The Budget for 2021-22 combined much needed radical policy interventions with risk prudence, to address a range of crises that have plagued the Indian economy, from unemployment, secular wage disinflation, a banking crisis and low economic growth.
The government made an excellent decision to run a high fiscal deficit and increase capital outlay to build infrastructure and investment in the country. The government has raised the lending target in the agricultural sector by 10% to INR 16.5 trillion which is a welcome step given that the sector has vital implications for pushing growth, generating employment and economic upliftment.
In the finance sector, the decision to set up a Development Finance Institution, increasing FDI limit in insurance to 74% and setting up of an ARC cum AMC for bad loans along with a decision to privatise couple of public sector banks are appreciated.
These measures will address the crisis of non-performing assets in the commercial banking sector, and if implemented swiftly and effectively, will help revive credit and economic growth which has remained sub-potential for a long time.
A few capital markets reforms are brilliant too — a consolidation of various securities markets regulation, tightening deposit insurance and dividend incentives for FPIs.
Overall, while the budget has taken some bold reforms and increased capital outlay, it did not provide any immediate boost to spending or reduce taxes which would have given immediate multiplier effects to a weak economy emerging from the pandemic.
Also, while the government did provide relief measures in the form of loan moratorium and credit guarantee scheme to MSMEs, follow-on measures to support the micro and small enterprises are required given that it is an employment intensive sector.
Credit flow to NBFCs also needs to improve which have played a key role in providing the broader goal of financial inclusion. Now, the focus shifts to timely execution.
(Mayur Modi is Co-CEO of Moneyboxx Finance, a NBFC with large exposure to the rural dairy sector)