It’s a very stable, prudent and growth oriented budget in my opinion. It does the majority of the things that all of us expected out of the budget. Some key points in our opinion as follows:
Higher capital spending with focus on growth: The government is now making a larger amount of tax collection at this point of time and the good thing about this budget is that they have been prudent enough to ensure that this is not spent on populist measures. Instead it is being used to increase infrastructure spending from 7.5 lac crores to 10 lac crores. That should spur growth for sure. Infrastructure related companies should see huge tailwinds because of this spending. Roads and Railways particularly will benefit hugely from this additional spending.
As an economy this helps us to reduce our transportation and logistics cost and that should generally impact the EBITDA margins of transport heavy companies in a favourable manner. It also makes us more competitive at the global level when it comes to manufacturing. To conclude this point, these investments will help us grow at 6-8% for a very long time to come even when the other developed markets are struggling to beat inflation and recession.
Fiscally prudent budget: It is also a very prudent budget in the sense that the fiscal deficit target has been kept at 5.9% with a promise to go to 4.5% by FY 25-26. The formalisation theme is playing out very well in terms of higher tax collection and we believe the fiscal deficit targets could very well be achievable.
Also last year we saw one off higher spending on fertiliser subsidies due to high fertiliser prices globally but that will likely not occur going forward, so the government will have a lot more flexibility and fire power to either go high on spending or reduce fiscal deficit.
Special benefits for the MSME Sector: If you look at the MSME sector, there have been significant good measures for them like providing credit guarantee schemes for 2 lac crores. This type of collateral free lending would greatly boost fund flow to the distressed and fund-starved MSME sector.
Continues to incentivize sustainability: There is a 48% rise in allocation towards the renewable energy sector in this budget. Reduction in customs duty on the green energy/green mobility segment to spur the growth of some sunrise sectors is also a great move. The government is making special efforts to incentivize a sustainable economy and steer the economy on the sustainable development path.
For example: The customs duty exemption is being continued for the import of capital goods and machinery that are used for manufacturing lithium-ion cells for batteries in electric vehicles. Manufacturing & China Plus one theme will continue to benefit from reduced custom imports. We are now starting to manufacture more than 30 crore mobile phone sets as a country growing by 5x in the last 7 years. We believe this trend will keep doing well for years to come.
More steps to simplify ease of doing business: There were some favourable changes done on the ease of doing business as well. For example:
1. More than 39,000 compliances have been reduced
2. More than 3,400 legal provisions have been decriminalised
No increase in long term capital gains tax and push towards new tax regime: We didn’t see any negative news on the rumoured increase in long term capital gains. I think the market responded very positively to that. While there is a push to move people to the new tax regime to spur consumerism by increasing the rebate limit and changing the tax slab, we personally believe that will change our saving habits for generations to come.
Our economy has been relatively stable on the back of very strong savings. Look at how we were able to manage Covid much better than other advanced economies like the US and Europe. So personally, I like the old regime vs. the new regime and the fact that we can still go back to the old regime is again something that I liked.
Ujjawal Kumar smallcase manager and Founder at Wealth Culture
