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Government Keen to Continue its Sustainable Growth Agenda, Avoid Populism

Posted by - ICICI Lombard, GIC Ltd.
July 09 2019

India stands at an interesting juncture today. With a stable government in place, a relatively fast-growing economy and a demographic dividend to potentially benefit from over the next several years, the tailwinds aiding the economy are many. Having said this, global growth uncertainty, escalating trade wars, delayed monsoons and growth related concerns in critical sectors are some of the headwinds that can create challenges for the economy.

In this scenario, the Union budget becomes a very important platform for policymakers to demonstrate their intent to carry forward the growth agenda and address the immediate issues facing the economy. Naturally, the expectations from this event run high.

With her first budget, the hon’ble finance minister has made clear the government’s intent to continue with its inclusive and sustainable growth agenda, while adhering to fiscal discipline and eschewing flagrant populism. The budget strives to achieve the right balance in terms of introducing long term growth propellants while addressing the near-term deterrents at hand.

It clearly focuses on the critical areas, namely core infrastructure — roads, electricity, water supply etc. At the same time, it puts a lot of thrust on the enabling areas namely education, entrepreneurship, online infrastructure and technology, digital payments, ease of business, among others.

This to my mind, is the right approach showcasing foresight and long-term intent that will help India move forward on the trajectory of sustainable development. As I said earlier, we as a nation have several positives going in our favor, both from a global as well as domestic perspective.

It is high time that these catalysts are leveraged for tangible outcomes and to ensure a meaningful change in the lives of our citizens, whether they live in the cities or in the rural areas.

Looking at specific sectors, the budget clearly tries to address the key issues faced by industries such as banking and financial services, real estate etc. It provides a specific answer to the current credit-related issues being faced by the non-banking financial institutions, that risk spreading as a contagion and impacting the overall economy. Further, the move to capitalise public sector banks will help the banking industry to spur growth.

Moving ahead on its intent to make India a global hub for electric vehicles (EV), the incentives offered to those purchasing such vehicles will help drive demand in the coming years. Amid these commendable steps, it is extremely important that the government takes measures to address aspects such as building necessary infrastructure such as charging stations for EVs at reasonable cost, to ensure the success of this initiative. Further, it is important that measures are taken to address the current decline in automobile sales, something that the industry was looking forward to from this budget.

For the insurance sector, the move to allow 100% FDI for insurance intermediaries should infuse long-term capital in a vital segment of the industry, thereby aiding distribution and reach of insurance across the country.

This is a positive move that was much needed given that insurance penetration especially non-life insurance remains much below the global average, even as catastrophic events and lifestyle-related diseases are on the rise. Having said this, the absence of any direct incentives through tax benefits in segments such as home and health insurance is a disappointment.

In sum, the finance minister, in her first budget, has done a commendable job by announcing a budget that is comprehensive and long-term driven while providing immediate relief on short-term issues. Further, given that the government has a clear five year journey to look forward to, setting the tone of focusing on long-term measures is the way to go. It is important that policymakers keep taking concrete steps in this journey, so that India realises its dream of becoming a $5-trillion economy by 2024-25.

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