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Fast infra pick-up would script an excellent recovery

The Budget is important for economic reasons that allows for a decent improvement in capital expenditures.

March 2, 2015 2:18:09 am

By: Nimesh Shah

Being the first full-year Budget of this government, it carried huge expectations and to that extent the Finance Minister has done credible job of balancing growth objectives and fiscal discipline. Given the fiscal tightrope and the lower tax-to-GDP ratios, there was really no room for a big bang budget.

But the budget is important for economic reasons that allows for a decent improvement in capital expenditures. There is much ground level activity still required to set the economy in motion, particularly towards kick-starting the investment cycle, and for the Indian economy to walk on the path of recovery.

It’s encouraging to see a capex revival through increased government spending and through resolving niggling issues on financing of infrastructure projects. This could benefit capital goods and power sectors. Economic recovery has been accorded top billing in the budget and to that extent the increase in capital expenditures to the tune of Rs 70,000 is a good enough beginning. There’s clearly a visible boost to infrastructure, but it’s lower than one would have liked it to be.


It certainly implies a steady increase in spending on national highways, rural roads, railways, and rural and urban housing. Once the investment cycle turns positive, the private sector will start to make fresh investments, turning the recovery into a virtuous cycle. A rising capital expenditure should drive demand for cement, paints, construction material, and other raw materials. The banking sector could reap the cascading benefits of a higher loan growth.

For India’s households, there are several positives that include an increased range of tax deductibles. The government has come up with a creative step to monetise gold holdings, and thus make more productive use of this otherwise dormant asset class.

For the first time, the Budget has credible revenue targets which would make it easier for the government to run the fiscal deficit at 3.9 per cent of the GDP as the revenue targets are achievable.

For Alternative Investment Fund category, foreign investments have been allowed. Besides, these investments are also eligible for a tax pass through in respect of capital gains and other income. It will encourage more foreign funds into the country and will be a good model for raising resources in the economy.

One thing is eminently clear, if we can see some quick pick up in infrastructure spending, then the Union Budget would script an excellent recovery.

The author is CEO, ICICI Prudential Mutual Fund

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