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Budget capex not as high as it sounds: CRISIL Research

9. February 2022 Sandeep Stock Market Research (0)

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The research wing of the agency said, if one excludes the Rs 1 lakh crore of loans to states for capex included in the headline figure of Rs 7.50 lakh crore or 2.91 per cent, the actual spend in FY23, will go down to 2.58 per cent of GDP, which is barely at par with the revised estimate of FY22.

Budget capex not as high as it sounds: Crisil Research, Infra News, ET Infra

Amid FY23 Union Budget’s focus on investments, leading domestic credit rating agency CRISIL on Wednesday said that the capital expenditure is ”not as high as it sounds”.

It, however, was quick to add that considering that governments usually tend to cut capex during a crisis, the government has maintained its focus on growth-spurring initiatives amid the pandemic.

The research wing of the agency said, if one excludes the Rs 1 lakh crore of loans to states for capex included in the headline figure of Rs 7.50 lakh crore or 2.91 per cent, the actual spend in FY23, will go down to 2.58 per cent of GDP, which is barely at par with the revised estimate of FY22.

The report also pointed out that the overall number showing a rise has been ’offset’ through a reduction in internal and extra budgetary resources (IEBR), which funds capex of central public sector enterprises (CPSEs).

IEBR has been budgeted at 1.82 per cent of GDP for the next fiscal, much lower than the pre-pandemic average (fiscals 2018-20) of 3.33 per cent, it said, attributing the same to poor capex execution by CPSEs lately.

The overall central capex for FY22 which is the sum of effective budgetary capex and IEBR, would remain intact at 5.96 per cent of GDP for next fiscal, the same as pre-pandemic average between 2018-20.

It can be noted that many quarters had hailed Finance Minister Nirmala Sitharaman for her budget speech that mentioned an over 35 per cent jump in capex for FY23, to help revive growth, which has suffered in the pandemic.

Additionally, on the revised estimates for FY22, showing a rise in capex to 2.60 per cent from the budget estimate of 2.39 per cent, the CRISIL report explained that this is due to a one-time expenditure of Rs 51,971 crore towards Air India’s liabilities.

Noting that the government has been able to fully spend its capex budget, the report said in the last two fiscal, a bulk of expenditure happened in the last quarter and made a plea for frontloading of the committed money to help the demand process.

The mix of the capex budgeted for FY23 favours employment, the report said, noting the focus on roads and highways and railways sectors.However, the commitment to defence, another jobs-intensive area, has softened a bit, it said.

It also said that the states will have to "make haste" in utilizing the space offered by the Union Budget by doubling down on their commitment and make full use of the increased capex loans.

Finance Minister Nirmala Sitharaman to address RBI board on February 14

9. February 2022 Sandeep Stock Market Research (0)

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The meeting has been scheduled for February 14 where she would be addressing the board members and talk about announcements made in the Budget to perk up growth hit by three waves of COVID-19, sources said.

Finance Minister Nirmala Sitharaman to address RBI board on Feb 14 | Business Standard News

Finance Minister Nirmala Sitharaman is scheduled to address the post-budget meeting of the RBI’s central board on Monday and highlight key points of the Union Budget 2022-23, including the fiscal consolidation roadmap and high capex plan.

It has been a custom that the finance minister addresses the RBI board, consisting of RBI Governor and existing four deputy governors, after the budget.

The meeting has been scheduled for February 14 where she would be addressing the board members and talk about announcements made in the Budget to perk up growth hit by three waves of COVID-19, sources said.

The Budget 2022-23 presented earlier this month estimates a nominal gross domestic product (GDP) growth of 11.1 percent.

The government expects this growth to be fuelled by a massive capital spending programme outlined in the Budget with a view to crowd-in private investment by reinvigorating economic activities and creating

The finance minister raised capital expenditure (capex) by 35.4 percent for the financial year 2022-23 to Rs 7.5 lakh crore to continue the public investment-led recovery of the pandemic-battered economy. The capex this year is pegged at Rs 5.5 lakh crore.

The spending on building multimodal logistics parks, metro systems, highways, and trains is expected to create demand for the private sector as all the projects are to be implemented through contractors.

With regard to borrowing, the government plans to borrow a record Rs 11.6 lakh crore from the market in 2022-23 to meet its expenditure requirement to prop up the economy.

This is nearly Rs 2 lakh crore higher than the current year’s Budget estimate of Rs 9.7 lakh crore.

Even the gross borrowing for the next financial year will be the highest-ever at Rs 14,95,000 crore as against Rs 12,05,500 crore Budget Estimate (BE) for 2021-22.

Fiscal deficit — the excess of government expenditure over its revenues — is estimated to come down to 6.4 percent of GDP next year as against 6.9 percent pegged for the current fiscal ending March 31.

The Reserve Bank is likely to maintain the status quo on the key policy rate in its next bi-monthly monetary policy to be announced on Thursday in view of elevated level of inflation.

Experts, however, are of the opinion that RBI’s monetary policy committee (MPC) may change the policy stance from 'accommodative' to 'neutral' and tinker with the reverse-repo rate as part of the liquidity normalisation process.

The MPC has been mandated by the government to keep the inflation in the range of 2-6 percent.

Capex-driven, growth-oriented Budget sets narrative for FY23, the year of normalisation, says Sampath Reddy of Bajaj Allianz

9. February 2022 Sandeep Stock Market Research (0)

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The equity markets have cheered the Budget with it being growth-oriented, however, the bond markets have seen some hardening in yields due to the higher-than-expected fiscal deficit and government borrowing

Capex-driven, growth-oriented Budget sets narrative for FY23, the year of normalisation, says Sampath Reddy of Bajaj Allianz

Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life

This is a capex-oriented Budget with great emphasis on promoting domestic manufacturing and building infrastructure and also expanding the new-age digital and technology sectors.

The government has significantly increased the capital expenditure Budget to Rs 7.5 lakh crore in FY23 while keeping the fiscal deficit target to 6.4 percent of GDP, which will support the economy over a longer period and also encourage private investments.

Focus on capital expenditure: The Centre's capex spending is expected to increase by 41.4 percent YoY in FY22RE (revised estimate) to Rs 6.02 lakh crore against 27 percent YoY increase seen in FY21. Even in FY23, capex is expected to further increase by 24.5 percent.

This year's Budget has focused on improving the investment demand, through enhanced public spending on infra which would crowd in private investment. On the other hand, revenue spending growth is expected to ease, noting only 2.7 percent increase in FY22RE to Rs 31.7 lakh crore compared with 31.2 percent increase in FY21.

Even in FY23, revenue spending is estimated to increase by only 0.9 percent. Hence, consumption demand would still be a laggard in FY23.

Higher than estimated FY22 fiscal deficit: The revised fiscal deficit target for FY22 is now at 6.9 percent, higher than the budgeted estimate of 6.8 percent. This is mainly owing to higher than projected for both revenue spending and capex. Government has increased the revenue and capex expenditure upwards by Rs 2.4 lakh crore and Rs 0.5 lakh crore respectively in FY22 revised estimates.

Robust revenue collections, supported by rebound in economic activity have allowed fiscal slippage to be minimal. Centre's tax revenues are expected to rise by 23.8 percent in FY22RE to Rs 17.7 lakh crore from budgeted estimate of Rs 15.5 lakh crore. Non-tax revenues are also expected to overshoot the BE by Rs 70,000 crore, while capital receipts are estimated to miss the target by Rs 88,000 crore.

Due to lower than anticipated disinvestment proceeds. Hence, total receipts are expected to come in Rs 2.0 lakh crore higher than the BE at Rs 21.8 lakh crore. Fiscal deficit target for FY23 (BE - budgeted estimates) at 6.4 percent is higher than market expectations (6-6.25 percent).

Higher fiscal deficit to put pressure on yield: In FY23BE, gross borrowing is estimated at Rs 14.3 lakh crore against Rs 10.47 lakh crore in FY22RE. Even repayments are likely to be higher at Rs 3.2 lakh crore compared to Rs 2.7 lakh crore in FY22RE. Thus, net borrowing amounts to Rs 11.19 lakh crore, far higher compared to Rs 7.76 lakh crore in FY22RE. Interest cost is also likely to be elevated at Rs 9.4 lakh crore in FY23BE against Rs 8.14 lakh crore in FY22RE. Hence, the growing debt burden and expansive borrowing program will put pressure on yields.

Taxation:(a) There has not been much change in personal income tax slabs and rates and also corporate tax rates. The surcharge on LTCGs (long term capital gains) for all of the assets has been streamlined at 15 percent.(b) Tax incentives initiated in 2019 for new manufacturing units at 15 percent rate has been extended by one more year. The tax incentives for the startup ecosystem has been extended by one year. This would further help in boosting domestic manufacturing and startup ecosystem.

(c) Scheme for taxation of Virtual Digital Asset: 30 percent (No deduction of expenses & set off available except for cost of acquisition). This will harmonize the trading of the digital assets.

Other key measures and figures announced in Budget:(a) Divestment target kept at Rs 65,000 crore for FY23 versus Rs 1.75 lakh crore for FY22 (BE) and Rs 78,000 crore for FY22 (RE). The divestment targets now appear realistic given the privatization pipeline.(b) Emergency Credit Line Guarantee Scheme (ECLGS) has been extended to March 2023 to provide much-needed additional credit to more than 130 lakh MSMEs. There has been additional amount of Rs. 50,000 Cr. earmarked exclusively for the hospitality and related enterprises which are severely hit due to the lockdowns. This will help the flow of credit to MSME sector and also banking sector in healthy assets loan growth.

(c) PLI:- Production linked incentive scheme, which has been a good success in boosting manufacturing gets further impetus through additional allocation of Rs19,500cr specifically targeted for solar modules manufacturing.

The equity markets have cheered the budget with it being growth-oriented, however, the bond markets have seen some hardening in yields due to the higher-than-expected fiscal deficit and government borrowing. The market will soon digest the budget and move on to fundamental factors and global cues. Corporate earnings in Q3FY22 have been in line with the expectations and is expected to see moderate growth in FY22. Even though market valuations are elevated, the recovery in corporate earnings and the easy liquidity scenario globally may help to support valuations for some time.

Overall, FY23 will be the year of normalisation (from the COVID-19 pandemic) and will set the stage for acceleration in future growth.

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