Dear all,
Would like to share with you our short opinion on the Budget by Rajesh Pherwani –
In my investment career spanning more than 2 decades, I have witnessed every Budget’s obsession with fiscal deficit and subsidies. However, the tide has turned over the last few years. The fact that this budget is focused on increasing capital expenditure by 35% YoY along with cutting down the subsidy bill is a dream come true for us investors. Total capital spending of the government is budgeted to rise to 19% of total spending, marking the highest share in 18 years from just 12-13% in the pre-Covid years.The effective capital expenditure of the central government is estimated to be Rs 10.68 lakh crore in FY23 when taken together with the provision made for creation of Grants-in-Aid to States,and 7.5 lakh crores otherwise. Given the higher multiplier effect of capex (3.25X as per 2019 RBI report), the 35% increase (or roughly 2 lakh crores) may translate into an incremental growth impact on GDP of roughly 3% on nominal GDP (one can do the math).
The cutting down of subsidy bill draws out concerns of increase in prices of fertilizers and other agro chemicals, given the price of crude oil being around 90/bbl consequently raising the prices of agricultural products and commodities. How the price of crude oil will impact the subsidy is to be seen and such high crude oil price also has the great positive flipside of bringing in higher indirect taxes, further aiding revenue generation on the back of burgeoning GST collections.The only other concern in all this, is a possibility of rate increases due to higher Government Borrowing program, but we know that higher interest rates could also indicate a faster growing economy and we may have to live with it for the greater good.
India may also need to pursue divestment of government undertakings and it’s our expectation that it may overshoot the expected 65000 crore estimate, disposing off of non-strategic enterprises. Another source for funding of the budget may be the auction of the 5G spectrum planned for FY23 and the public issuance of LIC.
PM Gati Shakti master plan being another one of the key takeaways of this budget laid out high flying projects such as multimodal logistics parks, 400 new Vande Bharat trains, reorientation and standardisation of metro systems nationwide, 25000 km of national highways, ropeways in remote hilly areas and riverlink projects for better connectivity and transport of people and goods. EV and sustainable energy segment had positive announcements of launch of battery swapping policy and interoperability standards to be formulated, augmenting the transition towards sustainable energy. Allocation of Rs 19,500 Cr to stoke solar PV module manufacturing under PLI schemes was another step in the direction of green energy.
Overall, the Budget has reinforced Government’s commitment toward a 5 trillion $ GDP target and definitely a thumbs up from our end as investors. Focus on infrastructure and capital expenditure could not only bridge the existing gaps on the ground but also provide the bedrock of job creation which is the need of the hour.
We have come out highly positive, post yesterday’s Budget and I would like to say here – Stay invested and buy more !