Budget 2023-24: Positive for infra and credit growth

• The budget plumps for capital spending to stoke demand and ultimately crowd in private-sector investments.
  
  
• It also provides support to micro, small and medium enterprises (MSMEs).
  
  
• It sticks to the fiscal consolidation path, which augurs well for interest rates.

The budget for fiscal 2024 is clearly growth-oriented, and plumps for capital spending to stoke demand and ultimately crowd in private-sector investments. That, in turn, should fuel credit growth for lenders.

It also provides support to micro, small and medium enterprises (MSMEs) and should boost consumption demand through tax concessions.

Yet it plans to stick to the fiscal consolidation path — there is no borrowing shock — which augurs well for interest rates.

Such tidings will prepare the economy for its next phase of growth.

After spending almost the entire budgeted capex outlay this fiscal as committed, the government has continued its focus on capex especially towards infrastructure build-out.

Out of the budgeted capital outlay of ₹13.7 lakh crore for fiscal 2024 (over 30% higher on-year), railways and roads sectors are slated to garner higher share.

This would also have a multiplier effect on demand and should lure private corporate capex as well. Higher spends on infra would benefit sectors such as steel, cement, pipes, capital goods, and civil construction.

Given the currently decadal low gearing levels (less than 0.5 times) and optimal capacity utilization levels, India Inc has the wherewithal for taking on debt and set up additional capacities. Banks are also well equipped to support this growth led by healthy capitalisation and low non-performing asset levels.

From a more long-term perspective, a clear focus has been articulated towards enhancing bank governance and investor protection with an announcement of amendments to the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act. This should further structurally strengthen the financial sector and bolster stakeholder confidence.

Further, we see a step towards ensuring higher transparency and curtailing information asymmetry, with the government planning to set up a national financial information registry. It would support credit decision making and promote financial inclusion, albeit over a longer horizon.

MSMEs, which are yet to recover fully from Covid disruptions, will benefit from the revamped credit guarantee scheme that envisages ₹2 lakh crore credit flow at lower interest rates.

Additionally, the move to link tax deduction on expenditure of larger companies to making timely payments to MSMEs will improve the liquidity position of these entities. As MSME accounts for about 30% of India’s GDP, the benefits would be wide-ranging and across sectors.

Further, reduction in personal income taxes under the new tax regime should also spur consumption leading to growth in discretionary sectors such as automobiles, consumer durables and fast-moving consumer goods.

Overall, a pro-growth pronouncement emphasizing big-ticket infra spending while not losing sight of the small fry.

(The author is the Managing Director of CRISIL Ratings Ltd)