Before reading this post pls, read my post on Budget Budget 2020-21: Longest budget in history, But where is Growth?
My first reaction after reading the budget was, ” We need a consumption boost, and our FM gave us an infrastructure boost.” But unfortunately, this Budget doesn’t seem to solve the problem of poverty.
MNREGA dovetailed to Fodder farms. A good move. Still, Out of budget speech shows that Expenditure on MNREGA reduced ( 61500 cr) when it was potentially one of the fantastic moves to increase the income of rural India. One missed opportunity
Before the budget, I listened to Sanjay Pugalia Ji from The quint. He said that PM Narendra Modi is taking an interest in budget making. So he made meetings with industrialists. So this budget may come out as a Budget with a Big bang reform budget. But nothing happened.
I was listening to many government supporters after the budget. They mentioned that this budget is a disappointment. And why not.
NBFC Sector was in complete distress. DHFL, IL&FS, and Reliance ADAG group are in dire death. Yes, Bank urgently needs capital. Many PSUs also need, but there is nothing for them, and they were told to go to the capital market to raise money—a big disappointment.
Opening Education for FDI and ECB may be a great movie, but I am cautious as it can show anywhere between positive and harmful activities.
The infrastructure pipeline is not something new. It was also part of the presentation in which The then FM Arun Jaitley declared 2.11 lakh crore bank recapitalization, but it was small. So Nirmala Sitharaman increased the size of it. It has increased the allocation to 5 lack crore. Made this deal a little sweet with a Special tax reduction for Sovereign wealth Funds.
One very unexpected and much welcome move was the divestment of the remaining stake of the Government in IDBI bank. So now the government is accepting it as a private bank. So in my language, the Government is ready to run 12 banks with better management than running 21 banks having multiple issues.
Another unexpected move was the Divestment of LIC. I don’t know what others are thinking, but I believe that the size of LIC is humongous. As per the report, LIC has an insurance business and Invested in stock and bonds, a total worth 50+ lack crore. So at what price, Government is going to divest it? The biggest challenge is the corporate structure of LIC is not a company. So First, they need to change it, it will take time, and I can say that a large part of the divestment target is assumed to come from LIC.
The definition of NRIs changed and was not mentioned in the Budget speech. Before, if you lived in India for 180 days or more, you were Indian. Now, if you need to be in India for more than 120 days, less than 120 days, you will be an NRI.
DDT, AKA Dividend Distribution Tax, is now abolished. Excellent move as this will be good for minority shareholders, but it may be bad for promoters and Foreign investors. FM mentions remedial actions for holding companies. What about Mutual Funds and insurance companies? They are also sufficiently big players. At the same point, I wanted to add that why not abolish the Tax on buyback?
The government also tried heavy on one thing, which is the deepening of the bond market—a very welcome move. Permitting NRIs to invest more is one of the many steps needed.
One significant interpretation of the budget is that the government is not accepting that there is a slowdown in the economy. Even if assuming, It is not a priority for them. The mining, manufacturing, and real estate sector does not receive large boose. There are some tax reductions for Homebuyers but not for the industry itself. I am saying this because they are the sectors making employment opportunities.
The limit of insured deposits increased to 5 is a welcome move, and I believe this covers a sufficiently large public. But as Arundhati Bhattacharya, Former MD of SBI, mentioned, this will increase the insurance cost of banks as now the premium supposed to be paid will also be grown in that amount.
Ridham Desai from Morgan Stanley, one of the most prominent institutions investing in India, said this is disappointed. LTCG was supposed to go when we needed risk capital. The government needed to put some money in the hands of Farmers. This budget was neither 1992 nor 1997. It was just one another budget. He also thinks that the growth cycle is turning, and the move in oil price may give one more opportunity for the government to do some more things. Although, as a head of Morgan Stanley, he is more aware of it than I am, I agreed that the $2.1 trillion that went to the corporate sector somehow pushed corporate investment.
Udayan Mukherjee, the economic editor of moneycontrol.com, was also disappointed with the budget for the same reason, failed to see the stimulus for the economy. He highlighted that Agriculture and irrigation are part of the budget, coming down to 2.83 from 2.9 lk crore of budget allocation. So, no, no push for rural consumption is shocking.
