Post-Budget quote from CEO and Co-founder of Cians Analytics Aman Chowdhury:
This year’s union budget comes amid two years of sub-5% growth, high inflation and during a time when the economy is said to be crippled by policy paralysis, lack of reforms, and a mounting fiscal deficit. Clearly, there were high expectations surrounding the budget, which drove the market during the past week. During the first half of the year, the markets saw the FII inflows hitting the USD 20 BN mark, with nearly 450 stocks touching their 52-week highs and Sensex reaching its all-time high (25,000+).
Looking back at the budget, the market’s reaction was subdued, with markets down 30 basis points. The budget had a number of positive overtones—easing of FDI regulations for the defense and insurance sectors, recapitalization of PSBs to make them Basel-III compliant, and maintenance of the status quo for a fiscal deficit target of 4.1%. Also, as anticipated, the FM put paid to their manifesto goals by charting out necessary reforms to boost the infra, realty, and agriculture sectors. However, it remained muted, particularly on the GST provision, withdrawal of the retrospective tax policy and subsidies, and also any sops for key sectors such as auto.
In contrast, we believe the budget has shown a refreshing conviction towards the MSME sector—a welcome step for the private equity business. These reforms could strengthen and foster the startup culture in the country. The key measures for this sector include—setting up of a INR 10,000 crore fund providing risk-based capital to small and medium enterprises, establishment of a nationwide “District level Incubation and Accelerator Programme” for incubation of new ideas and necessary support for accelerating entrepreneurship and easing the overall bankruptcy norms. This, coupled with the proposal to allow manufacturing units to retail through e-commerce platforms, will further stoke the upcoming online startups. Generally, domestic and global funds are attracted towards such tech startups.
The above measures for the incubation of MSMEs, along with other proposals relating to infra, roads, power, and ports, seem to be a step in the right direction; however, there remains an execution risk as observed during the earlier regimes.