Budget Reactions

Praveen Agrawal, Co-Head, India at OakNorth

“Over the last 12-months, the COVID-19 crisis has impacted millions of people, forcing governments to take unprecedented measures to help navigate the economic impact. The resultant steep decline in GDP witnessed at the end of Q2 2020, was followed by a quick recovery in the subsequent quarter. We are hopeful that the next few quarters will witness a sequential improvement, helping to grow the economy above pre-COVID levels. “The upcoming budget is both critical and challenging, as on one hand we need to manage ballooning Fiscal deficit (and providing a mid-term path of fiscal stability) whilst on the other, ensure that the government and private spending continues to spur growth. “We believe that the major theme for this budget will primarily revolve around technology as an enabler to various sectors and facilitating adequate funding alternatives to Micro, Small and Medium Sized Enterprises (MSMEs). There will also be a high focus on the creation of employment opportunities for the younger segment, through fostering an environment of innovation in the start-up space.

“MSMEs have been the biggest employer and growth driver for the Indian economy to date, but were adversely affected amidst the COVID-19 crisis due to structural liquidity issues, coupled with high funding costs. With only a small proportion of MSMEs having access to a formal credit system, significant chunks of them face working capital shortages and refinancing constraints, despite the formal financing support offered during the crisis. “We are hopeful that this budget will have concrete measures to boost the start up space, particularly Fintech’s, who are proving to be highly effective and efficient in collaborating data and bringing together market participants to establish a healthy lending ecosystem.

“We saw several measures in the last budget pertaining to start ups and Fintech’s, including the introduction of tax relief on ESOPs and the establishment of Indian data centers and facilities. We are hopeful that this Budget will further capitalize on technology as an enabler in the Indian Start up ecosystem. The current system requires extensive focus on digitization, awareness and education on technology, including Artificial Intelligence and Machine Learning across the board.

“Furthermore, we expect that this budget will introduce policies aimed at ensuring higher funding to non-banking financial companies (NBFCs) and Fintech’s, the easing of regulatory and compliance restrictions in the initial stages of operation, the efficient management and monetization of non-performing assets (NPAs), as well as the safeguarding of effective partnerships and collaborations across the formal and informal lending space.

“Given the fiscal challenges, it will be interesting to see a balance between spending and tax collection. We believe there is a need to amend the Fiscal Responsibility and Budget Management (FRBM) act by pushing back the 3% fiscal deficit target by a few years.

“The 2021 budget needs to be a growth oriented budget, incentivizing new investment, reviving consumer spending and hopefully no new taxes.”

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