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A climate of pessmism and fear was responsible for falling credit growth, which fed into a slowdown in private investment and cosumption. The Government's role is to bilster confidence. As a confident state steps in, begins to spend, and turns around the financial sector, private spendign will also revive. Private investment projects had started in end-2017 as some sectors were running into capacity constrants, and then dried up because again, especially since interest rates are coming down. G-Secs rates have fallen after the Budget. Spread for corporate bonds of NBFC funds should also come down. Many NBFCs continue to have biable business models. The fear of credit risk will fade as costs come down and activity revives. The moribund real estate market that is responsible for much destruction of asset value will get a filliup form tax exemptions and lower interest rates.
Help is promised for industry in many other ways. Land availability, labour law simplification, reduction in legal costs, delays and tax harassment. The focus on public-private partnerships and support for entrepreneurship will create many opportunities for industry. Private firms generally do much better in last ile delivery of public services. Cuts in corporate taxes, other sops and tweaks in tariffs are well-thought-out to attract foreign firms to produce at scale in India. This is the right time for such initiatives in the context of foreign direct investment re-locating from China.
One of the strengths of the last government was in process improvements. These continue in this Budget. A new initiative of faceless E-assessment with no human interface, and cases assigned in random manner will reduce tax payer harassment. Integrated information will be used to auto fill tax forms making compliance easier even as tax evasion becomes more difficult. There is more simplification in Goods and Services Tax and other taxes while information will be used more intensively to increase the tax base.
The improvement in processes reflects in better delivery of Budget promises, and the quality of fiscal consolidation. The revenue dificit has fallen as well as the fiscal difficit even as expenditure promises were largely kept, although much more was spent for agriculture. Capital expenditure was supported by market borrowing of public sector enterprises (PSEs) - as they become commercially viable, they must borrow based on future income streams. The growth slowdown would have been worse last year without this borrowing. PSEs do not suffer from credit risk. The food subisedy from the Food Corporation of India - which last year was supported by borrowing from small savings - is now brought back to the Budget as it should be.
Apart from reforms in budget processes there is support for larger reform processes. The emphasis on technology cannot deliver alone without improvement in governance. But there is evidence of complementary action on both. For example, a major handicap for small businesses is an absence of timely payments from government. A payment platform has been announced for cutting time and improving processes. Ministries dealing with water have been merged.
A major constraint India has been facing is the absence of long-term funding for infrastructure. There is evidence of innovative thinking on this with sops announced for alternate investment funds; thinking about setting up a development bank as well for making more foreign savings available. Retail investors are also to be encouraged to buy government securities. Stock exchanges are building platforms, which are to be supported by inter-operability between the Securities and Exchange Board of India and the Reserve Bank of India despositories. To the extent there are large diversified domestic investors in government securities the proposal to also raise funds abroad becomes less risky.
As these reforms improve the supply-side, cost and tie delays reduce for business as well as for the average citizen.
Best Of Luck.