The Union Budget for FY23 was presented with lots of expectations as it does appear that the economy is back on track creating conditions where the budget could make a significant impact. The Budget has focused on the supply side rather than demand and hence, most measures are aimed at specific sectors that are not just the rising industries but also those which were down under due to the pandemic.
As the world moves towards ESG sensitive policies, the Budget provides a push to digital equipment, solar power, EVs among others. Industries like hospitality which were trailing due to lockdowns have been included under the ECLGS scheme. This will also help to revive growth in bank credit which has been restricted more to the retail side in the last couple of years. An indication has been made that the IBC resolution process will be expedited which will be good for the system as this has been a pain point in the entire process of tackling NPAs.
The extension of the ECLGS as well as including hospitality will further encourage banks to lend. A new avenue opened by the FM for banks is the concept of digital banking units in various districts. Two new concepts have been proposed in the Budget which can have far reaching implications. The first is the introduction of a central bank digital currency which has become a topic for discussion everywhere in the world with Sweden probably being close to a full transition.
The RBI will be working on this and as the concept evolves banks too must adapt to these changes as some of the payments channels that have developed in the e-space will now also have a central bank digital currency. The other is the green sovereign bond. This is a positive step being taken given the world is moving towards the ESG paradigm.
The Budgetary numbers look good when juxtaposed against the growth in real GDP that is expected and as tax revenue runs along with this process. The fiscal deficit of 6.4% of GDP corresponds to a rather high borrowing programme of `14.95 lakh crore which will tend to pressurise liquidity and interest rates. The RBI role in managing this would be of interest to the market when the policy is announced a week from now.
Sanjiv Chadha MD & CEO, Bank of Baroda
(Views are personal)