Budget 2021

Its that time of the year again where the Finance Minister does her fiscal acrobatics act via the Union Budget. In a nutshell, this years Budget focuses on capital expenditure towards sectors like urban infrastructure, power, and health sector to boost employment and revive the capital good sectors and boosting investment in urban public transportation systems

The expectation was that FM would bite the bad bank bullet (recall SUUTI) in the face of incoming corporate bankruptcies in a COVID world and that is exactly what she did. She introduced new institutional structures like the Development Finance Institution, asset reconstruction company which will be the new bag holders for India Inc’s NPA’s.

As for the budget math, the projected fiscal deficit of 6.80% for FY 22 is in line with the market expectation, given the high liquidity push both from RBI and the proxy Fed overseas flows. The deficit proposed to be funded by the selling of India’s family silver – surplus Railway land and the LIC IPO. Those of you who track markets closely will recall that the LIC proposal was also in last years budget, a year later it is no closer. But that is a conversation for another day and Trade Unions.

You get the sense while reading the fine print, that Mr. Modi’s team has chosen to mask social spend under the guise of addressing the COVID crisis. The intent is clearly to use expansionary fiscal policy to support growth sidestepping concerns over debt sustainability and sovereign rating by increasing capital expenditure both by the center (+35% y-o-y) as well as states. The focus on health on health and sanitization with increased allocations and the introduction of a new health scheme are also welcome steps. Not much tinkering in taxation is a huge positive but not surprising given there is no room to lower taxes. There is no change in personal taxes and individuals above 75 are exempt from filing their taxes as long as their income source is interest and pension.

That said, the budget does not adequately address concerns over inequitable growth, which has been a worry across the globe due to the pandemic. The bond markets have already signaled worry and skepticism over the fiscal math. A higher-than-expected $164- billion borrowing plans for the new fiscal year hit India’s sovereign bonds, which slid after the announcement. The government also plans to raise another 800 billion rupees by this fiscal year, on top of its projection of a record 13.1 trillion rupees of debt sales. Stock markets have given the Budget thumbs up rallying sharply over the past two sessions. The Bank Nifty has been the leader as the bad bank move allows most lenders to spring clean the skeletons in their closets. That coupled with fresh infra spending and the financing through asset sales and the much-touted LIC IPO will keep the D-Street bull on opium for now. Time, as always will be the best judge of whether or not GOI can execute its plans.

About the Author

Rajiv Goel – CEO Bombay Capital Services, bum in 1968, in Mumbai, in a family of traditional textile traders studied in a local Convent school named “Campion” and completed his Commerce graduation from H R College Initially, first 5 — 6 years he was a pad of the family business following which he started taking interest in the stock markets which were still in a nascent stage in India.

Even before he completed his graduation, he started his own Sub-Oolong business in the Bombay  Stock Exchange using his street smart knowledge acquired through venous sources He learnt the ground rules of the business in the era of Harshad Mehta and Ketan Parekh.

In 1995, he established  a proprietary  company called “Bombay Capital Services “, a financial advisory firm which advises dents on the fundamentals of small savings. These include sublets like PPF, Gold, Equity, Mutual Funds and similar asset Classes.

Based at New Marine Lines, the company has a ten minute proximity  from the Churchgate and V.T stations making it convenient for the client to access. Over the past 20 years, the company caters to more than 1000 dents including HNI’s, Corporates/ Bank, Retail Investors. The company has a dedicated team and research desk which advises clients on Equities Commodities, Forex, Mutual Funds and Insurance. Presently, it has an office in Mumbai and Delhi and plan to open up branches shortly in Kolkatta and Chennai.