Budget Trends

2 important factors to consider before any critique of this budget are:

1. Govt. didn’t have resources for stimulus;
2. Tax Cut stimulus doesn’t’ work as far as history is concerned

In the context the budget has been an exercise in balancing the priorities without over-stretching the books.

Here are some important numbers:

Item	FY-20	FY-21	Comment
Fiscal Deficit	4.5%	4.3%	Including off-budget items @0.70% for FY-20 and 0.80% for FY-21
Net tax Receipts	15,04,587	16,35,909	Modest 8.73% increase assumed
Non-tax Receipt	427,117	609,984	43% increase in non-tax receipt primarily coming from disinvestment (going by 3-times) On back of LIC IPO (At a valuation of INR 8 Lakh crore), LIC IPO can yield 80K Crore to the govtAlso budgeted 1.3L Crore from sale of spectrum-seems ambitious; Cause of concern and potentially can leave a hold in govt finances
Borrowing(Lakh Crore)	498972	535870	Only a 7.9% increase in borrowing which might provide an upside risk given the heavy dependence on divestment and spectrum sale to fund the deficit
Rural Spend(Lakh Crore)	1.88	2.41	Increase of 28% in rural spend-ensures priorities in the right place

Trends

Focus on Bottom of the Pyramid-Increased spend here will potentially improve rural consumption

RuralBig focus with a 28% increase across, except for MGNREGA, where spend has been cut by 13%;Increased spend for PM Kisan Samman Yojana shows that the Govt. is looking to broaden the scope of coverage;Other initiatives like solar power on barren land might take time, however are good steps towards increasing rural income;

Education & Job CreationBig increase in primary education using Eklayva model; Focus on Entrepreneurship; budget down on skill development and job creation

HealthcareAnother focus area with large increase in spending especially Ayushman Bharat where budget has gone up by 94%

TaxationGovt. expects to add 40K crore to consumption through the changes

Big Message-get ready for a world without exemptions;Makes the tax structure simpler, however targeted savings for retirement and long-term goals sacrificed;These savings contribute a large pool to the Govt as resources as well as helping the govt. avoid creation of social security schemes;It might set dangerous situation going forward and hence govt must look at encouraging long-term savings while taking away exemption/deductions like HRA; LTA etc.,

Sectoral

Power SectorIn a Jam for long, needed urgent intervention; Govt. has finally taken cognizance, without admitting failure of UDAY; Lot will depend upon execution to reduce dues and indebtedness in the sector and strengthen players across thermal and renewable sector; AIF structure especially given the tax incentive for the sovereign funds could go a long way in solving the current mess

InfrastructureGovt. looking for a helping hand, hence tax exemption for sovereign funds

ConsumptionNo big-bang, incremental and in-direct;   Expect consumption trends to continue, no big changes Consumer durables especially AC that was doing well to be hurt by increased duties expected

Make-in-IndiaAnother shot at make in India in form of assemble in India;Increase in duties to encourage local manufacturing;aaHas not worked in the past

Markets

The trend of market chasing growth basis liquidity to continue

Trend of private players whether banks; insurers or NBFC’s taking away market share from public sector will keep the prominent players in the market a focus

Rural being a focus, rural/semi-urban focused financial services players to continue to be in focus

Also improvement in rural income should provide impetus to the Auto/consumer durables and consumer sectors to be in play thanks to the aspirational and emerging class 

Markets will provide value with some more correction especially some of the larger names in financials; auto and FMCG correcting;

Investors should take advantage

Summary

The govt. did the right thing by not stretching itself too much;

Overall Another incremental budget that doesn’t cross the major T’s and dots the I’s, however stays prudent on fiscal, which was highly necessary given the low correlation between tax-cut based consumption expectations

However big bang reforms like land and labour reforms were not mentioned which could have given a cheer from an intent perspective;

No further intervention declared for liquidity and real-estate sector which is probably an important element to kick-start consumption will be missed

Manish Verma