Ahead of Budget 2022, Zee Business exclusively spoke to Exide Life Insurance’s Chief Investment Officer Shyamsunder Bhat to know the expectations from the upcoming Union Budget, which is scheduled to be presented on February 1 by finance minister Nirmala Sitharaman in Parliament.

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Below are the views of Exide Life Insurance’s CIO Bhat

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The Union Budget for 2022-23 is now only a few days away, and as has become customary, we are witnessing expectations (rather demands!) from various industry associations, corporates and individuals.

We saw a strong tone set in the Budget for 2021-22, in terms of a focus on growth for the next few years and laying out a more gradual path for a reduction in fiscal deficit than proposed earlier. In other words, a willingness to fund growth through higher borrowings rather than higher taxes.

This development was a big positive trigger for the equity market last year.  Hopefully, we see a consistency in policies and a further step forward in solidifying India’s position as an economy with among the highest growth rates.

True, the current year has a base effect and therefore a higher real GDP  (Gross Domestic Product) growth (expected at over 9 per cent), and the next year’s growth will be a shade lower but likely to be a healthy figure nevertheless (expectations for FY22-23 are in the region of over 7.5 per cent real GDP growth).

The present financial year has seen robust tax revenues, higher than anticipated, which should help in possibly a lower fiscal deficit than the targeted 6.8%, despite the delay in disinvestment revenues thus far, and we could see some reduction in fiscal deficit target to just over 6 per cent of GDP for FY 22-23 in this Budget, to demonstrate a directional move to the revised target of 4.5% of GDP by Fy 25-26.

Monetary policy has played its part over almost 2 years now, and therefore the importance of fiscal policy in shaping India’s growth over the next 2 years, is paramount.

There is a need to drive consumption. In the last couple of months of the current financial year, the Govt may be having some leeway to push infrastructure capex, which will have a positive rub-off on the demand for labour, cement, steel, commercial vehicles, etc.

This needs to be further bolstered for FY22-23 in the Budget, which would be positive again, for these sectors. A higher credit growth, and lower provisioning requirement, is expected to favour the financials sector (a sector which has been a laggard in the recent market upmove, and therefore where valuations too, are reasonable).

Private consumption too, could need a push, particularly in light of the consumer sentiment as well as inflation. There are increasing demands for increasing standard deduction and the exemption limit for medical insurance premium, reflective of higher technology and communication costs from working from home during the pandemic, and the rising cost of medical treatment.

However, since we have two tax regimes now, the Govt may have to tweak the new tax regime and include some exemptions in this new regime as well (not just to make it more attractive for assesses to shift, but also to maintain consistency and parity for those who have shifted to the new tax regime).

This will also help in sending out a message that assesses are not losing out on future tax concessions in the old tax regime by shifting to the new one now. It will also help to have clarity on the interest on employee PF contributions exceeding Rs 2,50,000 (introduced last year), in terms of whether it should be taxed on an annual basis as per accruals or whether it should be taxed at the time of withdrawal.

With the imminent IPO (Initial Public Offer) of LIC making waves, not just in terms of the likely huge size of the IPO even for possibly divestment of just 5 per cent of the stake, but also in terms of the likely surge in demat accounts as lakhs of policyholders are introduced to the equity market, with the proposed reservation (and possibly discount) in the LIC IPO.

The disinvestment target for Fy22-23, and the likely disinvestment figure which the Govt would now achieve in FY21-22, would indicate the timeline for the initial IPO(and the possible follow-on stake sale) in LIC, given the sheer size of the same.

Apart from the Govt borrowing figures, fixed income markets may be looking for  a potential clarity on how capital gains tax on Indian sovereign securities would be treated for overseas investors, as this is considered to be one of the important aspects to be addressed in the roadmap to the inclusion in global bond indices which is expected during Fy22-23.

Higher crude prices, stubborn inflation and rising interest rates are concern areas for the Govt. The adverse impact on the SME sectors and the lower income group population, and upcoming important State elections, could also influence some of the Budgetary proposals on taxation and allocations.

We could see a substantial increase in the allocation for MGNREGA, to address the issue of rural employment, and this could revive rural consumption (an important factor for the FMCG sector). We could see an update on, or increase in outlay for PLI schemes for various sectors, to boost our manufacturing sector as well as provide employment for labour.

A spillover of PSU disinvestments to the next financial year (and possibly the absence of a requirement for free foodgrain distribution) could create space for a larger capital spend and spend towards job creation.

A balance between populist and growth measures in the forthcoming Budget will indeed bode well!