Budget 2024 expectations: From FDI to privatisation, this is what banks want from the finance minister

With the full budget scheduled to be announced on July 23, analysts expect the government to bring in key changes in the banking sector. Experts recommend the government to increase foreign direct investment (FDI) to boost capital in the sector and reduce the government’s stake in public sector banks.

“Banking requires dynamic and timely reforms for a country like India. FDI in banking should be increased to invite more capital,” according to Rajesh Narain Gupta, founder and chairman of SNG & Partners.

Currently, 49 per cent of FDI in the banking sector is allowed under the automatic route and beyond that, government approval is required for private banks. Up to 20 per cent of FDI is allowed in public-sector banks.

According to Gupta, the government should reduce its stake in public sector banks.

“ Government participation in public sector banks should be reduced as soon as possible,” he said. Anwin Aby George, banking analyst at Geojit Financial Services, also emphasized the need to reduce the government's stake in the banking sector.

“In the upcoming union budget, the market is anticipating additional equity dilution measures in PSBs,” he said. The government aimed for strategic disinvestment in the budget presented in 2023-24.

However, multiple reports cite Congress general secretary in-charge communications Jairam Ramesh as restraining any move to reduce the 51 per cent stake in the 12 public sector banks, recalling how Indira Gandhi had nationalised the banks.

“Big incentives should be given to the private sector, especially SMEs (small and medium enterprises), on capital expenses for capacity building and increased employment and also to reduce dependence on government spending,” Gupta said.

The government has proposed increasing capital expenditure by 11.1% to cover the ₹11.11 lakh crore in the interim budget presented in February this year.This would be 3.4 per cent of the GDP.

He added that the government should bring reforms to long-term lending space specifically for infrastructural projects.

“With a focus on green projects, the government should prioritize availing green finance with the concessional tax rate, Gupta said.

In the interim budget, the government has proposed viability gap funding to harness offshore wind energy to meet its goal of ‘green growth.’

The government has proposed the target of reaching ‘net-zero’ emissions by 2070.

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