Published on 2/02/2021 10:38:48 AM | Source: Axis Securities Ltd

Budget and Beyond FY21-22 : A growth focused Budget By Axis Securities

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Budget and Beyond FY21-22

A growth focused budget

The FY22 union budget met most of the market expectations with hardly any negative surprises. The key expectations were hinged on job creation through infrastructure spending, focus on health care and welfare schemes and maintenance of existing tax structures. The announced budget met all these expectations and also managed to convince the markets that this will be achieved without a major hardening of bond yields. Whilst the 10 year G sec bond yield went by 11bps today, but considering the broad contours of tax collection and government’s borrowing program, the yields are likely to remain manageable. The most critical aspect of the budget is that it is a growth budget with significant expansion of government spending. The budget will help in reviving the economy which was sluggish even before pandemic. The post pandemic demand and significant increase government spending has set the course for a strong demand revival. Our key takeaways from the Union budget are as follows: • Significant positive for infrastructure: The government’s capital expenditure will grow by 26% in FY22 over FY21 to Rs 5.54 lac crores. The FY21 number was also robust considering the pandemic year. The focus on roads and railways will create key long-term economic multipliers

* Public Health continues to be focus: The government’s health focus will continue to see significant growth in spending and the outlay on vaccination is Rs 35,000 crores and more could be provided when necessary.

* Fiscal maths is very reasonable: The government's tax collection target including direct and indirect are very much achievable. Tax buoyancy in indirect taxes is likely to continue in FY22 which is a key positive. Direct tax collections are also very much achievable. The gross borrowing of Rs 12 lac crores is largely in line with the market expectations. The fiscal deficit at 6.8% seems optically higher but considering the borrowing program and tax collection targets the fiscal consolidation path for FY26 (4.5% target) is manageable.

* Finance sector reforms: Privatisation of two private sector banks, increase FDI limit for the insurance sector, setting up of asset reconstruction company and recapitalisation of the public sector banks to the tune of Rs 20000 crores are all positive moves by the government.

* No major negative surprises on direct taxation: Even as the government has outlined a spending of Rs 34.8 lac crores for FY22 (Rs 26.9 lac crores in FY20), it has not tinkered with the direct taxes and maintained current structure. This is a significant positive considering the shortfall in taxes in FY21 on account of the pandemic.


Our Positive Budget Plays: Ashok Leyland, ICICI Bank, State Bank of India, CanFin Homes, Cholamandalam Investment, Amber Enterprises, Polycab India, Asians Paints, ITC, KEC Intl., Dalmia Bharat, JK Cement, Star cement


Key Highlights:

Key Announcements

* Government has committed to allocate Rs 1.97 lac cr, over the next 5 years for Atmanirbhar Bharat – PLI scheme.

* FY22 Capex target at 5.54 lac cr was significantly higher than FY21 4.39 lac cr.

* Launch of Mega Investment Textile Park , target to plan 7 textile parks.

* Launch of urban 'Swachh Bharat Mission' 2.0 with an outlay of Rs 1.42 lakh crore.

* Allocation of Rs 1,18,101 lakh crore for ministry of road transport and highways

* Government to spend Rs 1.1 lac cr for railways in FY22

* Debt financing rules to be launched for INVIT, REITs

* FDI limit in Insurance has been increased to 74% vs 49% earlier.


Fiscal Outlook

* Nominal GDP growth for FY22 is pegged at 14.4% given the low base of FY21.

* Total expenditure for FY22 is budgeted at Rs 34.83 Lac cr.

* Fiscal deficit target for FY21 has been revised to 9.5% of GDP (from earlier target of 3.5%). For the FY22 the target has been revised to 6.8%.

* Government is intend to reach fiscal deficit target below 4.5% in FY26.

* Gross borrowing target for next year is set at Rs 12 lac cr.


Specific Areas

* For Foreign Portfolio Investors (FPI), FM proposes to enable deduction of tax on dividend income at lower treaty rate.

* Proposed to exempt dividend payment from levy of Minimum Alternate Tax (MAT) for foreign company if the applicable tax rate is less than the rate of MAT.

* Affordable housing: Tax holiday for one more year.

* FY22 Agri Credit target at Rs 16.5 Lakh crs

* Deposit insurance cover has been hiked to ₹ 5 lakh from ₹ 1 lakh per depositor

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