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Budget Review 2022-23E: Accelerating capex for mission $5 trillion…

Union Budget 2022-23 can be aptly termed as adoption of a new growth template led by vital capex allocation to drive the economy. Outlay of capital expenditure of ~| 7.5 lakh crore, up ~35% YoY (at 2.9% of GDP), coupled with expanding the scope of private capex through PLI for new age segments, is expected to deliver inclusive growth, job creation and welfare for all. Among infrastructure segment, major emphasis has been placed towards highways (capex allocation up ~55% YoY) and water (allocation at | 60000 crore, up ~33% YoY in the “Har Ghar Jal se Nal” scheme). With the dual objective of growth and welfare, the Budget has hit the right chords in the current macroeconomic setup

Interestingly, the Budget, presented in the backdrop of a likely pandemic aftereffect, has seen relatively conservative estimation of growth (merely ~11% nominal GDP in FY23) and tax receipt growth of ~14% YoY (excluding excise cut). Thus, there is a likelihood of lower than projected fiscal deficit, in our view.

Key highlights of Budget:

* Fiscal deficit target for FY22RE and FY23BE has been pegged at 6.9% (vs. 6.8% BE) and 6.4%, respectively. While optically it looks higher, we believe the government has adopted a “pragmatic but conservative” approach in setting this target, in our view. Nominal GDP growth for FY23RE has been pegged at 11.1% given that the pandemic is still not over

* Direct tax revenue growth of 13.6% for FY23E is in tandem with the nominal GDP growth (11.1%) estimated for FY23E. Current monthly GST collection of | 1.21 lakh crore is already running ahead of revised estimates for FY22E (i.e. | 1.13 lakh crore). We expect FY23E monthly GST target of | 1.3 lakh crore to be easily achievable

* Capex on fast lane: The government is driving capex on the fast lane. Capex allocation has grown by 35% YoY to | 7.5 lakh crore or 2.9% of GDP (highest ever print). This is on a higher base of FY22E and the heartening statistic is that FY22 revised estimates had no slippages. Capex to GDP ratio has significantly increased from 1.5% in FY18 to 2.9% in FY23BE. Increased support of | 100000 crore to states would augment capex expenditure will also accelerate state level capex intensity

* Quality expenditure minus populism: With removal of extra expenditure like social security expenses to tackle the pandemic, allocation for funds for Air India, etc, the share of revenue expenditure has been reduced to 81% of total expenditure for FY23E. Also, total subsidy bill has been contained at 1.2% of GDP, leaving more fiscal space for capital expenditure in FY23E

* Disinvestment target for FY22RE revised downward to | 78,000 core (including LIC IPO) vs. earlier budgeted target of | 175000 crore. For FY23E, it is pegged at | 65,000 crore, which looks realistic, in our view

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