A growth oriented Budget, forms basis for a structural rally in markets

Budgets are normally classified with different nomenclatures like growth oriented budget, middle class budget, an accountant’s budget, an economist’s budget, philosopher’s budget etc. The Union Budget 2022-23 is clearly an attempt to boost growth.

Capex boost is the right step

The government capital expenditure target for FY23 has been hiked by 35 per cent to Rs 7.5 trillion and if the grant-in-aid for creation of capital assets is added, the effective capex is going to be Rs10.68 trillion. At a time when the capital investment cycle needs a strong boost, this move from the government is ambitious and also value accretive. In addition, data centres and energy storage systems get infrastructure status, giving a further boost to capex.

MSME segment and Make in India

The MSME segment in India accounts for a bulk of the jobs and exports. The emergency credit line guarantee scheme (ECLGS) has been extended for one more year till March 2023. The budget has also made a dedicated allocation to the hospitality sector to help the contact intensive sector come out of the woods.

The government will earmark nearly 68 per cent of Defence capex for domestic procurement against 58 per cent last year. The Defence R&D will also be opened up to start-ups, private sector and academia with 25 per cent of R&D budgets set aside. In addition, private sector will also be encouraged to take up design and development of military platforms.

Greater clarity on digital currency

The Cryptocurrency bill may not have happened in Budget 2022 but there are 2 interesting announcements. The RBI will issue its digital rupee in FY23 using blockchain technology that will act as an alternative for traders to deal in cryptos. However, the taxation clarity on cryptos is certainly welcome.

The government has imposed a tax of 30 per cent on crypto / digital currency buying and selling. While there are no cost adjustment benefits, it is a good start as it brings cryptos into the mainstream and the TDS on transfers will also result in an audit trail.

Taxation and disinvestments

There has been no tinkering of personal tax rates, which has largely stabilized. However, the budget has done well to limit the surcharge on long term capital gains tax at 15 per cent for equity and other assets, which makes it fair. On divestments, the government has projected disinvestment of just about Rs 78,000 crore for FY22 and Rs 65,000 crore. It could mean that

LIC (smaller quantity) is happening this year and BPCL may be happening next year. Clearly, disinvestment does not look like a focus area in this budget.

Overall, it has been an extremely pragmatic budget trying to create the right ecosystem for putting the Indian economy on a high growth. That should form the basis for a structural rally in markets.

R Venkataraman is Chairman at IIFL Securities Ltd. Views are personal.

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