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The Union Budget for the next fiscal year is clearly a growth-oriented one.

It pushes firmly ahead on India’s infrastructure agenda and supports the MSME growth engine, while reaffirming the fiscal commitment to a greener ecosystem.

Consumption demand is likely to get a leg-up on the back of tax reductions for the middle class, which augurs well for corporate India as well as for credit growth of banks and non-banking finance companies.

The budgeted “effective" capital outlay of 13.7 trillion for 2023-24 is about 30% higher on-year, with a sharp focus on infrastructure development. This, along with the path taken towards fiscal consolidation, augurs well for the interest rate outlook and resultant credit growth for banks and non-banks in the country.

The infrastructure sector continues to be the main beneficiary of public spending, with railways and roads taking the lion’s share of the announced allocations. This will have a multiplier effect on demand and provide an impetus to the private-sector capital expenditure cycle. The continuation of the 50-year interest free loan facility for states—with an increase in outlay from 1 trillion to 1.3 trillion—will be supportive here.

To be sure, infrastructure is a long-term growth engine. One of the keenly awaited reforms in this sector has been a faster dispute resolution mechanism.

The introduction of dispute resolution under ‘Vivad se Vishwas’ in this budget to settle contractual disputes of government and public sector undertakings is welcome. The move augments past reforms such as better risk-sharing in contracts awarded and the revision in concession agreements to address bottlenecks that hampered projects, and helps bolster investor sentiment. A balanced settlement approach will now be the key to its success.

Sustainable development of urban infrastructure has got the desired fillip with the creation of an urban infrastructure development fund—an outlay of 10,000 crore per annum has been allocated.

The Central government plans to encourage states and cities to focus on reforms relating to urban planning, property tax governance and financing. These will help urban local bodies augment their revenue streams, improve creditworthiness, and pave the way for bond market access.

The MSME segment, which bore the brunt of our pandemic disruptions and is still recovering, has also received much-required attention: the budget has announced a revamped credit guarantee scheme that can facilitate a flow of 2 trillion (almost half of the annual incremental credit flow from banks and non-banks) by way of additional collateral-free guaranteed credit, to be channelled through banks and non-banks.

Then the budget has measures to improve liquidity, an important one being tax deduction allowed for expenditure only once payment is made to ensure that corporates are incentivized to make timely payments to MSMEs. Further, to provide relief to MSMEs that came up short in executing government contracts during the pandemic, the government has announced a one-time refund of 95% of their forfeited security amounts.

The Union Budget for 2023-24 also furthers India’s commitment to move to a greener ecosystem. This is underscored by the government’s allocation of more than 60,000 crore across the country’s green hydrogen mission, energy transition and renewable energy evacuation schemes.

The budget also provides support for battery energy storage systems through viability gap funding, customs duty exemptions for capital goods oriented towards green technologies, and a green credit programme to incentivize environmentally sustainable and responsive actions by corporates and individuals.

As for a sectoral outlook, sectors such as steel, cement, pipes, capital goods and civil construction would clearly benefit directly from India’s higher outlay for infrastructure spending.

Further, more disposable income in the hands of the middle class, thanks to the budget’s reduction in personal income taxes under the new tax regime would also spur household consumption, leading to growth in the auto, consumer durables and FMCG sectors.

With corporate balance sheets in good shape and capacity utilization at high levels, India Inc appears ready for its next phase of growth. This, and the proposed massive increase in infrastructure spending, should help an uptick in the private capital expenditure cycle. While that may mean a slight increase in India Inc’s gearing levels, currently at a decadal low, it would likely be more than offset by higher revenues and operating profits emanating from enhanced capacities. With robust capitalization and declining non-performing asset levels, banks are also in far better shape today to support this growth.

From a long-term perspective, it’s good that a clear agenda has been articulated by the budget for enhancing bank governance and investor protection through amendments and applicable regulations. That should structurally strengthen the sector and bolster stakeholder confidence.

To sum up, the budget for 2023-24 is pro-growth, pro-infrastructure, pro-energy transition and pro-MSMEs as well. In short, it ticks the right boxes for India Inc.

These are the author’s personal views.

Gurpreet Chhatwal is managing director, CRISIL Ratings Ltd.

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