This article was published on moneycontrol.com on February 02, 2017
The Finance Minister concluded the Budget Speech by quoting these lines:
“When my aim is right, when my goal is in sight, the winds favour me and I fly”.
This is Arun Jaitley’s fourth Budget and like the previous three, he has again made it clear to all the people in the country and outside that he does not need a particular day to announce big bang reforms. The Finance Minister presented the Budget with the same poise and calm that he has maintained in the previous years. A Budget whose key agenda was to revive the growth momentum in Rural India, also had measures for other key sectors of the economy like infrastructure, financial sector, digital economy and public service. The Budget also clearly indicated the government’s decision to maintain fiscal discipline. If we observe the 3 previous Budgets presented by Jaitley, it can be clearly seen that the focus of team NAMO remains the same and this government means business as usual. However a major difference that we saw in this year’s Budget was the emphasis being given to transforming the economy from informal to formal, which they have been trying to achieve through the demonetization drive launched in November 2016.
Here, I would like to highlight a few measures announced in the Budget which would have a positive impact in the long term for our investors.
- Farmers and Rural Population
The government is expecting the agricultural sector to grow at 4.1% in the current year. Measures like INR 10 Lakh crore agriculture credit for 2017-18, 60 days interest waiver for farmers, increased coverage under Fasal Bima Yojana, dedicated Micro Irrigation Fund in NABARD, INR 3 Lakh crore spent in rural areas every year, highest ever allocation to MGNREGA at INR 48,000 crore in 2017-18, 100% village electrification by May 1, 2017, etc. will surely revive the rural economy.
We are a country wherein more than 60% of the population is still dependent on agriculture and the continuous emphasis of this government on reviving the rural economy will be positive for this segment. We believe that the biggest beneficiary of this revival would be the companies which play on the consumption theme.
This was the first integrated Budget wherein the railway proposals were also included. A total Capital and Development expenditure of INR 1,31,000 crore has been proposed for the railways for 2017-18, out of which INR 55,000 crore would be provided by the government. The Finance Minister has provided for INR 2,41,387 crore for the entire transportation sector which includes rail, roads and shipping, which he believes will spur economic activity and create huge job opportunities.
We have always believed that the infrastructure sector is the lifeline of the Indian economy. A Government whose focus has always been to spur infrastructure activities makes us maintain status quo on our infrastructure funds being recommended to our moderately aggressive and aggressive investors.
- Disinvestment of CPSEs via the ETF route
The Government has clearly indicated that it will continue to disinvest the CPSEs through ETFs. This can be seen from the Finance Minister’s words “Our ETF, comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). We will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other government holdings will be launched in 2017-18”.
CPSEs have many advantages, they are also subject to uncertainties caused by policy changes and commodity prices which in turn create volatility in these portfolios. The government’s decision to disinvest via the listing of railways shares on the stock exchanges will add to the government coffers.
- Prudent Fiscal Discipline
The Finance Minister has increased the capital expenditure by 25.4% over the previous year, with the intention of stimulating the growth momentum in the economy. In spite of the increased spend on public expenditure, the fiscal deficit has been pegged at 3.2% of GDP for 2017-18 and the Government has committed to achieve 3% in the following year. In addition to this, it has also been decided to limit the Government’s net market borrowing to INR 3.48 lakh crore which is much lower than INR 4.25 lakh crore of the previous year.
A government which shows its intention to maintain fiscal discipline should give confidence to the Reserve Bank of India to continue with its monetary policy easing stance. It will be interesting to see how the government will maintain fiscal discipline with increased public expenditure and reduced net market borrowing. Fixed income investors can continue investing into accrual funds and dynamic bond funds depending on their risk profile.
This year as well the Finance Minister has decided to give a miss to the mutual fund industry and hence life moves on as usual for our investors.
DISCLAIMER iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice.