Budget should contain steps that can have multiplier effect: Allianz Investment CIO

Budget should contain steps that can have multiplier effect: Allianz Investment CIO

MUMBAI: With the Union Budget around the corner, there is palpable optimism among investors, as they expect the government to open up the markets even more and integrate India ever more closely with global markets, says Ritu Arora, Chief Investment and Information Officer at Allianz Investment Management, Singapore.

After the recession triggered by the Covid-19 pandemic and the subsequent government lockdown earlier this year, investors are expecting the Union Budget to set an optimistic tone for the economy for the new financial year.

Finance Minister Nirmala Sitharaman has already raised expectations high from her third Budget, after claiming that the forthcoming annual exercise would be like none seen in the past 100 years. The Finance Minister will present the Budget on February 1.

Arora says the quality of government spending will be watched most closely in this Budget.

“Looking at how India’s annual budgets have evolved, it is a crucial annual signaling event. The actual impact on the economy and markets is determined by implementation,” she told ETMarkets.com.

Credit Suisse Securities India says around 76 per cent of India’s revenues are spent on non-discretionary items such as interest payments, salaries, pensions, defence subsidies and state transfers, while the remaining 24 per cent goes into discretionary spends.

While the government is expected to post a high fiscal deficit number for the next financial year, investors expect the government to provide a fiscal push to the economy so that it can have a large multiplier effect.

Besides the quality of government spending, Arora is keen to see what the government may have to offer for the country’s insurance sector.

She expects the government to open up the sector to further foreign direct investment. Recent media reports have suggested that the government may be open to raising the FDI cap for the sector to 74 per cent from 49 per cent at present.

“While FDI is needed at all points of time, India needs it now more than ever. The inflows will provide resources to the government to support the economically critical sectors such as infrastructure,” she said.

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