Finance MInister Nirmala Sitharaman’s budget drew contrasting reactions from the bond and equity markets. The aggressive borrowing programme, to fund infrastructure and other spends this year and next, prompted a bond sell-off, while equity markets were buoyed by what Uday Kotak describes as a “bold call” (and the lack of any new tax burden).
The Finance Minister has taken a call that even if we have to borrow more money, we better bet on growth through capital expenditure, Kotak, president of Confederation of Indian Industry and vice chairman of Kotak Mahindra Bank Ltd., told BloombergQuint. “The spend (quality) of the money is right and the decision to go out there and take a bold call even if it means a higher fiscal deficit is a significant change in terms of the mindset as this budget has demonstrated.”
When asked if the budget should have also included measures for a short- to medium-term boost to consumption, Kotak said if India has got to make a structural change, stimulus on demand alone would not help without the supply side being addressed.
“By keeping the fiscal deficit higher, that itself is a stimulus to the economy.”
Yet, the aggressive borrowing programme to fund the deficit, an additional Rs 80,000 crore in FY21 and Rs 12 lakh crore for FY22, will “require very deft management between the government and the RBI,” Kotak acknowledged.
“If we can handle the transition carefully and deftly, we could have a situation where yields don’t go out of control, we see a positive capital market which makes capital raising possible and you then get a win-win.”
For more on his views on the economy, DFI, bad bank – read the transcript below.
