Great Budget during difficult times – Quick view

The Budget has been full of green ticks for us as investors. We are clearly getting what we wanted Productive expenditure by the Government and a lesser burden on the common man to raise revenues.

For many years in the history of my investment career (24 years and counting), I heard economists and the investing community complain about wanting Budgets to be more focused on revenue rather than capital expenditure. We all know that capital expenditure has a strong multiplier effect on GDP. This year, the Hon. Finance Minister has given us this gift. Now we know why markets are up >4% as I write this down.

There are many announcements to cheer about, some of those are: –

  1. First, my favorite healthcare sector – expenditure is up to Rs.2.3 lakh cr. from 94,000 cr. It’s high time, a country like India increases spending on this hitherto neglected area. We have one of the lowest spending on healthcare (as % of GDP) in the world and this Budget has taken a good initiative, especially in such difficult times.
  2. Capital expenditure this year to be Rs.5.5 lakh cr. v/s 4.4 lakh cr. last year. As I have mentioned, this is a big positive and shows the intent of the Government to improve productivity, reduce wasteful revenue expenditure, and grow the economy.
  3. Re-emphasizing the Government’s focus on the National Infrastructure Pipeline (with a sanctioned amount of >Rs.100 lakh crores), the Government is looking to fund these projects, create institutional structures, monetize assets, and increase capex.
  4. The government is looking to monetize many brownfield infrastructure projects across roads, power transmission, oil & gas, airports, warehousing, freight corridors, and sports stadiums through the National Monetisation Project. This has 2 benefits – 1. Continued focus on infrastructure 2. Some of the stalled projects could get revived and benefit lenders.
  5. Another measure that would benefit banks is focusing on creating an AMC, ARC to take over stressed assets with the intention to dispose of these off to investors later.
  6. Continued focus on Bharatmala road projects where 13,000 km has been awarded and another 8500 km to be awarded by March 22.
  7. Multiple metro rail projects announced. Further, focus on commissioning Eastern and Western dedicated freight corridors.
  8. Setting up a Revamped scheme for power distribution companies by focusing on steps such as smart metering and feeder segregation. We all know that State Government deficits are high due to the poor performance of their distribution arms i.e., SEBs. All these years, their deficits have been managed through bonds and other means. Today’s announcements are radical in the cause and are a reinforcement of the commitment to weed out SEBs losses in the long term. Bonds have only postponed the problem for years.
  9. 100 more districts for the City gas, Hydrogen Energy mission would mean continued focus on alternate energy.
  10. The potential combination of SEBI Act, Depository, SCRA, and Government Securities Act to create a Single Securities Markets code – This will need to be understood from the point of view of implementation.
  11. Increasing FDI in insurance from 49 to 74%, and tax incentives for foreign portfolio investors to relocate to IFSC are encouraging foreign inflows.
  12. Disinvestment of 2 PSBs, one general insurance company, and IPO of LIC – Government has a target of 1.75 lakh crores from Disinvestment this year. This is a good start and more can be done as the year goes by as was mentioned in the context of the Disinvestment of non-strategic PSEs.
  13. Monetizing PSE’s and the Government’s idle land which would be used for revenue generation and looks like an innovative way of bridging the revenue gap.
  14. The government’s revised target of a 4.5% fiscal deficit by FY26 is high but indicates its thrust on capex. I am of the view that any productive expenditure which puts a bit of strain on fisc is not bad at all. A little increase in the cost of borrowing, and crowding out effect is tolerable when we know the outcome will be positive.
  15. . To increase revenue, the Government is looking at tax compliance (6.48 cr. return filers in FY21 v/s 3.3cr. in FY14 and growing + GST – increased compliance here as well), reducing State borrowing pressure (lower their deficits and limit transfers), Agri Infrastructure cess, increasing of customs duties.

All in all, whereas I have not yet read the fine print fully, this budget has made us investors happy enough in such difficult times for the many reasons I mentioned.