The budget focuses on the next few years and not the elections

The thrust of the Budget has been in infrastructure modernisation, says U R Bhat.

The government has done a fantastic job of managing growth and providing the money for capex in the Budget 2022 proposals. They have raised more resources than what was expected. The government’s fiscal management in these two years of the Covid pandemic has been phenomenal.

The thrust of the Budget has been in infrastructure modernisation. All this will have a multiplier effect on job creation and economic growth. That said, another good thing is that the tweak(s) in the tax rates have been minimal. Even the long-term capital gains tax across asset classes has been capped at 15 per cent. The message that the government wants to convey through this is that the tax regime is stable and does not warrant much changes. This is one thing that the markets and all investors will like. All this will help investors commit big money.

Another positive development has been recognition of the start-up ecosystem and ensuring that they get adequate tax breaks. The fiscal targets set for financial year 2022-23 (FY23) are very realistic. Though the borrowing is higher-than-anticipated, it will be put to good use and the markets will eventually realise that.

The other key positive is that the government has refrained from doling out any kind of loan(s) ahead of the state elections that begin later in February 2022 as has been the case in the past. The budget focuses on the next few years and not the elections, which is good. The markets will draw solace from this.

On their part, the bond markets are worried regarding the possible rise in interest rates by the US Federal Reserve (US Fed) and its impact on the global financial markets, and the government’s borrowing program. Just because of these reasons, the government cannot stop investing in infrastructure. The quality of borrowing, too, has improved now.

The divestment target for FY23 has been realistic. In FY22, there was a huge underperformance as regards the divestment target set and what has been achieved. So the government does not wish to repeat the same mistake. The FY23 divestment target of Rs 65,000 crore is par for the course and the government may be able to achieve it by just doing offer for sale (OFS) rather than go in for serious stake sales.

As regards the markets, they should be happy that the budget focuses on long-term growth instead of short-term kicks. From a short-term basis, the budget is a non-event for the markets. They will chart their own course in the days and weeks ahead given global and domestic developments.

(U R Bhat is co-founder & director at Alphaniti Fintech. Views expressed are his own. As told to Puneet Wadhwa)