By Aditya Narain
This is a relatively conservative Budget, coming on the back of what has been a fairly strong year from a revenue perspective. It is also characterised by a relative brevity in the length of the Budget, which we believe signifies a more decisive focus on intent, rather than spreading itself thin with many announcements and allocations. So it is a somewhat different Budget.
India’s Budgets have historically been reasonably measured on revenue forecasts; this one goes a step further, and steps to the side of being conservative, in spite of strong tailwinds in the current year. This builds in a certain cushion, which provides for more Budgetary leeway during the year, than in previous year. The issue is whether the government, in being conservative with revenue estimates, is as a result being too cautious with spends.
The second different element is that it has an almost singular focus on infrastructure in its expansion of spends. Its 35% spend expansion is significant, forward looking, and does walk its talk over time. That these spends, which have a multiplier effect, are forward-looking, and are accompanied by a focus on newer areas of economic growth—new energy, digital and Internet infrastructure, and the start-up ecosystem – lend a distinct air of a forward-looking approach. While the government has been formulating policy and laying emphasis, this added dimension and singular focus lends greater credibility and commitment to the FM’s opening of building India for the next 25 years rather than the immediate. The third, and unspoken, element of this Budget is taxes.
We believe one of the big successes of the last few Budgets is the stabilisation, and in the case of corporates – incentivisation – with tax rates. India seems to have found itself at fairly appropriate tax levels: for corporates and individuals, where there’s tax revenue momentum, and tax levels are not onerous on either individuals or businesses.
We hope this stability sustains, eliminates what has been a big part of election analysis – and removes an unnecessary policy uncertainty. Finally, this Budget is very careful on overall spends and not very ‘populistic’, particularly given an important election year. While it helps to maintain the reducing fiscal deficit trend, it could well be the risky part of the Budget. There is a challenge with demand, particularly at the rural and lower end of the economy, and with absolute reductions in spends and rural subsidies, it runs the risk of exacerbating the weak spot of the economy.
It could well be keeping in mind external risks – global and rising interest rates. But these spends could possibly see an expansion during the year, either from the realisation of the need, or the cushion the stronger than expected revenues might just provide. We believe the markets will be comfortable with this Budget, not necessarily excited or disappointed–keeps the macro and deficit intact, provides a growth thrust through infra spends and doesn’t change tax or business plans.
It’s a Budget that’s good enough to sustain the current economic steam – it’s to be seen whether it can accelerate for the near term, and structurally raise for the beyond.
The writer is MD & Head, Institutional Equities, Edelweiss Securities. Views are personal.