This budget has been pragmatic and straight-forward with the finance minister pulling no punches in dealing with some of the obvious hurdles in the way of India achieving its true growth potential. I do not believe any finance minister in recent years has dedicated as much time in the budget speech to highlight the steps being taken to deepen our financial markets. The steps taken are extremely encouraging.

The issuance of sovereign bonds by India has been a longstanding demand by foreign investors. The announcement today is an important development towards a final outcome to internationalize our markets. We expect strong demand from global investors to India’s maiden sovereign bond issue and it is likely that annual issuance will be around 10% of the fiscal deficit, which for this year amounts to $10 billion. This method of financing will reduce pressure on government bond yields from domestic borrowing and lead to better transmission of lower interest rates to the real sector.

A sovereign bond issue in the overseas markets would be well received by investors with the extent of oversubscription being a major factor in how much the rupee might appreciate by. The intent to stick to the medium-term fiscal consolidation path by targeting a lower-than-expected fiscal deficit of 3.3% of the gross domestic product (GDP) is laudable and complements the broader economic goal of sustaining 8% growth through a cycle of savings, investment and exports. India continues to be the number one economy in the world for foreign direct investment (FDI) inflows. Liberalisation of the permissible FDI investment cap in insurance, aviation, animation/gaming segments will result in further opportunities for growth in these sectors. The decision to host an annual Global Investor Meet that will bring together global pension funds and other investors under the same roof is a great way to profile India as a preferred investment destination and one where a bank such as ours can play a participative role given our global reach.

The non-resident Indian (NRI) portfolio investment scheme (PIS) route was the only option available to NRI investors earlier for portfolio investments. By merging the NRI PIS route with the foreign portfolio investment (FPI) framework, the finance minister has closed the gap in existing regulations and has enabled NRI-owned entities and funds to invest in India, potentially opening up a large segment of investment funds to flow into Indian markets.

The steps taken to alleviate the liquidity crunch that the non-banking financial companies (NBFC) sector has been experiencing are very encouraging and signals the resolve of the government to revitalize a critical line of funding to the real sector, micro, small and medium enterprises (MSMEs) in particular. The credit guarantee to provide liquidity to NBFCs and the recapitalization for public sector banks extends solid capital support to the financial sector to ease the credit crunch. As the banking and NBFC segments continue to grapple with non-performing loans, the role of corporate bond markets must increase in financing India’s large and medium size businesses. A mature bond market is critical for the flow of credit to finance growth. The finance minister has initiated wide-ranging efforts to deepen the bond markets across both government and private sector debt. Developing the concept of credit insurance and related instruments will also contribute towards long-term development of sustainable debt markets in India. Giant strides are already being taken to develop a truly dynamic financial market. Global investors are sitting up and taking note.

Kaushik Shaparia is Deutsche Bank’s India CEO.

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