By Nilesh Shah

The Union Budget was presented just as the country navigates the third wave of the Covid-19 pandemic. This was clearly a pro-growth Budget with the government’s key macro focus being infrastructure growth and boosting capex spend, in a bid to sustain the investment growth momentum. The government continues to focus on long-term growth drivers like infrastructure, encouraging entrepreneurs and supporting start-ups.

The Budget outlined a fiscal deficit at 6.9% of GDP for the FY22RE and 6.4% for the FY23BE. The Budget documents, however, reiterate the commitment towards the broad path of fiscal consolidation to attain a level of fiscal deficit lower than 4.5% of GDP by FY25-26, even while there is no explicit glide path. The figures for gross and net borrowing were, however, higher than expected, which resulted in the rise in bond yields in reaction to the Budget. While the budgeted borrowing figures are higher than last year, one must note that the Budget estimates nominal GDP growth at 11.1% in FY23 and net tax revenue growth of 9.6%, which could have upsides given the pace of economic recovery seen so far. At the same time, disinvestment target for FY23 looks quite reasonable. So revenue projections in all are quite credible.

The highlight of the Budget this year is that it sets the foundation for structural growth over the next few years via investment spend. The Budget provides the necessary impetus through various policies, laying the blueprint to steer the economy for the next 25 years and enable job creation. The infrastructure growth focus is very clearly visible in various sectors outlined under the umbrella of the PM Gati Shakti scheme. These include roads, railways, ports, airports logistics, etc. Further, in a boost towards affordable housing and providing drinking water to the rural areas, the allocations were increased both for the PM Awas Yojana and the drinking water project (Nal Se Jal). The heavy lifting for growth will be clearly done by public spend on infrastructure as outlined in the Budget. Capital expenditure growth for FY23 is budgeted at 24.5% over the FY22RE. The Budget also seeks to boost local manufacturing through steps such as allocating 68% of defence capital expenditure to local manufacturers.

The Budget brings to light the strategic initiatives being taken towards energy transition and climate action. There was an announcement of an additional PLI (Production Linked Incentive Scheme) support of Rs 195 billion for solar module manufacturing, with an aim to reach the target of 280 GW of solar power by 2030. The Budget also highlights that the government will outline the battery-swapping policy, and issue green bonds to mobilise resources for green infrastructure, among others initiatives.

In keeping with the developments in the technology world , the Budget seeks to promote technology-enabled development with a steadfast approach towards new-age developments: The Budget outlined that 1) infrastructure status would be granted for data centres 2) introduction of the digital currency by RBI in FY23 and 3) tax clarity on virtual digital assets, etc.

An area that the Budget appears to miss is towards providing some demand support and thrust to consumption. While largely consumption taxes are mostly in ambit of the GST Council, there were some expectations that personal taxes also could be lowered in line with how the corporate taxes were brought down in 2018.
Overall, the Budget is positive for the equity markets and hits the bull’s eye in terms of its focus on structural growth, with higher spend on capex and no major changes on the taxation front. It clearly sets the stage for a long term, sustained and structural economic growth recovery, with investments and infrastructure being the key growth drivers, while improving business competitiveness as well as improved service delivery for its citizens.

The author is Group President & MD, Kotak Mahindra Asset Management Company (Views are personal)