY21 generates hopes of crowding in of private investment. A sharp jump of 18.4% in allocation for urban development coupled with a record high allocation for the transport sector should dovetail well with the earlier announced policy of National Infrastructure Pipeline worth over Rs 100 trillion. Besides, the removal of DDT, extension of concessional WHT on debt income, relaxation of FPI debt investment limit in corporate bonds, and laying the framework for netting off of financial contracts will act as a step forward in improving the investment climate.

Overall, the Union Budget echoes the themes of ‘Aspirational India’, ‘Economic Development’, and ‘Caring Society’ within the realms of prudent fiscal management while reinforcing the foundations for a $5 trillion economy."

(The writer is the MD & CEO, YES BANK)