The main focus of Budget 2022 was pro-economy spending without losing focus on the fiscal consolidation agenda, long-term economic revival and job creation for the government. Keeping this in mind, Finance Minister Nirmala Sitharaman outlined the priorities for this year’s budget, i.e. funding investments, better productivity, climate action, inclusive growth and Pradhan Mantri (PM) Gati Shakti Yojana.
Long-term focused initiatives such as PM Gati Shaki for roads, railways, airports, waterways, mass transport, ports and logistics are aimed at boosting infrastructure spending. In addition, measures such as expansion of Production Linked Incentive (PLI) schemes for domestic solar cells, module manufacturing, data centers and warehousing will boost domestic manufacturing and boost employment generation.
The fiscal deficit estimate for FY13 is higher than the market expectation at 6.4% of GDP due to higher capital expenditure (35.4 % from the previous year) to raise capital expenditure, which could have a significant multiplier effect on economic growth. Is. The tax revenue sentiment for FY22 and FY23 appears to be conservative. With regard to the fiscal consolidation path, the government has set a fiscal deficit target of 4.5% of GDP by FY26.
In the realm of the financial sector, the announcement of digital integration of post offices with the core banking system will enable financial inclusion and allow online transfer of funds between post office accounts and bank accounts. Other landmark announcements in the digital space were the proposal to introduce the digital rupee and the decision to tax benefits (at 30%) from transactions in digital assets. This indicates that the government is taking cognizance of digital currency and assets.
Apart from all this, the government also emphasized on climate change by announcing measures to support the renewable energy sector. In addition, the Sovereign Green Bond announcement highlights that the government is looking at more sustainable long-term economic growth.
Overall, inclusive growth for all sections of the population continues to be the focus of the government while striving for development at the macro-economic level. With the announcement of capital expenditure, including provision for creating capital assets through grants-in-aid to the states, the government is reiterating its commitment to stimulate economic growth through the efforts of both the central and state governments.
The ‘Amrit Kaal’ blueprint, a 25-year long leadup visionary initiative for India@100, aims to take us to the next stage of development through digital transformation of all segments of the economy, transition to clean energy, adapting to climate . action, encouraging private investment, building modern infrastructure largely funded by public investment, among others.
From a market perspective, a higher borrowing scheme and lack of tax measures to enable India’s bonds to be included in emerging market bond indices were not well perceived by the fixed income market.
Higher supply of government bonds amid dwindling appetite of domestic investors adds to current concerns, leading to a rise in bond yields.
On the other hand, equity markets cheered the Budget. The continued move towards public capital expenditure is probably the biggest roadblock for the markets.
The higher allocation for PLI schemes, especially solar PV modules, could be interesting for home appliance manufacturers. Some changes in the declared customs duty could benefit local capital goods manufacturers and the chemical sector, while potentially hurting domestic steel companies.
However, as a caveat, the feedthrough of fiscal math into bond yields can weigh on equity valuations (which remain expensive) and therefore needs to be watched.
Thoughts are personal.
Vinay Tonse, MD & CEO, SBI MF
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