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Budget 2021 Live: “We Spent, We Spent, We Spent,” Says The Finance Minister
What can India Inc. takeaway from #Budget2021? @FollowCII President and @KotakBankLtd's MD and CEO @udaykotak speaks with @menakadoshi. #BQLive https://t.co/6cnqPdqOfz
— BloombergQuint (@BloombergQuint) February 1, 2021
The Bank Nifty-led uptick in markets today shows just how strongly investors believe it the budget is positive for banks and NBFCs. Jefferies says the budget stimulates growth/ capex, even if expansionary in nature and that is positive for banks, and the focus is on recap of PSU banks, resolution of stress/privatisation of PSUs as well as set-up of capex-financing vehicle, the timely execution of which is the key. It it not everyday that you see that the Bank Nifty gain 8%, its best performance since April 2020.
The Sensex thus got buoyed up by 5% points, the best budget day gains since 1997. Autos, metals and other high beta have bounced alongwith banks, with defensives like IT and Pharma sulking in trade. While the benchmarks did well, the broader markets did well too, with the top 10 gainers on the Nifty 500 clocking in double digit gains, and the space again being dominated by financials there. While there were individual losers like stainless steel companies, the larger picture is of a growth-focused budget, one which can help in the recovery in 2021.
The government has pegged the FY22 fiscal deficit at 6.5% of GDP or Rs 15.06 lakh crore. But market borrowings at about Rs 12 lakh crore.
How? For one, there is a big increase in the reliance on the National Small Savings Fund.
By Niraj Shah
Equity markets spiked as soon as the FM speech ended. Phew! No bad news, was probably the sentiment.
The reading also is that there are several measures to simplify business challenges, including changes to administration of direct taxes while increasing compliance. The biggest positive seems to be that there are no negatives like taxes on the ultra-rich, no Covid cess or any tinkering with long term capital gains tax.
So you got a budget with no bad news, ease of doing business and a focus on growth. With that, an index which has corrected 6.5% over the last ten days, is shooting up on a day when the rest of world is also rising.
By Menaka Doshi
Just under 2 hours. So that was quicker than what most of us had expected.
No big tax changes announced in the speech.
Not clear on fiscal glide path yet (see post below).
Waiting for budget documents.
Taking a break for a bit.
By Niraj Shah
Why are markets not as enthused as they could be after a growth-focused budget?
The budget has all the right noises around spending on infrastructure, lots of capex plans and enough on divestment, even though the target is a bit lower than last year.
The Indices were up 1% when the speech started and are 1.5% higher now. Under normal circumstances, the market may have rewarded a budget like this with more gains. But the key to note is that the deficit numbers are higher than expected. The FM has said that there will be Rs 80,000 crore of borrowing in the remainder of FY21. Are markets worried about FY22?
By Menaka Doshi
The numbers so far...
FY21: Gross expenditure now seen at Rs 34.5 lakh crore
FY21: Capital expenditure at Rs 4.39 lakh crore
FY21: Fiscal deficit seen at 9.5% of GDP
FY21: Additional Rs 80,000 borrowing
FY22: Gross expenditure seen at Rs 34.83 lakh crore
FY22: Capital expenditure seen at Rs 5.54 lakh crore
FY22: Fiscal deficit seen at 6.8% of GDP
FY22: Market borrowing seen at Rs 12 lakh crore
Ira, any word on how she’ll get from 9.5% to 6.8%?
Menaka, awaiting documents but there will be three components. First, the benefit of a stronger denominator because of better nominal growth. Second, total revenue will get some boost from automatic stablisers from better tax revenue (unless they cut excise duty on fuel products). Third, compared to last year, they will hope (yes, hope) for better divestment revenue.
Reduce time limit for reopening of tax assessments to 3 years: FM Sitharaman#Budget2021
— BloombergQuint (@BloombergQuint) February 1, 2021
Watch Live: https://t.co/qwQtnBa5l4
Live Blog: https://t.co/lQeTj4rtFU pic.twitter.com/EhgWk3WcNh
By Niraj Shah
- If a large part of the Rs 1.15 lk crore for Railways is towards capex, it will have a positive impact on companies engaged in the space. Add to that, the Indian Railways national rail plan for India to prepare a future-ready railway system by 2030 seems to be a plan which will keep capex engaged in the years to come.
All this should be beneficial for all companies in this space, like KEC International, Kalpataru Power and Larsen & Toubro.
By Ira Dugal
Bloomberg’s news break of the government’s fiscal position has been confirmed. This is what the fiscal numbers look like:
(Aside: As an attempt to bring transparency, the Food Corporation’s borrowings from the National Small Savings Funds will be stopped)
Air-India privatisation will be completed in 2021-22 since it could not be completed in 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, 2019-20 and of course 2020-21#Budget2021
— Govindraj Ethiraj (@govindethiraj) February 1, 2021
By Ira Dugal
Finance Minister Nirmala Sitharaman has said that the government will look to privatise two public sector banks, along with IDBI Bank. The latter is known. The former is interesting. Is this the beginning to bank privatisation to reverse the bank nationalisation announced 51 years ago?
No details on which banks will be privatised has been shared. An amendment of the Bank Nationalisation Act will needed.
Aside: The government has also said that an asset management company will be set up for stressed asset management. Again, no detail on whether this is a government backed AMC. Remember, you can only call it a ‘bad bank’ if it is government backed. Else its only another ARC.
By Sajeet Manghat
Amendment To Insurance Act to allow FDI from 49% to 74%, allow foreign ownership with safeguards.
This is a game changer - it allows Indian promoters who are cash strapped to bring in new capital from foreign partners.
By Niraj Shah
- FDI in insurance increased from 49% to 74%, but unlikely that the large players will invite FDI to that extent, so no impact on large listed insurers.
- Setting up of the DFI is a good idea, as lenders would be wary and infrastructure is a best way to get investments to yield results; should benefit select companies.
- Mega Investment parks in textiles are a good idea, but over three years are more motherhood statements. Doubt textile stocks will have sustainable gains due to this.
By Ira Dugal
The 10-year bond yield has surged to 5.97% from 5.89% ahead of the budget announcement.
The Bloomberg News report of a 6.8% fiscal deficit for FY22 is a big negative surprise. RBI will need to ensure continued support to bonds at that level of government borrowing.
The silver lining -- the wider fiscal deficit is coming with a material jump in expenditure as a % of GDP. Total expenditure of about Rs 35 lakh crore should be about 15.8% of GDP, with an assumption of 15% nominal GDP growth in FY22. Awaiting budget document for exact nominal GDP growth projection.
Infrastructure Asset Recycling With Public Trust
By Ira Dugal
Bloomberg News reports that the FY22 fiscal deficit has been pegged at 6.8% of GDP. That is much higher than the consensus estimate of 5.6% of GDP. Negative surprise for bonds as supply of government paper will rise.
The FY21 fiscal deficit has also ended much higher than expected at 9.5% of GDP.
By Ira Dugal
The least surprising of budget announcements is in.
The government will set up a Development Finance Institution or DFI. The initial capital allocation of Rs 20,000 crore is lower than the Rs. 1 lakh crore number doing the rounds in whisper circles.
Over a three year period, this DFI will aim to lend Rs 5 lakh crore to the infrastructure sector, the Finance Minister said.
The DFI is part of a three pronged plan to increase investment in the economy -- a DFI, asset monetisation and higher capital expenditure will be used to achieve this.
By Menaka Doshi
Well begun. FM focused the first, most important minutes of her speech on the most important issue of the day - health.
Atmanirbhar Swastha Bharat Yojana to Urban Swachch Bharat 2.0 - promises fairly comprehensive coverage of health infrastructure, sanitation and waste measures and reducing pollution via a voluntary vehicle scrapping plan.
Total cost: Rs 2,23,846 crore
Early in her speech the Finance Minister invoked the Indian cricket team’s spectacular win at Gabba.
Reminded me of a super line in one of the post-win articles: ‘India rode their luck, but it was luck of their own making.’
The choice of poetry this year is Rabindranath Tagore. “Faith is the bird that feels the light when the dawn is still dark.”
We're keeping the faith Madam Finance Minister...at least for the next two hours.
#Budget2021
— Ira Dugal (@dugalira) February 1, 2021
We’re kicking off our budget blog....with a brawl! LTCG / personal income - where should the government give tax relief?
Follow the BQ Editors blog. @menakadoshi @_nirajshah @sajeetkmhttps://t.co/AOMYlp69oE pic.twitter.com/iJpgkQcu68
Budget 2021: The Case For Taxing Stock Market Gains Of Billionaires
Gross Tax Revenue (Rs crore)
FY20 BE: 24,61,194
FY20 RE: 21,63,423
FY20 Actual*: 20,09,882
Net Tax Revenue (Rs crore)
FY20 BE: 16,49,582
FY20 RE: 15,04,587
FY20 Actual*: 13,55,886
Gross Tax Revenue (Rs crore)
FY21 BE: 24,23,020
Till December: 13,38,126 (55%)
Net Tax Revenue (Rs crore)
FY21 BE: 16,35,909
Till December: 9,62,399 (59%)
By Ira Dugal
Expectations ahead of the budget have reached a crescendo. Meeting those expectations will be a challenge even if the government does a reasonably good job with the budget.
We're expecting the government to present a budget which shows consolidation in the headline fiscal deficit, while keeping government spending support going. Yes, they can do both. The 15.4% nominal GDP growth being projected in FY22 by the Economic Survey, will mean the government can budget for a similar 15-16% growth in gross tax revenue. That, plus an aspirational divestment target will mean they can show good growth in expenditure while bringing down the deficit. The government would do well to keep the divestment target within an achievable range.
Read: Government May Have To Continue With Expansionary Fiscal Stance
Will the government get some outside support from the Fifteenth Finance Commission in the form a fiscal deficit range? We'll watch for that.
Aside from the headline numbers, a do-no-harm budget would actually be great news.
Announce the intention to set up a development finance institution, a roadmap on privatisation (not just divestment), step-up health spending and ensure the rural jobs guarantee scheme is well funded. Finally, use the opportunity of a forced fiscal reset to make the Union budget cleaner and more transparent.
That, to our mind, would make for a good-enough budget, even if not a historic one.
A quick hi from Menaka, Ira, Niraj and Sajeet.
This year we’re going to live blog the FM’s budget speech. So expect sharp news analysis, quick takes on the policy direction, some editorial banter, candid photos and the occasional confusion as we try and decode the post-pandemic economic policy of the Modi government.
To get ready for the Budget 2021 speech read this and then follow this blog. Simple.
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