Finance minister Nirmala Sitharaman is all set to present Union Budget on 1 February. The Budget 2021 will be mostly focussed on reviving a slowing economy and boosting consumption amid a global pandemic, believe economists. Banks and leading financial institutions expect measures that can revive credit.
Here’s what banks, NBFCs, fintech players want from Budget 2021
Focus on strong growth multiplier
“Given the limited fiscal headroom, better targeting of government spending is the key. The government will likely prioritise areas with strong and quick multiplier effects (eg., MSMEs, affordable housing, rural economy, infrastructure). We expect continued support for social security programmes including healthcare, rural infrastructure such as electrification and irrigation, NREGA, and skill enhancement providing employment and income support for the masses, and thereby reducing future dependence on fiscal support,” said Siddhartha Sanyal, chief economist and head of research, Bandhan Bank.
“A decisive and credible stance on near term fiscal deficit and medium term FRBM roadmap is crucial. The fear of wider fiscal deficit resulting into risks to sovereign rating is only a partial picture as dent in growth potential can also lead to rating downgrades. It is important to focus on composition and quality of fiscal spending rather than merely looking at headline deficit numbers. Also, near-term fiscal spending should not crowd out government’s capital expenditure as that may dent long-term growth potential,” Sanyal added.
Improve investment climate
“Even before the pandemic struck, India’s growth had been slowing down from a high of 8.3% in FY2017 to 6.1% in FY2019 and 4.2% in FY2020. Notably, investments have been on a downtrend. Investments which were at more than 37% of GDP in FY2011 are now at less than 30% of GDP. Thus the utmost important objective of the Budget would be to revive investments. Health spending for vaccination will be an immediate priority as is boosting India’s competitiveness, health, education, digital and logistics infrastructure,” Sameer Narang, chief economist, Bank of Baroda.
“While economic rebound will take care of growth in FY2022, the larger focus has to be on improving the investment climate. A lot of work has already gone by way of reduction in corporate tax rate, starting production linked incentive for 13 sectors and improving Ease of Doing Business (India’s current ranking is 63 versus 142 in 2014). However, a relatively simpler taxation regime, dedicated Export Zones (clusters) and better quality infrastructure is the need of the hour,” he added.
Continued liquidity support
“The suddenness and velocity of the pandemic has left MSMEs reeling. Even though they are slowly getting back on track, there are high expectations for Budget 2021 to deliver announcements that will help them along on the recovery path. One of the primary issues plaguing MSMEs and the last-mile NBFCs lending to them is the existing liquidity crunch, which has been exacerbated by the pandemic. Our expectation from Budget 2021 is a resolution to rapidly improve the economy by prompting banks to inject more liquidity as well as policy changes that ensure that the capital flows to the MSMEs as intended,” said Hardika Shah, founder and chief executive officer of Kinara Capital.
“While the Reserve Bank of India’s TLTRO mandate to banks was aimed at addressing this issue, the funds from it have been largely directed towards top-rated NBFCs, leaving out most of the last-mile NBFCs. Banks continue to maintain a risk-averse position and this excludes the support that can be given to MSMEs. TLTRO’s success depends on if the policies can push banks to ensure that the last-mile lenders are injected with the liquidity they need and therefore to let TLTRO funds to actually help a wide number of MSMEs. We hope Budget 2021 can deliver on the promise of supporting MSMEs, as well as last-mile NBFCs that ensure they have access to formal credit,” Shah added.
Traditional banks to partner with fintech firms
Amid pandemic, there was a huge upsurge in digital payments, leading to the need for quicker digital transformation through building relevant infrastructure and capabilities.
“We anticipate that large, traditional banks and financial institutions will partner with fintech firms. These institutions will benefit from our new-generation digital lending technology expertise, and we in turn gain the advantage of solid structural backing and regulatory competencies that such large organizations provide. We also expect a concerted focus on increasing last-mile credit access for businesses, that will enable us to make a tremendous mass impact on end-users, as UPI payments did,” said Nityanand Sharma, co-founder and chief executive officer, Simpl.
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