PLI scheme to JJM to ARC, Budget 2021 going all out for growth says HDFC Securities

HDFC Securities highlights that FY22 budget had a clear and decisive agenda, reviving and driving economic growth. It belied all fears with no additional significant direct or indirect tax measures, which came as a positive surprise and a much-needed relief, which would improve sentiment and boost growth. Unlike typical budgets, there were no hidden additional taxes, which usually tempers down the initial euphoria. Tax collections and divestment targets also seem to be more realistic and achievable.

Fiscal prudence, which was the underlying tone in previous budgets, took a complete backseat with fiscal deficit targets and glide path being relaxed substantially. 10-year bond yields spiked 15 bps to 6.06%. While Revenue Expenditure for FY21 fiscal deficit (at 9.5%) overshot Budgeted Expenditure by 570bps, FY22 fiscal deficit has been pegged at 6.8%, higher than estimates. Capital expenditure budget is up 34% YoY with higher outlays for healthcare and infrastructure sector while revenue expenditure has been kept under check with lower planned subsidy.

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Budget 2021 built further on the government's directive of infrastructure/manufacturing-led economic revival envisaged under the ‘Atma Nirbhar Bharat’ development model.

Salient features include:

1) Introduction of a bill to set up a financial institution providing Rs 20 bn crore to launch the National Asset Monetisation Pipeline for funding new infra projects
2) PLI scheme across 13 sectors (announced earlier) with planned expenditure of Rs. 1.97 trn, over 5 years starting FY22
3) Proposal of a mega-investment textile park to be launched along with 7 more textile parks over the next 3 years.

Improving quality of life (providing health, food, and affordable housing) remains a key priority for the government.

Two new schemes with significant outlays were announced in the budget viz:

1) PM Atma Nirbhar Swasth Bharat Yojna with an outlay of Rs 64 bn over the next six years
2) Jal Jeevan Mission (Urban) with an outlay of Rs 2.87 trn over the next 5 years.

The Banking and Insurance sector also got a fillip.

Key features include:

1) Plans of setting up a new asset reconstruction company (ARC) and asset management company (AMC) as part of a strategy to clean up banks’ balance sheets

2) Government will look to privatise two public sector banks, along with IDBI Bank

3) Increasing permissible limit of FDI from 49% to 74% in Insurance sector.

Fiscal deficit estimate rests on credible assumptions i.e.

(i) 15% YoY higher revenue receipts, in line with nominal GDP growth forecasts, led by 22% YoY growth in direct tax and GST
(ii) Divestment target at Rs 1.75 trn (17% lower than FY21BE), led by LIC IPO, Air India, BPCL and other strategic sales.

Total expenditure is expected to rise by 1% YoY with 19% jump in industrials/infra while agri+allied is expected to decline by 5% YoY due to a sharp increase in FY21RE. Defence expenditure is budgeted to rise by 4.8% YoY; more encouraging is the fact that the share of Capex spending is budgeted to rise to 15.9% of total, up 300bps YoY.

The glide path also clearly highlights growth priority; implying expansionary policy would persist in the medium term as fiscal deficit is expected to fall below 4.5% only by FY26.

Key winners: Infrastructure, Industrials, Banks, Insurance, Cigarettes