Budget to propel growth but implementation is the key

The Union Budget 2021-22 presented by Finance Minister Nirmala Sitharaman on Monday has laid out the road map for India to achieve sustainable growth in the years to come by delivering on key expectations. By choosing growth imperatives over fiscal puritanism, the FM has clearly indicated where the government’s focus and priorities rightly lie. The fiscal deficit was surprisingly and for good reasons taken up to 6.8% of the GDP in FY22 and 9.8% in FY21. The fiscal math seems credible with no unrealistic assumptions on the revenue front and the FM has also comforted the market with the glide path for fiscal deficit to 4% by FY26.

So what makes us believe the Budget was growth-supportive? First and foremost, the centre hit the bullseye for achieving sustainable growth by targeting initiation of the capex cycle through infrastructure spend. The setting up of the Development Finance Institution (DFI) raises hopes that it will catalyse infrastructure financing under the ₹10 lakh crore infrastructure target with expectations of a lending pool of at around ₹5 lakh crore in the next three years. India’s capex is projected to rise by 20%+ YoY in both the revised estimates for FY21 and FY22, touching almost 2.5% of the GDP in FY22. These steps will help revive the investment climate in the economy by turning the public sector capital cycle and also induce the private sector to step up its investments.

The second dominant theme pertains to the announcements for the financial sector. From privatisation of two public sector banks/one insurance company, to the setting up of an Asset Reconstruction Company (ARC) and Asset Management Company (AMC) for resolving the stressed assets problem of the public sector banks (PSBs), the Budget correctly assessed the needs of the financial sector. We believe that banks’ gain will be conditional on how transparently the assets are valued and the pace of recovery of cash to free up capital. If the purchase entails subscription to Security Receipts (SRs), the benefit will be optical in terms of reducing reported GNPLs. However, it would help in freeing up management bandwidth.

The Budget laid stress on asset monetisation as the third key theme. Not only was the divestment target kept lofty and realistic (at ₹1.75 lakh crore) in FY22, but the decision to set-up an asset monetisation pipeline for brownfield assets of the government serves the perfect objective of raising revenues but not hiking tax rates. It should here be pointed out that by resisting the temptation to levy extra taxes for consumers and investors, the government has resorted to a good move to aid the consumption theme going forward.

Health spending boost was another theme of the Budget, a practical one to do given the worst health crisis hit the nation. The finance minister here revealed willingly to do `whatever it takes’ to ensure quality healthcare delivery to over 1.3 billion people in the country. Healthcare spending was increased by almost 30% compared to FY20.

Finally, extending the tax holiday for affordable housing projects by one more year will lead to a surge in supply of properties in that segment. Further, the proposal to allow FPIs to participate in debt financing of REITs/InvITs will ease access of finance to real estate and infrastructure sectors. However, the Finance Minister could have done better if she had addressed the concerns of homebuyers by providing tax incentives to boost demand. That would have helped home loan companies gain new business

Overall, with malice to none and cheers to all, the Finance Minister has laid the foundation for next-generation growth and deserves a big round of applause. Having ticked the right boxes, implementation of all key proposals will be a must for generating tangible results.

Views are personal. The author is MD, JM Financial Group.