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  India   All India  02 Feb 2020  Modi govt chooses to consolidate on past reforms

Modi govt chooses to consolidate on past reforms

THE ASIAN AGE. | NAVNEET MUNOT
Published : Feb 2, 2020, 4:39 am IST
Updated : Feb 2, 2020, 4:39 am IST

After the initial reaction, expect investor focus to shift back on earnings and global cues.

PM Narendra Modi
 PM Narendra Modi

This was amongst the toughest backdrops in recent years for the finance minister to present her budget against. With a severe growth slowdown arguably requiring a strong fiscal response on one hand and with sluggish revenue collections constraining government’s fiscal on the other, the challenge was evident. Consequently, the finance minister ended up using the FRBM deviation of 50bps on fiscal deficit for both the current and the next year. The divestment target at `2.1 trillion will need support from strategic sales including the proposed LIC of India IPO.

Overall, the government appears to have chosen to consolidate on the reforms of the past few years. The Budget continued with the thrust on infrastructure, social welfare, improvement in ease of living, simplification on taxes and leveraging technology for better governance. Full tax exemption to Sovereign Wealth Funds for investments in Infrastructure and other notified sectors is a significant positive. It was also heartening to see the focus on sustainability through measures on environment and climate change.

 

Similarly, the continued focus on cooperative federalism is positive.

The personal tax reductions was well intentioned but the flip side is that removal of exemptions could have negative implications for savings. More could have done for the real estate sector beyond increasing the window of tax exemptions by a year given its multiplier impact on the economy. Hopefully, the government will pay attention to the needs of the sector going forward.

After the initial reaction, expect investor focus to shift back on earnings and global cues.

In our view, significant easing in financial conditions, both locally and globally, improving prospects for the rural economy given increase in food prices and better acreage, and the various measures taken by the government to stimulate the economy so far should bring about an improvement in both economic activity and corporate earnings going forward. However, in the absence of a significant growth boost in the Budget and given the cautious global environment owing to the spread of Coronavirus, market should stay volatile in the near term.

 

- The writer is ED and CIO of SBI Mutual Fund

Tags: narendra modi, union budget 2020-21