ONE salient message that Finance Minister Ms. Nirmala Sitharaman has delivered to the country with the ‘no-thrill’ Interim Budget is the Government’s readiness to take big risks after assuming power for the third term. As a stable approach has driven the Government’s handling of the economy in the aftermath of the coronavirus pandemic, there is every reason to believe that the Indian economy is ready to ride the tight-rope in the next fiscal in anticipation of global disruptions. The Finance Minister has done well to keep the fiscal deficit projection for 2024-25 at 5.1 per cent after achieving a seemingly impossible 5.8 per cent this year. It shows the Government’s confidence in the private sector which is expected to come to the party now. Yet, the ambitious projection will need a lot of factors like revenue generation and heavy consumption to converge at the right moment to come true. This is the tight-rope walk that the Indian economy has to gear up for as the Centre is set to welcome another NDA regime. The Interim Budget has conveyed to the markets that the Government is done with heavy lifting. The Centre took a lot of steps including sharp cuts in corporate tax rate and Production-Linked Incentive (PLI) scheme to spur private investment in various sectors. It showed results in only specific sectors like aviation, chemicals, machinery and power which witnessed a rise in new investments. Otherwise, the industry has still remained in a cautious mode, adopting a wait-and-watch policy.

 

This approach of the industry needed a shake-up and through the Interim Budget the Centre has made it loud and clear to India Inc. to brace up for the next leg of the relay race. Carrying the baton further with a steady run on the future track is not easy for the industry though. It is still dealing with many problems like excess capacity, high interest rates and questions on consumption levels in the economy. The concern was raised in the First Estimates, too, as the rural segment accounted for pretty less consumption. The December (third) quarter results of most companies also showed slack manufacturing on account of lower sales. Even lead sectors like auto and FMCGs saw subdued sales growth. The order flow also took a beating as per the quarterly results announced by many private players. The situation is likely to stay the same in the near term with general elections approaching. These factors are still playing on the mind of the private sector. Many players have plans ready on their drawing boards but are still hesitant in pushing the envelope.

 

There are enough reasons to conclude that private sector investment would take a long time and the push might come only after the elections and indications of new sops in the full Budget in July. In this context, the Government has done its mathematics very wisely by reducing the fiscal deficit. With the Government cutting down on borrowings from the market, the banks have more funds for giving loans to the private sector. Moreover, lower borrowings of the Government can also give the Reserve Bank of India (RBI) an opportunity to lower key interest rates. The companies and consumers are eagerly awaiting a cut in the repo rate in the coming quarters. These reasons should nudge the private sector to bring in more investments and drive the economy further. Two years ago, Ms Sitharaman had compared the Indian Corporates to ‘Hanuman’, who initially did not believe in his own strengths. The pause in fiscal support subtly announced by the Finance Minister should act as another signal to the private sector to shed its hesitations and take a giant leap across the ocean of opportunities.