Budget reactions: Hard swing of fiscal bat for some; non-event for others

Budget reactions: Hard swing of fiscal bat for some; non-event for others

Finance Minister Nirmala Sitharaman on Monday unveiled the Budget for 2021-22, aiming to shore up an economy badly-hit by the novel coronavirus pandemic.

The FM plans to introduce bill for development financial institution with capital of Rs 20,000 crore, to infuse Rs 20,000 crore for recapitalization of PSU banks, aims to consolidate certain Sebi regulations for Securities Market Code, relax FDI cap for insurance sector to 74% from 49%, unveiled plans to set up an asset reconstruction company to take over toxic assets, will cut money market requirement to 15% from 25% and announced a plan to incentivise incorporation of one-person companies.

That said, here is how market leaders and economists reacted to the Union Budget 2021.

Jim O’Neill, British Economist
By and large, nothing dramatic in the Budget that caught my eye. Consequences of the Budget will depend how the world and India manage to tackle the Covid pandemic.

Aurodeep Nandi, India Economist, Nomura
Budget FY22 swings the fiscal bat hard – and as a result, the fiscal deficit ball has lofted up sky high. At 9.5% of GDP for FY21 and 6.8% of GDP in FY22, fiscal deficit is much higher than what market was expecting. Overall, the reform announcements are positive, and the enhanced focus on capital expenditure is welcome. However, the key question is that while the ball is aimed for the boundary line of growth, will it get caught by a negative rating action? It’s worth remembering than in FY23, we will no longer have the tailwind of superlative nominal GDP growth, so achieving fiscal consolidation will be much trickier.

Aditi Nayar, Principal Economist, ICRA
Based on the FY2021 RE, expenditure is expected to more than double in Q4 FY2021. Moreover, the capital outlay for FY22 exceeds our forecast and should support a higher pace of GDP expansion in the coming fiscal. Substantially higher than expected expenditure, including support to FCI, has pushed the fiscal deficit for FY2021 and FY2022 well above our projections. However, the dated market borrowings are only somewhat higher than what we had foreseen, casting a discordant note. In our view, yields are expected to sustain a hardening bias, in the absence of frequent OMOs. Moreover, the glide path for the correction in the government’s fiscal deficit is both back-ended, and more modest than what we had expected. A higher fiscal deficit anchor for state governments should allow them to prioritise capex and NIP funding, but add to the overall general government borrowings in the coming fiscal.

Nikhil Kamath, Co-Founder and CIO, True Beacon and Zerodha
The Budget largely turned out to be a non-event, the cardinal issue here seems to be that barely 3 per cent of the country is paying tax. To drive any kind of stimulus, the government will have to shore up this number significantly. From the market’s perspective, no reduction in STT or an increase in LTCG largely indicates no change, it is net neutral to the markets. International markets happen to be rallying today and markets are taking cues from this. For now, foreign flows that are largely driving this upmove will continue to be an important metric to track going forward.

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