Achieved: the impossible trinity of growth, prudence and investment
The finance minister presented a vote on account highlighting the government’s achievements in the last five years and laid the foundation for the budget post-election. The priorities for the government visible from the past budgets are infrastructure, investment, inclusive growth and fiscal prudence. The government, barring the covid shock, has achieved the impossible trinity of growth, prudence and investment.
This achievement is one of the reasons why the Indian market trades at a premium to its peers, and why India, despite a lower credit rating, gets a better spread in the offshore bond market. The government invested in infrastructure on an unprecedented scale in the past. India built between 2014 and 2024 as much infrastructure in sectors like power, roads, ports, airports, and telecom as existed at the end of 2013.
The government raised resources for infrastructure investment through better tax compliance as well as asset monetization and enhancing productivity of spending. Inclusive growth was created not only by the launch of various schemes, including free food for over 800 million Indians, but also by plugging the leakages through the Jan Dhan, Aadhaar and mobile trinity. The savings on plugging leakages helped in expanding coverage and yet left enough for building infrastructure.
Fiscal prudence remained the North Star despite deviation during the covid years. The budget post-election should build upon the trinity of investment, inclusive growth and fiscal prudence—unlike the pre-1990s, our talent is staying back in India. The private equity/venture capital ecosystem is providing adequate capital for bright ideas. The government must continue to build world-class infrastructure. A troika of talent, capital and infrastructure can give an upward push to our growth orbit.
The budget should also focus on enhancing the ease of doing business. On the ground, execution of projects should happen like the Mumbai Trans Harbour Link rather than Gokhale bridge in Andheri. We are one of the few countries in the world where net debt raised is a little below the investments made. Simply put, we are not burdening our future generation with only debt, but we will leave almost as many assets for them. Very few countries can make such a statement to the next generation.
The resources for funding these investments should come from better tax compliance and non-tax receipts like asset monetization and divestment.
The budget should focus on these two aspects more than the vote on account. There is a massive run-up in PSU stocks. Some of the PSUs have very low floating stock. It will be fair to raise money at this valuation. Investors value India at a premium to its peers due to its fiscal prudence. The vote on account has surprised the market by setting the fiscal deficit target way below the consensus at 5.1% for FY25 and achieving the target set for FY26.
The budget should continue to focus on inclusive growth. Consumption at the bottom of the pyramid is not growing as fast as consumption at the top. Focus on fisheries, the agro industry, rural housing, microfinance availability, etc., will help in inclusive growth. Globally, India is the fastest-growing major economy. The budget must be a catalyst to push private capital expenditure to grow as fast as government capital expenditure, consumption at the bottom of the pyramid to grow as fast as at the top, rural consumption to grow as fast as the urban consumption, and mass market consumption to grow as fast as premium consumption. These two catalysts, along with fiscal prudence, will make Indians proud of their growth model and envy of their peers. The Vote on Account has exceeded investors expectation by presenting a prudent budget with inclusive growth.
Nilesh Shah is managing director, Kotak Mahindra Asset Management Co. Ltd.
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Published: 02 Feb 2024, 01:23 AM IST
