Union Budget | Twin mantras to see India sail through global headwinds

Should Nirmala Sitharaman announce some measures in her Budget speech to encourage syndicated lending, private capital expenditure could gain the much-needed momentum

The upcoming Union Budget is significant considering the uncertainty surrounding Donald Trump’s presidency, China’s global push, and other geopolitical factors. Given this, two pivotal areas must garner Finance Minister Nirmala Sitaraman’s unbridled attention. One, boosting private capital expenditure and avoiding fiscal largesse, and; two, developing the financial skills sector for job creation.

First, considering the muted GDP growth pegged around 6.5 per cent, Sitharaman has an unenviable task of balancing fiscal prudence and stimulating growth. She needs to discount potential tariffs (especially from the United States) and accompanying global headwinds spilling into a weakening rupee and usurping the inflation arithmetic. Should the government fall short of expected public expenditure, the onus of propping the economy would fall upon private investment from India Inc. How prepared is our domestic sector to fill the gaping investment void? Going by the profits recorded by Nifty 500 companies in FY2024, there are reasons to remain optimistic.

At a 15-year high, profits represented 4.8 per cent of GDP even as wage growth remained neutral. Wage growth assumes significance given the share of contribution in private consumption constituting 60 per cent of the GDP.

Nonetheless, the potential for India Inc to open its wallets through investments and contributing to the national economy remains high. India’s public sector banks too exhibit financial resilience evident in the secular decline in Gross Non-Performing Assets (GNPA) from 7.3 per cent in 2022 to 3.5 per cent in 2024. Without risking exposure to high-risk unsecured loans, the banking sector can also aid growth by syndicated lending to the corporate sector. By pooling-in lending from different banks, syndicated lending reduces risk through diversification by restricting any single bank’s exposure to asset.

Should Sitharaman announce some measures in her Budget speech to encourage syndicated lending, private capital expenditure could gain the much-needed momentum. More significantly, syndicated lending as a strategic policy tool will stop fiscal leakages in the form of bank recapitalisation.

As the world awaits tide of uncertainty accompanying Trump’s presidency, besides maintaining fiscal deficit in check, the minister would do well to announce measures to build the exchequer’s coffers. This can be achieved by setting out a pragmatic strategy for disinvestment of public sector assets by the next fiscal. This target should be met without getting impacted by gyrations of the stock market and roundtripping. Roundtripping in the form of inter public-sector investments bodes ill as forced interventions by the Life Insurance Corporation of India (LIC) as a buyer of the last resort of public sector stock issuances is neither effective nor efficient.

Second, the minister could build a growth strategy centred on financial sector developments while keeping inflationary pressures in check. The approach could leverage three interconnected pillars that build on existing initiatives while introducing new elements:

• Expanding on the success of the Production-Linked Incentive (PLI) scheme's manufacturing focus, Sitharaman could introduce a parallel initiative for financial services skilling. A dedicated financial sector skill development fund, co-funded by industry and government, would help create the talent pipeline needed as India positions itself as a global financial hub through initiatives like the GIFT City.

• Building on the apprenticeship programme introduced in the previous Budget, the minister could adopt elements of the United Kingdom model by offering tax incentives to financial institutions that provide structured apprenticeships. This would address the skills gap while promoting formal employment in the financial sector, creating a pathway for young professionals to enter high-growth areas like fintech, risk management, and sustainable finance.

• As India opens its higher education sector to foreign investment, the Budget could create a regulatory framework that incentivises foreign universities to establish specialised financial education centres. These institutions could partner with Indian banks and financial firms to develop industry-relevant curricula, ensuring graduates are equipped with practical skills.

This supply-side intervention would help manage inflationary pressures while building long-term capacity in the financial sector. India can well emulate Finland’s strategy which has set an objective of achieving 100 per cent financial literacy by 2030.

(Ullas Rao is Faculty at the London Institute of Banking & Finance (LIBF) and associate professor at JAGSoM, Vijaybhoomi University, Mumbai. X: @Ullasrao7. Paul Gallacher is Academic Lead at LIBF, UK.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.