FM batted like Pant! What was so impressive about this Budget

FM batted like Pant! What was so impressive about this Budget

Compared with last two Budgets, which were record-breaking in terms of duration, this first-ever paperless Budget was precise and purposeful. No wonder, the stock market reaction has been ‘like never before’, with Nifty closing nearly five per cent higher.

In a rare contraction year for the Indian economy, having witnessed de-growth only twice previously, the Finance Minister has done remarkably well to keep it short and sweet. Equity market participants were perhaps most thrilled because of the absence of some expected nightmares: like the introduction of wealth tax or raising long-term capital gains tax on equity investment, especially given that this was a challenging year on the revenue front.

The Budget has aptly deviated from the path of fiscal contraction to support economic growth in the shadows of a once-in-a-century crisis. The fiscal deficit deviated by Rs 10 lakh crore from the budgeted number, which clearly shows that the government has ardently tilted towards growth. We need not worry about global rating agencies either, because it’s not as if they are ‘right-grading’ the fifth largest world economy’s sovereign rating in any case.

The Finance Minister has kept a long ropeway of achieving fiscal deficit of 4.6 percentage by FY26. What has gone unnoticed thus far, is the massive front-loading of expenditure. The government targets to boost the economy by spending at a monthly run rate of almost Rs 4 lakh crore for the remainder of FY21. To put things in context, the monthly run rate for the first nine months of FY21 was Rs 2.5 lakh crore, while in last three months of FY20, it was merely Rs 2 lakh crore. I must confess we thought the Finance Minister will play safe by cutting expenditure by 10 per cent in FY21 and wait to spend in 2021-22. Surprisingly, she played a ‘Pant’ (cricket metaphor), with a 28% jump in expenditure for FY21.

We must also appreciate the gradual shift in spending pattern towards capex building, which is budgeted at 5.1-5.6% of GDP for FY21/22 versus 4.8% in FY20. Besides infra spending, the intent seems firm on boosting domestic manufacturing through PLI schemes for 13 sectors and industry consultations to correct inverted duty structures.

Likewise, the big disinvestment target, the resolve to privatise certain PSUs, public listing of LIC, ARC formation for bad loans and monetization of the government’s land bank are moves that echo a sense of ‘minimum government’ and pro-efficiency boost. Having said that, the key lies in execution, whether for these measures or for the deeper bond market envisaged.

All in all, the Budget math appears realistic on the revenue front. Meanwhile, chasing growth will have its own repercussions on inflation and bond markets, with yields already hardening because of a wider fiscal shortfall. The cost of capital will surely swell from the lows we’ve been used to for a while now. The inflows from small savings schemes pegged at a high amount of Rs 4.8 lakh crore in FY21 and Rs 3.9 lakh crores in FY22 would have to be closely monitored, given that they are far higher than government’s own projections and at least 0.6% higher as a percentage of GDP to the already high base of FY20. Any shortfall here will only mean more borrowing and resultant higher yields.

Amar Ambani is Senior President & Institutional Research Head at Yes Securities. Views are his own)

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