The Indian industry said the budgetary measures to improve the ease of doing business, drive greater investments in infrastructure and increase privatisation in sectors such as insurance and management of ports will hasten the country’s economy to recover from the pandemic.
In her latest budget speech, Finance Minister Nirmala Sitharaman also emphasised on improving the healthcare infrastructure, cleaning up the environment and promoting startups and skilling of the workforce. Significantly, the government increased the foreign direct investment allowed in insurance to 74% from 49% as well as moved toward consolidation of the powers of the financial markets regulator.
“The fact that the government chose growth over fiscal consolidation is indeed heartening. There is a sharp focus on capital expenditure. The fact that no new taxes have been levied shows government’s recognition of the stress different sections of society have been going through and the need to support them at this critical juncture,” said Uday Shanker, president of the Federation of Indian Chambers of Commerce and Industry (FICCI).
“It’s heartening the Finance Minister has taken concert steps to improve the Ease of Doing Business and encourage compliance,” he added.
Shanker highlighted that there has been a strong emphasis on infrastructure development be it social, physical, or financial infrastructure. “This will not only help propel growth in the economy but also prepare us better to face adversities similar to those seen during the COVID times.”
Uday Kotak, president of the Confederation of Indian Industry (CII), said that the budget had ticked all the boxes in achieving the vision for an Atma Nirbhar Bharat by strengthening livelihoods and growth.
He said the announcement regarding the setting up of the Development Financial Institution (DFI) is likely to play a critical role in channelizing investments in infrastructure and other key sectors of the economy.
“In addition, the setting up of National Asset Monetisation Pipeline is a great initiative by the government and is likely to not only boost sentiment but also generate additional resources for the government,” he said.
“Other measures such as setting up of seven Mega Investment Textile Parks, giving choice to consumers to choose buying power from more than one power distribution company are in line with CII’s recommendations,” Kotak added,
Ahmed ElSheikh, President, PepsiCo India, said that the steps to improve ease of doing business and efforts towards aiding start-ups, MSME (Micro, Small and Medium Enterprises) and research and development will drive greater local innovation and value addition. “All of the above will eventually push up consumer demand and further the country’s transformation towards a globally competitive economy.”
“The massive increase in healthcare infrastructure funding coupled with focus on cleaner air, waste management, nutrition and water through the Jal Jeevan mission are crucial steps in improving overall health and living index. Additionally, sustained investment in overall infrastructure development and an emphasis on asset monetisation will improve overall utilisation and competitiveness,” he aded.
Increase in insurance FDI limit positive
Moody’s Investors Service Senior Analyst Mohammed Ali Riyazuddin Londe said that India’s budget proposal to increase the foreign direct investment limit for insurers to 74% from 49% is credit positive, as it provides Indian insurers with new sources of funding and access to external know-how that can improve their underwriting performance and unlock new operating efficiencies.
“The possibility of higher foreign ownership would improve insurers’ financial flexibility by offering additional opportunities to bolster solvency. In addition, insurers would benefit from the sharing of risk management best practices, possibly leading to a lowering of exposure to high-risk assets and adoption of risk-based capital management,” he said.
“These benefits are expected across the insurance market as the government has simultaneously announced that it will take LIC to IPO and privatize one of the government-owned general insurers, which along with the changes in foreign-owned insurers will cumulatively improve the pricing discipline of the market’s underwriting performance given their dominant positions.”
While the government’s privatization target of 2.1 trillion rupees proved too ambitious in the current fiscal year because of the pandemic, its target of 1.75 trillion rupees for the next fiscal year can be achieved, said Rohitashwa Prasad, Partner in law firm J Sagar Associates.
“If the public markets continue to be as buoyant as seen recently, and if global liquidity conditions are favourable, the target could very well be achieved,” he added.
L Viswanathan, Partner, Cyril Amarchand Mangaldas, said the budget’s focus on infrastructure along with the emphasis on several other aspects can have a multiplier effect on the economy.
“It caters to the need for a special financial institution for funding infrastructure projects which require “long term patient capital”. The proposal for enabling debt financing of InVITs and ReITs by FPIs is welcome, this will accelerate the movement of assets from Government and Developers to InVITs. This will help in developing sustainable infrastructure that can be serviced over the long term and also enhance the governance of these important assets,” he added.
Viswanathan also said that the move by the government for asset monetisation like oil pipelines will serve the twin objective of making resources available to the government for creating public and social infrastructure and at the same time attract private capital for operation and management of these assets. “This will hopefully help in recycling of capital,” he added.
He added that the budget’s move for a consolidation of the securities laws into a single code “requires deep thought and analysis and steps to strengthen the GIFT IFSC framework and the corporate bond market are expected to increase financial penetration as well as create liquidity for corporates.”
Strengthening of the National Company Law Tribunal (NCLT) framework for faster resolution of cases and alternative methods of debt resolutions was an indication that a Pre-pack Regime will be introduced.
A pre-pack is a hybrid of in-court and out-of-court insolvency, where an agreement is reached between the company, creditors, and the potential buyer before the appointment of an insolvency professional.
“On the whole it sets the right framework for growth, asset monetisation, divestment and financial reforms that are much needed for India to take centre stage in the post CoVID world,” Vishwanathan said.