The Union Budget 2021-22 was presented in Parliament on 1 February by the Finance Minister Nirmala Sitharaman. It was the first budget of this new decade. Last year has been challenging to say the least for most business owners. Though GST numbers seem to be on track, the problem is the lost traction in 2020. Many businesses have become a lot leaner and are more focused on the key variables at hand.

In this scenario, did the budget bring a smile to our faces?

We conducted a pre-budget poll and here are the results.

What do you expect from the Budget?

• Lower Taxes – 31%
• Better long-term direction – 31%
• Relief for the needy – 8%
• Better policy making -31%
  
  

Our evaluation of the budget would be vis-à-vis these priorities. Fundamentally, if we look at the downside and the upside that is sufficient for us to understand the budget.

Let’s divide it in three parts

1. Protecting the downside

The Budget has made a provision of Rs 35,000 crores for Covid vaccine related help. This is much needed should the pandemic spread, as public transport is getting operational completely.

Broadly the budget is 7 out of 10 in our opinion. It scores on all counts apart from lowering taxes. It seems to hit the right notes for economic recovery.

The Budget as per the Finance Minister is one of the most challenging budgets as most decision makers across the spectrum of business would agree. The major challenge lies in the fact that we are implementing a strong health care infrastructure at the bottom of the pyramid which is a booster from a consumption perspective for years if not decades. A similar suggestion was made by us in an article in October 2020.

The overall health outlay has increased from Rs 94,452 crores in 2020-21 to 2,23,846 crores. This is going to be utilised towards setting up of more health care centres across the country.

Fiscal deficit: The oil price average is around USD 48 per barrel. For every USD 1 increase in oil price, a corresponding increase of USD 1.5 billion gets added to the country’s bill. Fortunately, oil is not going up in a hurry and previous situations where oil touched an all-time high are unlikely to be repeated as there is no heavy capex happening locally or in major parts of the world.

The fiscal number at 6.5% seems realistic for the next year. We are likely to see depreciation of INR against major currencies additionally by 3%. This is better news from an exporters point of view vis-à-vis importers.

2. The Upside

Affordable Housing: The tax holiday has been extended by one year to March 2022.Investment in housing has a multiplier effect of 8 from an employment perspective. This is likely to address the employment gap to some degree.

Agriculture: Agricultural credit target set by the Finance Ministry is 16.5 lakh crores. This is aimed towards animal husbandry, dairies and fisheries. This is likely to provide stimulus to the economy going forward.

Infrastructure: Zero Coupon Bonds in Infrastructure Investment Trusts would be a good thing to look out from an investment point of view. Development Financial Institution for infrastructure creation has been proposed to be started at 2,00,00 crores. The government plans to raise it to Rs 5,00,000 crores. This sector provides a lot of indirect and direct support to SME businesses.

Roadways: Despite a tough Covid situation 3800 kms of roadways has been constructed. Another 11,000 kms are likely to be completed by March 2022.

Power: A revamped reforms-based result-linked power distribution sector scheme will be launched with an outlay of Rs 3,05,984 crores over 5 years to consider viability. This is likely to bring the next level of accountability for a critical sector for the country’s progress.

Stressed Asset AMC (Asset Management Company): The stressed asset segment is likely to see an emergence of an equivalent of a bad bank where assets will be transferred from the Asset Reconstruction Companies to Asset Management Companies. How it evolves as a trend remains to be seen.

3. Status quo

Fortunately, there is no increase in taxes as was feared. A temporary relief is there for senior citizens above the age of 75 which is good news for senior citizens in that age bracket.

Broadly the budget is 7 out of 10 in our opinion and basis the poll we have conducted internally. It scores on all counts apart from lowering taxes. It seems to hit the right notes for economic recovery.

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