‘No-harm’ Budget brings back the bulls, but bond market is alarmed

‘No-harm’ Budget brings back the bulls, but bond market is alarmed

Finance Minister Nirmala Sitharaman on Monday unveiled an expansionary Budget that focused on health, hope and growth; maintained status quo on direct taxes; avoided the much-feared wealth tax, boosted government’s capital expenditure by 26 per cent on the revised estimates for FY21 and kept market borrowing targets around the same level as the financial year gone by, at Rs 12 lakh crore.

Those largely met the expectations of the financial markets, which were hoping for a ‘no-harm Budget’. Domestic equities rallied, but bond yields hit a four-month high as market participants reckoned the Budget measures to be inflationary.

While the finance minister said the much-awaited IPO of LIC is materialising next financial year and her government aimed to sell off two public sector banks and one PSU insurer, analysts and economists sounded a little cagey about the rather conservative allocation made for bank recapitalisation.

The ‘Tablet Budget’ – the FM for the first time opted to read it from a tablet by giving up the traditional practice of ‘bahi khata’ – was built on six key pillars: health & well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and minimum government and maximum governance. The thrust of the Budget was on capex to boost growth across key areas.

The FM made generous allocations for key focus sectors: Rs 2.24 lakh crore for healthcare, Rs 1.10 lakh crore for Railways, Rs 1.18 lakh crore for roads sector, Rs 2.87 lakh core for Jal Jeevan Mission. In all, the government’s capex for FY22 was pegged at Rs 5.54 lakh crore against Rs 4.39 lakh crore in FY21.

She pegged the fiscal deficit for FY21 at 9.5% of GDP, much lower than the markets had feared, and aimed to keep it at 6.80 per cent in FY22 and bring it down below the 4% (of GDP) target by FY26.

The FM avoided any announcement on tweaking of personal taxes, but analysts and economists said some tinkering could be hidden in the Budget fine print.

On the revenue side, the government announced plans to review some 400 old customs duty exemptions, which analysts said would mean a hike in duties for a number of products. That said, the government announced plans to reduce customs duty on steel products uniformly to 7.5 per cent; reduce duty on copper scrap to 2.5 per cent from 5 per cent; cut customs duty on naptha to 2.5 per cent; rationalise customs duty on gold and silver and raise it on certain auto parts to 15 per cent. These announcements highlighted the government’s concerted focus on increasing manufacturing in India.

The other component on the revenue side is going to be disinvestment receipts, which the FM pegged at Rs 1.75 lakh crore for fiscal year 2021-22. They would include the IPO of LIC and selling of two PSU banks and one PSU insurer. The FM kept the total borrowing target at Rs 12 lakh crore. Sitharaman earmarked Rs 20,000 crore for further recapitalisation of PSU banks in FY22.

On the reforms front, the government raised the FDI limit in insurance to 74 per cent, allowed registration of one-person company to in a big booster for startups, announced plans to set up an ARC and AMC to resolve stressed assets, unveiled a faceless National Income Tax Appellate Tribunal, extended tax holiday on affordable housing by one more year, announced setting up of development finance institutions, offered relief to non-resident investors on dividend income and unveiled plans to consolidate provisions of the Sebi Act, Depositories Act, Securities Contracts Regulation Act, and the Government Securities Act.

Meanwhile, the FM said no tax filing will be required for seniors above 75 with only pension and interest income and unveiled a dispute resolution committee for those with taxable income of up to Rs 50 lakh. The Budget also proposed a pre-filled tax form with respect to details like salary income, tax payment and TDS.

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