Union Budget 2023-24: The banking pivot

Presenting the Budget for FY 2023-24 on February 1, 2023, Finance Minister Nirmala Sitharaman emphasised on ensuring inclusive growth, focusing on green growth, empowering the youth, strengthening the financial sector, providing public facilities to the last person, developing infrastructure and properly exploiting existing capabilities.

In the Budget, the finance minister has proposed amendments to the Banking Regulation Act and the Reserve Bank of India Act to improve the functioning of banks. For a long time, the government has been taking appropriate steps to strengthen the banking sector, resulting in many positive outcomes. The most important of those is the unprecedented increase in the profits of banks in the current financial year. The asset quality of banks has also improved due to the reforms undertaken by the government and the Reserve Bank of India, and the gross NPA ratio had come down to a 7-year low of five per cent in September 2022. The gross non-performing asset (GNPA) ratio is estimated to touch 4.9 per cent in March 2023.

In the Budget, it has been proposed to spend 10 lakh crores to strengthen the infrastructure. In this sequence, 2.4 lakh crore rupees will be spent on the railways. Strengthening of infrastructure is expected to accelerate economic activities, employment generation, credit and product demand etc.

Micro, small and medium enterprises (MSMEs) were greatly affected during the Covid period, for whose rehabilitation the government has been making continuous efforts. A new loan guarantee scheme for MSMEs has been launched in the Budget for FY 2023-24. Under this, loans up to Rs 2 lakh crore will be given to MSMEs from April 1, 2023, for more than 84,000 startups present in the country. In the past, the Emergency Credit Linked Guarantee Scheme (ECLGS) greatly benefited the MSME sector. There are more than six crore MSME units in the country, in which more than 12 crore people work. It is noteworthy that this sector contributes about 35 per cent to the country's GDP.

Inclusive development means that the development of all sections of society is ensured. Therefore, to improve the socio-economic condition of tribal groups, the Budget has announced the launch of the PMPBTG Development Mission. Rs 15,000 crore will be spent on this scheme in the next three years.

Banks' loan disbursement has been continuously accelerating since June 2021. All sectors are witnessing credit growth, but the annual growth in non-food bank credit increased to 15.3 per cent in December 2022. However, credit growth has outpaced deposit growth, putting pressure on banks to raise capital. As of January 13, 2023, credit growth stood at 16.5 per cent year-on-year, while deposit growth stood at 10.6 per cent. According to the Economic Survey, despite a low NPA ratio, strong fundamentals of the corporate sector and rising interest rates, the demand for credit and flow of bank credit is increasingly driving investments in businesses.

An analysis of recent credit growth reveals that the pick-up in credit growth has been mainly driven by a pick-up in small loans and housing loans. Investment will accelerate due to an increase in residential demand. Credit demand for agriculture and allied activities has been supported by the government's concessional institutional credit. The Budget proposes to increase the target of credit to the agriculture sector to Rs 20 lakh crore, increase the allocation for Pradhan Mantri Awas Yojana by 66 per cent to over Rs 79,000 crore, which will increase the business of banks, and the speed of development will also be better.

According to the Economic Survey, the growth rate may slow down slightly to 6-6.8 per cent in FY 2023-24, as India's exports have been badly affected by the current global challenges and its pace is expected to slow down in the coming months. Despite this, the Indian economy will continue to be the fastest-growing major economy in the world.

In the Budget, PM Vishwakarma Kaushal Samman scheme has been announced for traditional handicraft artisans, for which financial support will be given. Under this, the pace of production and marketing will be accelerated. A concessional loan scheme of Rs 6,000 crore will be started for fisheries, which will enhance self-employment.

A separate fund will be created for the agriculture sector. The Budget has set a target of disbursing loans of Rs 20 lakh crore under the Kisan Credit Card (KCC) scheme. In the last Budget, this target was Rs 18.5 lakh crore. Apart from this, with the help of the Digital Public Infrastructure for Agriculture scheme, farmers will be able to get information about fertilisers, seeds, markets, etc. while through the Agriculture Accelerator Fund, youth will be helped to establish start-ups in villages.

The scope of the organised sector in the economy has increased, as the membership of the Employees' Provident Fund Organisation has doubled to 27 crores, which indicates that our economy is getting formalised. This could be a result of the government’s welfare measures directed towards workers.

After being affected by the pandemic, the Indian economy came back on the track in FY 2021-22 and touched pre-pandemic levels in FY 2022-23, but the current account deficit (CAD) remained alarming. This was because the rise in global commodity prices and depreciation of the rupee widened the export-import gap, adversely affecting the CAD.

Inflation is estimated to be 6.8 per cent in the current financial year, which is above the limit set by the Reserve Bank, but it is likely to come down in the coming months. Fiscal deficit is estimated at 5.9 per cent of the GDP for FY 2023-24, which is targeted to be brought down to below 4.5 per cent by FY 2025-26. The GDP growth rate at current prices is estimated to be 11 per cent in 2023-24. The current government came to power in 2014 but, in just nine years, the per capita income has more than doubled to Rs 1.97 lakh, and the Indian economy has grown from 10th to 5th largest in the world during this period.

In such a situation, it would be appropriate to say that Indian banks and the Indian economy will remain strong, and there will be sustained private consumption growth, an increase in bank credit and an improvement in the capital expenditure of companies.

Views expressed are personal