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Chasing Growth 

* At the outset, we thought Finance Minister will play safe by cutting expenditure by 10% from the Budgeted Estimate. Surprisingly, she played a “Pant” (cricket metaphor), with 28% jump in expenditure for FY21. This clearly seems to be a change in stance where she has gone for Growth, while relegating fiscal consolidation to the backburner for some time. Though FY22 expenditure growth is projected to be flat, it clearly implies that government wants to Front‐Load the Expenditure given the impetus required to capitalize on the broad‐based rebound within the economy. Basis the FY21 YTD numbers, government is likely to spend at a monthly rate of Rs4 trillion in the last quarter of FY21, much higher than the historical average of Rs2‐2.5 trillion.  

* Markets have indeed loved the budget as govt intends on Raising Resources without moving on direct taxes. Most importantly, Budget assuaged apprehensions of negative surprises, of which tremors were palpable in the market action a week ahead of the budget.  

* With fiscal deficit deviating by 10 trillion from the budgeted number, it clearly shows govt is ardently tilted towards growth. This also shows lot of courage in government’s intent, unfazed by the Credit rating agencies. We see this as a right approach given the current times, while it is also noteworthy to pay attention to the fact that relentless path of fiscal consolidation has not yielded any material change in the sovereign ratings.  

* Government’s thrust on Capital expenditure can be seen by higher allocation to gross budgetary support. Interestingly, gross budgetary support for FY22 will be equivalent to the internal and external budgetary support, implying that the government will incur more expenditure on its books, and thereby translating into more cash in the hands of Central Public‐Sector enterprises and dividends for investors. Besides capex spending, the intent seems firm on boosting domestic manufacturing through PLI schemes in 13 sectors and industry consultations to correct inverted duty structures.  

* Big disinvestment target, resolve to privatise certain PSUs, public listing of LIC, ARC formation for bad loans and monetise government’s land bank, are moves that echos a sense of minimum government and boosting efficiency. On disinvestments, Rs1.75 trillion target for FY22 looks quite realistic given the buoyant market sentiment and abundant liquidity across the globe.  

* Meanwhile, chasing growth could have its own repercussions on inflation and bond markets, with yields already hardening because of a wider fiscal shortfall. We also need to monitor how government will garner an enormous Rs4.8trillion from small saving scheme. This is far higher than government’s own projections last year. Any shortfall here will only mean more borrowing and resultant higher yields.

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