For any government only just emerging from a pandemic the likes of which has not been experienced since Independence, the ostensibly prudent approach would have been to tighten expenditure and look at ways by which to boost revenues. India’s Finance Minister, in that regard, deserves praise for taking the path less trodden and choosing to spend her way out of the crisis. A bold move, no doubt, but one that is certain to not just take India back to pre-Covid levels of growth but much beyond that. Clearly, this is a Budget aimed at taking India to the next level.
The aim of this budget has been to drive growth through capital expenditure and while in past budgets, not a lot of attention has been paid to how all of these projects are going to be financed, it has been extremely encouraging to see how much of focus there has been on helping PSU banks address the one factor that has been standing in their way for so many years – problem loans. The setting up of an asset reconstruction and management company will allow banks to move large blocks of their NPAs off their books and free up resources to lend to other projects. More importantly, the intent to set up an ARC sends out the right signals on just how serious the government is about cleaning up the NPA mess that has bogged down banks for so many years. This should ideally act as a catalyst and revive the distressed assets business and create an active secondary market, an area in which Deutsche Bank has been playing a constructive role for some time now.
By the most conservative estimates, PSU banks will need USD15bn at the very least in additional capital over the next few years, so the government’s decision to privatize two PSU banks and one general insurer is a strong signal to the market that it intends stepping back to allow the private sector to play a more active role in the financial services sector. The Rs 20,000 crore recapitalization announced for PSU banks will provide some comfort to them in the medium term but it is our expectation that the government will gradually become more open to foreign capital in the Indian banking system, the recent DBS-Lakshmi Vilas Bank transaction being a case in point.
A lot of attention has been paid to further improve the ease of doing business in India and the number of notches we have moved up over the last few years is proof enough that we have been doing the right things. In 2020 alone, India moved up 14 notches to No. 63 on the Ease of Doing Business Index. No doubt, much more remains to be done but the clear message going out to the global business community is that India is open for business. Further opening up the insurance sector and incentivizing global investment funds and banks to set up base at the International Financial Services Centre in GIFT City are all aimed at placing India firmly on the global map as an investment friendly destination. We would, of course, have liked to see a little more progress on getting India included on global bond indices but we are clearly moving in the right direction and now may be the best time for us to consider a sovereign bond issue.
Some of the budget’s goals are rather ambitious so execution and how we deliver on what we have committed ourselves to is going to be key. Demonstrating that India can walk the talk will go a long way in raising our profile with a global audience.
(Views by Kaushik Shaparia, Chief Country Officer, Deutsche Bank India)